Doing Business in PA: Laws & Regulations You Must Keep in Mind

How To Register For a Business License + Ongoing Compliance

The type of legal entity under which you choose to structure your business could impose registration and compliance requirements. Most business operations must register with the Pennsylvania Bureau of Corporations and Charitable Organizations by taking these steps:

• File Articles of Incorporation (for a corporation), Certificate of Organization (for an LLC), or Statement of Registration (for a limited liability partnership)
• Appoint a registered agent for your business
• Pay the necessary filing fees
• Obtain a tax identification number from the Pennsylvania Department of Revenue

Moving forward, you should be mindful of these and similar duties:

• Filing an annual report
• Complying with any continuing education or other requirements
• Keeping your business plan, as well as specific licenses and permits, updated
• Updating your registration information as necessary

In State Board of Undertakers v. Frankenfield, 329 Pa. 440 (1938), the Supreme Court of Pennsylvania distinguished between the act of forming a corporation and the separate requirement of obtaining a professional license to conduct a regulated business. 

PA Business Tax Filing

Taxes are one area that businesses can get wrong for many years, only to be penalized severely by state or federal taxing authorities. Your tax obligation will vary based not only on such factors as the amount of business income you bring in, but also on which type of legal structure (e.g., corporation versus limited liability company) you have.

To operate legally, a business must do the following to ensure compliance with the Pennsylvania Department of Revenue and the Internal Revenue Service (IRS):

• Register for a Federal Employer Identification Number (EIN) with the IRS.
• If your business sells taxable goods or services, collect and remit the appropriate sales tax.
• Withhold and remit taxes on employees at the appropriate rates for state and federal income taxes.
• Pay unemployment taxes for employees.
• File federal and state income tax returns and pay corporate or other taxes based on your legal entity.

Failure to abide by federal and state tax laws can be a costly mistake. You should make sure you know which taxes apply to your business. Then hire an efficient and knowledgeable bookkeeper or accountant to manage your federal and state tax obligations throughout the year.

In, Commonwealth v. Marco Elec. Mfg. Corp., 41 Pa. Commw. 298 (1979), The appellant, Marco Electric Manufacturing Corporation, withheld Pennsylvania income tax from its employees’ wages during 1971 and 1974 but failed to pay the funds over to the Commonwealth. The company retained the money in its own payroll account and issued the required W-2 statements to its employees, but the taxes were not remitted for over two years, until after the company itself requested an audit. The Department of Revenue assessed a 100 percent penalty under Section 352(e) of the Tax Reform Code of 1971 for the “wilful” failure to pay over the withheld tax.

The Commonwealth Court affirmed the penalty, despite acknowledging that no fraud was intended or involved. The court reasoned that while not every failure to remit is automatically willful, keeping withheld funds under the company’s complete control for more than two years met the statutory standard of a willful failure. A corporate officer testified that he knew federal payroll taxes were not being remitted and was so focused on that problem that he did not inquire about the status of the Pennsylvania taxes. The court found this demonstrated a willful, not merely negligent, failure to meet the company’s obligation as a trustee of the state’s funds, thus justifying the significant penalty. This case serves as a stark example of the consequences a business can face for failing to remit taxes withheld from its employees.

Dealing With Employment Law Issues

Pennsylvania employment laws are intended primarily to benefit employees by providing basic wage, safety, and other protections. The consequences of violating these rules and regulations are potentially severe and could lead to government investigations, lawsuits, and penalties. If you’re wondering how do small businesses succeed with employees, the team at AttorneyX can help ensure your business avoids penalties and complies with such requirements as:

• Wage and hour rules: Employers must know the relevant details of the federal Fair Labor Standards Act (FLSA) and the Pennsylvania Minimum Wage Act when hiring employees. These laws set the state and federal minimum wage, overtime, child labor, and record-keeping requirements.
• Workers’ compensation: Your new business must purchase workers’ compensation insurance to cover employees who get sick or injured while performing their job-related duties. It’s also important to understand how to process and respond to workers’ compensation claims.
• Anti-discrimination laws: Pennsylvania has implemented strong anti-discrimination protections for workers that are intended to prevent harassment and discrimination based on race, sex, religion, age, and other factors. Adopting and enforcing internal policies and procedures can minimize the risk of legal problems and avoid penalties in this area.
• Independent contractor rules: Many businesses exploit the independent contractor system to evade their employment law duties. Knowing who is and who is not an independent contractor can save your business considerable sums of money in fines and lawsuits.

