Starting a Massachusetts limited liability company can be a great way to get your company up and running. There are a few steps you will need to take in order to make the process go as smoothly as possible.
I have collaborated with legal experts and referenced my experience as a business consultant to come up with everything you need to know about starting an LLC in Massachusetts.
We'll explain the benefits and downsides of forming an LLC in this state and provide a step-by-step guide on how to complete the process.
Quick Summary:
- To start an LLC in Massachusetts, there is a legal protocol to complete the process. Follow the steps and submit the proper documents.
- An LLC provides the benefit of limited liability protection, simplified taxation and a less structured company.
- You have the option to determine on how your LLC is taxed – single-member, multi-member, S-Corp or C-Corp.
Steps to Forming an LLC in Massachusetts
To form this type of business entity, business owners have to take some steps that will make their LLC legally and officially recognized as a company. The steps are as follows.
Step 1: Choose a Name for the Massachusetts LLC
Future LLC owners in Massachusetts will have to choose a unique name for their company.
You have to comply with the following guidelines to ensure that your desired business name is approved by the state:
- The name cannot be the same as an already existing business.
- It must include the words "Limited Liability Company" or its abbreviation, "LLC."
- LLC name cannot contain certain words that are prohibited, such as "Bank," "Corporation," and "Insurance."
- Terms and phrases that contain any words associated with a government agency are also not allowed.
To determine if your desired business name is available already in use, visit the Massachusetts Secretary of State's website (Secretary of the Commonwealth Corporations Division).
You can file a reservation with a Name Reservation with the Secretary of the Commonwealth Corporations Division. The desired name will be reserved for 60 days for a filing of $30.
You must still complete all of the relevant LLC formation paperwork in Massachusetts before you may conduct business under that name.
See our article if you have to change an LLC name in Massachusetts.
Step 2: File Certificate of Organization with the Secretary of State
The Certificate of Organization is a document that outlines the basic information about your LLC. It must include the following:
- Business name and physical address
- Members
- Registered agent
- Purpose and nature of the company
- Designated representative
If you file the Certificate of Organization online, you will need to pay a filing fee of $520. If you file by mail, the Massachusetts Corporations Division charges a filing fee of $500.
If you wish, the Massachusetts Corporations Division will send you back a stamped and certified copy of the Certificate of Organization once it has been filed.
Here is additional information on the cost of starting an LLC in Massachusetts.
Step 3: Appoint a Massachusetts Registered Agent
A registered agent is an integral part of forming Massachusetts LLC. A registered agent is a company or person authorized to receive legal and tax notices on behalf of the business.
The registered agent must have a street address in Massachusetts where they can receive mail and other legal documents for the business.
If you do not have a registered agent, the Massachusetts Secretary of State will not allow your LLC to conduct business in the state.
Once you have appointed a registered agent, make sure to keep their contact information updated if it changes.
Step 4: Draft an LLC Operating Agreement
Massachusetts LLC operating agreement is a document that spells out the rights and responsibilities of the LLC members. Massachusetts law does not require it, but it's a good idea to have one in place.
Operating agreements should include:
- The name of the LLC and its registered agent
- The purpose of the LLC
- How profits and losses will be allocated
- Voting requirements
- How the LLC will be managed
- Any restrictions on who can become a member or withdraw from the LLC
- Procedures for amending the operating agreement.
You don't have to create your own operating agreement. You can find templates online or hire an attorney to help you draft one. Just make sure that whatever you choose meets Massachusetts state law.
Once you have an operating agreement in place, make sure to keep a copy with your business records.
Step 5: Obtain Business Licenses and Permits
Obtaining business licenses and permits is a crucial step in creating your LLC. The specific licenses and permits you need will vary depending on your LLC's business activities.
Some of the most common licenses and permits for LLCs include:
- A Business License from the City or Town Clerk's Office
- A Sales Tax Certificate from the Department of Revenue
- An Employer Identification Number (EIN) from the IRS
- A Certificate of Registration from the Massachusetts Corporations Division
Make sure to research what licenses and permits your LLC will need before you start operations so that you can avoid any costly fines or penalties.
If your LLC provides professional service, the chances are you will need additional licenses and permits.
For example, if you are an architect, you will need a permit from the Board of Registration of Architects. If you are a lawyer, you will need a license from the Board of Bar Overseers.
Step 6: Get an EIN
Federal employer identification number or employer identification number (EIN) is a nine-digit number assigned by the Internal Revenue Service (IRS) to business entities.
The EIN is also used for tax reporting purposes.
If you hire employees or open a business bank account, you will need an EIN in order to file employment taxes and report wages.
