News

Forming a Corporation in Pennsylvania

May 25, 2023

By Angela M. Harrod, Esquire

Incorporating a business can be highly beneficial. Shareholders, who are owners of corporations, enjoy limited liability protection. This means that the owners are not personally responsible for the corporation’s debts and liabilities. Corporations can also enjoy a number of tax advantages. For instance, corporate income is not subject to social security, workers compensation, and Medicare taxes. Ownership in the corporation can usually be transferred easily and corporations can endure beyond the lifespan of their owners.

All of these advantages, among others, lead many to incorporate their businesses. There are various steps that are required, however, to incorporate a business and gain these benefits.

A corporation must choose a name for itself that is distinguishable from other names in the Pennsylvania Department of State’s records, and the name must include the word “corporation,” “company,” “incorporated,” or “limited.” Alternatively, the name may include an abbreviation of one of the aforementioned words.

Under the law of the Commonwealth, corporations must maintain a registered address where courts can personally serve documents. Once a location has been chosen for the corporation’s registered address, the founders of the corporation must draft and file articles of incorporation. Some important information that corporations include in their articles of incorporation is the number of shares the corporation may issue, and whether or not such shares will be divided into classes with different allowances. For instance, some shares may be redeemable, and some may have preference over other classes. When a corporation has more than one class or series of shares, the articles of incorporation can state the designations, preferences, limitations, and relative rights, including voting rights, of each class or series.

Articles of incorporation must list the name of the corporation, the address of the corporation’s registered office, and a statement that the corporation is incorporated under the Business Corporation Law of 1988. Additionally, the articles of incorporation must list the names of the incorporators, the term of the corporation (if its existence is limited in time), and the number of shares the corporation can issue. The articles of incorporation then must be filed with the state.

Shareholders are the owners of the company, but they are not necessarily members of the corporation’s board of directors. Incorporating businesses must choose the number and identities of board members. Board members are often the individuals who manage the corporation’s affairs. The names of the initial board members are sometimes listed in the articles of incorporation, but they do not need to be. The founders of the business can also elect the initial directors. Board members also must be natural persons, though they need not live in Pennsylvania.

The incorporators or initial members of the board of directors must hold an organization meeting with at least five days’ advance notice of the time and place of the meeting to adopt bylaws and elect directors if they are not already named in the articles of incorporation. The bylaws are adopted by either the board of directors or the shareholders. These bylaws control the management of the corporation, including the time and place of meetings, the method of calling, conducting, and giving notice of meetings, board of directors requirements, how directors on the board are elected, the duties of officers, whether or not officers are indemnified, when and how dividends are paid, how annual reports and financial statements should be made to the shareholders, the manner of using proxies, quorum requirements, and the ways in which directors and officers can be removed from their positions. In accordance with the bylaws, the board must elect individuals into at the minimum the following roles: president, secretary, and treasurer.

To fully take advantage of the tax benefits of corporations, the corporation must obtain an Employer Identification Number from the Internal Revenue Service (IRS). Corporations with employees in Pennsylvania must register with the Pennsylvania Department of Labor and Industry. Additionally, businesses selling goods or other taxable services to customers in Pennsylvania must register with the Pennsylvania Department of Revenue by filing Form PA-100 online.

To maintain corporate status, corporations must follow annual record-keeping tasks, including documenting annual meetings of directors and shareholders and issuing shares of stock to the owners. It is important that the business is properly incorporated and maintained to allow each owner’s personal assets to be protected from any company losses. For assistance properly incorporating or maintaining your business, contact us online or call (412) 338-1100.