In Staron v. Workers’ Comp. Appeal Bd. (Farrier), 121 A.3d 564 (Pa. Cmwlth. 2015), a painter (Claimant) worked for an employer for several days in exchange for payment. After the painter was injured on the job, the employer had him sign an “Independent Contractor Agreement”. The painter then filed for workers’ compensation benefits, and the central issue became whether he was an employee or an independent contractor.

The Commonwealth Court affirmed that the painter was an employee, holding that under the CWMA, an individual performing construction services is considered an independent contractor only if, among other requirements, “[t]he individual has a written contract to perform such services”. The court found the statute’s language to be “unambiguous”. Because no written contract existed at any point while the painter was working and before his injury, he could not be legally classified as an independent contractor. The agreement signed after the injury occurred was ineffective at changing his employment status retroactively. 

This case provides a clear illustration of how Pennsylvania’s Construction Workplace Misclassification Act (CWMA) is strictly applied and demonstrates the significant consequences for an employer who fails to properly classify a worker as an employee.

Negotiate Business Contracts. But, Effectively.

There are various rules surrounding the use and enforceability of business contracts. Every business structure, whether it’s a small business or a larger one, that has employees or works with other companies should consider executing contracts to govern their relationships with these parties. A properly drafted contract will include these features, among others:

• Clear identification of all parties to the agreement
• A statement of what is offered and accepted among the parties
• Consideration, which is the benefit that each party receives under the contract
• Mutual consent and willing agreement to be bound by the terms of the agreement
• Compliance with any requirements imposed under state or federal law

Some types of contracts are only enforceable provided they meet strict criteria. A noncompete agreement, for instance, must effectuate a legitimate business interest and be limited in scope. 

Preventing Personal Liability Through Proper Permits and Licenses

Depending on the type of business structure you have and the city in which it operates, you may need one or more permits or business licenses. Professionals, for instance, generally must have the proper licensing to conduct business. Some permits and business licenses are based on the type of goods or services that a company provides. You may need state or federal permissions to conduct your business.

An attorney can review the size, industry, and geographic location of your business, as well as the nature of the products and services you offer and your relationship with customers and clients. As a general matter, if your business involves any of the following goods or services, you will likely need a state or local, if not federal, permit or license:

• Alcohol
• Tobacco
• Firearms, ammunition, and explosives
• Gasoline
• Healthcare
• Insurance
• Gambling and lottery tickets
• Food and beverage
• Agriculture
• Fish and wildlife
• Construction and heavy industry
• Debt collection
• Securities
• Banking
• Any profession regulated by a state or federal board

PA Business Entity Zoning Restrictions

The area in which your business structure is zoned will also impact your ability to conduct certain business enterprises. These are some of the most commonly used zoning designations that Pennsylvania municipalities use:

• Residential: Single-family homes, townhomes, condominiums, apartments, duplexes, multi-family units.
• Commercial: Retail locations, office spaces, restaurants.
• Industrial: Manufacturing, warehousing, production facilities.
• Agricultural: Farms and other land that is set apart for agricultural purposes.
• Mixed-use: These combine the above and potentially other zoning features.

Developers especially need to be aware of these, but they are not the only companies that must be mindful of zoning rules. Successful businesses are properly zoned as legal businesses. The government could close your business if you are not zoned for the type of goods or services you sell.

Legal Requirements for Workplace Safety

Various laws and agencies at both the state and federal levels are responsible for ensuring that workers enjoy basic workplace safety protections. From the federal Occupational Safety and Health Administration (OSHA) to the Pennsylvania Department of Labor, regulators take their jobs seriously and will fine businesses that do not comply with the law.

These regulations are designed to:

• Prevent avoidable accidents, injuries, and illnesses
• Ensure proper training and handling of dangerous equipment
• Require workers to use appropriate protective gear
• Provide adequate ventilation, lighting, and sanitation standards
• Enforce workers’ compensation requirements

As with many of the other laws and regulations, the industry in which you work and the nature of your and your employees’ job duties could directly affect which workplace safety rules apply to you. We understand what both large and small business owners are required to do to ensure compliance and mitigate risk.

