Business Law
Forming an LLC Yourself in Pennsylvania
Most LLC disputes trace to an operating agreement that was never drafted, or was drafted from a template that did not address what actually happened. The filing that creates the LLC costs $125. The dispute it enables costs more.
Filing your own Certificate of Organization is not the problem. The filing creates the entity. What the filing does not create is the agreement that governs it: the document that determines what happens when members disagree, when a member wants out, or when a member dies.
Lebovitz & Lebovitz, P.A. · Serving Pittsburgh and Western Pennsylvania since 1933. Based in Swissvale near the Parkway East (Swissvale–Edgewood exit).
The filing creates the entity. The operating agreement governs it. An LLC with no operating agreement, or a template operating agreement that does not reflect the actual arrangement among members, is an LLC waiting for a dispute.
If you are forming an LLC, call 412-351-4422 or schedule a consultation to ensure the operating agreement protects your interests.
What the Filing Creates
A Certificate of Organization establishes legal existence. It names the LLC, identifies the registered agent, and establishes the principal office. It does not determine how the LLC is managed, how profits are distributed, what percentage each member owns, or what happens if a member stops contributing or wants to leave.
Pennsylvania’s default LLC rules fill gaps in the operating agreement, but the default rules may not reflect what the members intended. Under default rules, absent contrary agreement, members share profits equally regardless of capital contributions. A member who contributed $10,000 and a member who contributed $100,000 share equally unless the operating agreement says otherwise.
What the Operating Agreement Must Address
An operating agreement that does not address ownership percentage and capital contributions leaves that question to default rules or litigation. One that omits voting thresholds means one member can bind the LLC to a contract, take on debt, or admit a new member, and the other members have no recourse if the operating agreement does not require consent.
Management structure, distribution timing, and what happens when a member wants to sell their interest must all be addressed explicitly. Template operating agreements address these generically, without regard to the specific arrangement among the members, the nature of the business, or the applicable state law. Generic means the agreement does not address your situation: it addresses a hypothetical one.
The Transfer Problem
A member’s economic interest in an LLC (the right to receive distributions) is generally transferable. The right to participate in management is not, absent consent of the other members. This distinction matters when a member dies and their interest passes to an heir, or when a member divorces and their interest is subject to equitable distribution.
When a member dies without transfer restrictions in place, the deceased member’s interest passes to their estate. The heir becomes an economic member. If the operating agreement permits, they may become a full voting member. The surviving members have no right to exclude them. When a member divorces without transfer restrictions, the divorcing member’s interest is subject to equitable distribution. The ex-spouse may acquire an economic interest in the LLC. Without a transfer restriction, the LLC cannot prevent it.
An operating agreement with proper transfer restrictions and buyout provisions addresses these events before they happen. An LLC without them addresses them in litigation.
What an Attorney Does Differently
An attorney drafting an operating agreement asks what happens in scenarios the members have not considered: death, disability, departure, divorce, deadlock. The document reflects the answers to those questions, not a generic template that assumes the members will always agree and nothing will go wrong.
Frequently Asked Questions About Forming an LLC in Pennsylvania (FAQ)
Do I need an operating agreement in Pennsylvania?
Pennsylvania does not require a written operating agreement. The absence of one means the LLC is governed by default statutory rules that may not reflect the members’ intent. When members later disagree about how the LLC is run, there is no document to resolve the dispute.
Can I use a template operating agreement?
Templates are designed for generic situations. They do not reflect the specific ownership percentages, management arrangements, or contingencies of your LLC. A template that was adequate when the LLC was formed may produce unintended results when a member leaves, dies, or divorces.
What happens if members disagree and there is no operating agreement?
Disputes among members of an LLC without a governing agreement are resolved by reference to Pennsylvania’s default rules and, ultimately, by litigation. The litigation is more expensive than the operating agreement would have been.
What is a buyout provision?
A buyout provision establishes the price and process for purchasing a departing member’s interest. Without one, a departing member’s interest cannot be purchased at a defined price. The LLC either buys out the member at whatever price negotiation or litigation produces, or operates indefinitely with a member who is no longer contributing.
For related business guidance, see our page on LLC operating agreements in Pennsylvania; for all business law topics, see our business law practice area.