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Owning a business is not always easy, but it can be rewarding. While a successful business is often a pathway to financial freedom, it’s not without risks. One of the most significant risks you may face as a business owner is the potential of being held liable if something goes wrong.

Fortunately, forming a Pennsylvania S Corporation (S Corp) could help reduce this risk. And don’t worry if you’re not sure where to start. Our services can help you form your corporation or LLC in the Keystone State in minutes.

What is an S Corporation?

An S Corporation in Pennsylvania is not a separate type of entity but a tax classification. A regular C Corporation pays income taxes at the corporate level. When a C Corporation passes profits to the shareholders in a dividend, they will also pay taxes on the amount they receive.

This can create a situation where the corporation’s profits are taxed twice, once for the corporation and once for the shareholders. An S Corporation, on the other hand, is a pass-through entity. A Pennsylvania S Corporation’s income is passed directly to its owners for tax purposes. This, in turn, should eliminate double taxation concerns, as income is taxed only at one level.

Forming a Pennsylvania S Corporation

Pennsylvania S Corporations work a little differently than other entities. You cannot form the S Corp outright. Instead, you will need to convert either a corporation or an LLC to an S Corp. So the first step in forming an S Corp is starting with a standard corporation or an LLC.

Step 1: Choose a Name

Pennsylvania S Corporation can have almost any name. The two main rules are that the name can’t be the same as an existing entity, and it must be some variation of “limited liability company” for an LLC or a variation of “corporation,” “incorporated,” or “company” for a corporation.

Step 2: Appoint a Registered Agent

You will need a registered agent for your business. A registered agent is a person or organization assigned to receive official notices and legal documents on behalf of an entity. Registered agents do not have any control over the entity.

Step 3: Elect Directors or Managers

For an LLC, you will need managers. In a corporation, you must appoint directors. Directors can be related to the entity or unrelated, or a mix of both. LLCs can choose to have their members serve in these roles or hire someone to do so for them.

Step 4: File Articles of Incorporation or Certificate of Organization 

You must file a Certificate of Organization if you’re forming an LLC. To form a corporation, you must file Articles of Incorporation. We can handle this part for you.

Step 5: File Form 2553 to Turn Business into an S Corporation

To convert your business into an S corporation, you must complete IRS Form 2553. An LLC may have to file IRS Form 8832 first to elect to be taxed as a corporation. For conversions to be recognized for the current tax year they need to take place within the first two months of the current tax year. If you file Form 2553 after the initial two months, the conversion won’t take place until the next tax year.

What to Know Before Creating an S Corporation in Pennsylvania 

By default, when you form a corporation in Pennsylvania, it will be a C Corporation. To convert your entity to a Pennsylvania S Corp, you will need to meet the following requirements:

If your entity meets the above Pennsylvania S Corporation filing requirements, you may be able to file Form 2553. Timing matters when it comes to making your conversion. If you file Form 2553 within the first two months of the tax year, you may be able to convert the entity that same year. However, if you file the form after, the conversion will not go into effect until the following tax year.

Can LLCs Choose an S Corporation Election?

Absolutely! An LLC can make an S Corporation election, assuming it meets the above criteria. Most LLCs that make the S Corporation election do it for tax purposes. LLCs and sole proprietorship owners will usually pay self-employment taxes on net earnings. Owners of an S Corporation who pay themselves a reasonable salary may not have to pay self-employment taxes.

The key is that the wage must fit the job. Paying yourself a nominal wage may not cut it. You will still need to make standard withholdings as you would with other employees. You can learn more about LLC taxes on our Tax Information for Limited Liability Companies page.

Pros and Cons of Creating a Pennsylvania S Corporation

A Pennsylvania S Corp can be a great entity for many business owners. You should first consider some pros and cons before deciding on an S Corp classification.

Pros

Some pros of having an S Corp designation include:

Cons

An S Corp is not always the best solution for every business. Some disadvantages are:

Whether you choose an S Corp is dependent on the needs of you and your company.

We can help

Whether you’re looking to form a corporation or an LLC in Pennsylvania, we can help you get your business off the ground. Once your entity is formed, we’ll help you convert it to a Pennsylvania S Corp. We can help you keep your business running smoothly with business plan services, worry-free compliance, and obtaining an EIN. Whether you’re in Erie or Philadelphia, talk to us today about starting your business! 

Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Pennsylvania S Corp FAQs

  • What are the benefits of creating an S Corporation in Pennsylvania?

    Limited liability and pass-through taxation are the two most significant advantages of an S Corp.

  • Should I identify my LLC as an S Corporation?

    There is no need to identify your LLC as an S Corp in its name. Provided that you are following the Pennsylvania naming restrictions regarding the use of “LLC” or “limited liability company,” you do not need to go any further than that.

    Instead, you identify your LLC as an S Corporation by filing the proper documents and tax returns at the state and federal levels.

  • How should I choose a name for my Pennsylvania S Corp?

    You can choose almost any name you want when you form an entity with our formation services.

  • How should I calculate taxes for my S Corporation? 

    The best way to calculate taxes for your S Corporation depends on the characteristics of your business. Speak to a tax professional about what options are best and most appropriate for your circumstances.

Pennsylvania Business Resources

How to File an S Corp in Your State

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