Pennsylvania Business Insurance Requirements + Recommendations

Certain types of insurance, such as workers’ compensation or health insurance coverage for employees, are required in Pennsylvania. With respect to health insurance, smaller companies (those with fewer than 50 employees) do not have to provide coverage. In other cases, the type of work your business does could impose additional insurance needs.

For example, if your business has company-owned vehicles, you will need liability insurance coverage. Other types of insurance may not be required, but they are strongly recommended for your business, like general liability protection insurance. If someone comes onto your property and gets injured, you will need this insurance to cover their medical bills and other losses.

Certain businesses should have malpractice insurance as well to protect them against claims of professional negligence.

What Are Environmental Laws and Regulations?

The way in which you store and dispose of garbage and other waste matter could impact environmental issues. So, too, could the materials that your business uses. Environmental rules, both state and federal, are in place to protect employees and the general public from harmful exposure to dangerous and toxic chemicals and substances.

While it’s a good idea for any business to speak with a lawyer about possible environmental impacts, some industries are more heavily regulated than others. These include businesses that work with:

• Medical supplies and waste
• Agriculture
• Manufacturing
• Transportation
• Waste disposal service
• Automotive
• Construction

Talk to a lawyer to learn the necessary licenses you will need to be compliant if you work in these industries.

How Do You Handle a Business Entity Dissolution?

You may believe that rules and regulations end when you and the other owners of your company decide to terminate the business. But the laws are written to prevent haphazard business dissolutions that could leave employees and others financially vulnerable. Before a business can cease its operations, there are some important steps it must take, such as:

• Acquiring the necessary corporate, limited liability company (LLC), or partnership approvals to terminate the business
• Notifying taxing and other public authorities of your intention to close the business
• Filing and paying all required federal and state taxes with timely payments
• Remitting final wages and compensation to employees
• Settling claims, liabilities, judgments, and debts concerning your business
• Distributing any remaining business assets among owners or partners
• Filing a termination certificate, dissolution certificate, or other paperwork
• Maintaining accurate records for a certain period of time following dissolution
• Ensure compliance with the WARN (Worker Adjustment and Retraining Notification) Act, if applicable

How Recordkeeping Requirements Promote a Strong Business Structure

Many businesses unknowingly violate the law by failing to retain certain business and employee records as required by law for tax purposes and other important regulations. There are different types of documents, retention periods, and filing deadlines, depending on the business you have, and being aware of these can help you avoid penalties. Here are some examples:

• Employee records: Certain laws, like the FLSA’s mandate that employers keep payroll records, collective bargaining agreements, sales, and purchase records for at least three years. We can discuss which documents you need to keep and for how long.
• Tax records: Businesses must keep their tax returns and other records for at least two or three years, but should consider keeping them even longer in the event they report significant business deductions and losses. Different rules may apply to employment tax records.
• Corporate records: Articles of incorporation, resolutions, bylaws, board meeting minutes, and other documents concerning the formation and annual filing requirements of your business should be kept indefinitely. Moreover, you should have these readily accessible at all times.
• Insurance documents: Keep copies of policies and any claims you have filed under them at least for the life of the policy, plus additional time to account for applicable statutes of limitation (see below).
• Leases and real estate documents: Your business should also maintain these at least as long as you lease or own the real property in question. It is advisable to keep these for an additional several years in the event of adverse legal action.
• Industry-specific compliance: There may be additional record-keeping rules that apply to the specific industry in which your business operates. Additionally, your attorney might recommend that you maintain certain documents as a preventative measure against possible litigation or government investigations.

You should also be aware of any statute of limitations considerations that could impact which documents you need to keep. A good rule of thumb is to retain these documents at least until the statute of limitations expires for any potential civil claims. Your business may wish to store records even longer than necessary as a precaution.

Learn How AttorneyX Can Help You Manage a Successful Business in Pennsylvania

The rules and regulations surrounding business formation, operation, and even dissolution can be overwhelming. But with the right counsel in your corner, you can have peace of mind in knowing that your legal affairs are in order. To learn more about your business compliance requirements, connect with AttorneyX today.