You can apply for an EIN online through the IRS website, by mail or phone. This service has no filing fee to it.
Step 7: Open a Business Bank Account
LLC owners should keep their personal and business expenses separate.
That means that opening a bank account for your LLC is imperative. Having a business bank account will keep your personal and business finances separate, so you will never risk breaching your corporate veil.
If you are not located in Massachusetts, consult with an accountant or lawyer in your area to see what banks offer the best services for small businesses.
To open a bank account, you will need an EIN and the company's credit history. The credit history is simply a report of how well the LLC has managed its finances in the past.
Keep in mind that the majority of banks will probably ask to see your operating agreement, which is another reason to have one in place.
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Massachusetts LLC Taxes
Massachusetts LLCs are taxed based on their classification. It may be taxed as a single-member, multi-member, S-Corp or C-Corp based on the tax designation chosen by the company [1].
There are a few things to keep in mind when filing taxes as a Massachusetts LLC:
- LLCs are pass-through entities, which means that profits and losses are passed through to the individual members. This is different from a corporation, which pays taxes on its profits.
- LLCs are not subject to the same self-employment tax as sole proprietorships and partnerships.
- LLCs taxed as C-Corp must file a corporate return even if they have no income.
Federal and state taxes must be paid on income from all sources, including interest, dividends, and capital gains. The federal tax rate for corporations is 15%, while the state tax rate varies depending on the municipality.
There are a number of deductions and credits that can be claimed to reduce taxes owed, so it is essential to consult with an accountant or tax specialist.
Massachusetts sales tax is currently at a rate of six percent. This tax is imposed on the sale of goods and services, with a few exceptions.
Generally, the vendor has to collect sales tax from the customer and submit it to the state. However, certain items, such as food and prescription drugs, are exempt from sales tax.
What Are the Benefits of Massachusetts LLCs?
The benefits of Massachusetts LLC are personal asset protection, pass-through taxation, flexible management structure and privacy.
1. Personal Asset Protection
The main benefit of a Massachusetts LLC is that it provides is limited liability protection to its owners.
This means that the owners of an LLC are not personally responsible for the debts and obligations of the company.
This protection can be precious for business owners, as it can help protect their personal assets in the event of a lawsuit or other legal action.
2. Pass-Through Taxation
A limited liability company can also be helpful in tax planning, as the income and losses of the company can be passed through to the owners and taxed on their individual tax returns.
3. Flexible Management Structure
This business structure offers flexibility in membership and management structure, which means that they can be tailored to meet the specific needs of your business. For example, an LLC can have a single owner or multiple owners, and it can be managed by its members or by outside managers.
4. Privacy
LLCs also offer a certain level of privacy. Unlike corporations, LLCs are not required to disclose the identities of their members to the public.
This can be important for businesses who want to keep their operations confidential or who do not want their personal information publicly available.
Massachusetts LLC FAQs
Do I Need to File an Annual Report for My LLC in Massachusetts?
You need to file an annual report for your LLC in Massachusetts to remain compliant with the state. The document should include the business activities and financial records of the year.
Do You Have to Renew LLC Every Year in Massachusetts?
You have to renew your LLC every year in Massachusetts. The renewal process is relatively simple and can be completed online. The Secretary of the Commonwealth website has a complete guide to renewing your LLC.
Do I Have to Register as a Foreign LLC in Massachusetts?
You have to register as a foreign LLC in Massachusetts for your company to legally operate in the state for a fee of $500.
What Is a Resident Agent for a Massachusetts LLC?
A resident agent for a Massachusetts LLC is the same as a registered agent. It is a person or company that agrees to accept legal papers on behalf of the business.
Is Business Insurance Required in Massachusetts?
Business insurance is not required in Massachusetts, but it would be advisable to acquire a policy to protect the assets of the company.
Do You Need Liability Insurance with a Massachusetts LLC?
You need a liability insurance with a Massachusetts LLC, if your company provides professional services
Do I Need a DBA for My LLC in Massachusetts?
You need a DBA for your LLC in Massachusetts if you want to operate under an assumed name (a name other than your personal name). You can do this through the Massachusetts Secretary of State's website.
How Do I Change the Address of My LLC in Massachusetts?
You can change the address of your LLC in Massachusetts by filing an Amendment in your Articles of Organization with the Massachusetts Secretary of State for a fee of $100.
How to Start an LLC in Massachusetts
Starting an LLC is reasonably straightforward, you simply have to follow certain steps and file the necessary documents.
If you have any questions about how to start an LLC in Massachusetts or feel like you're not sure what to do next, make sure that you seek out business advice from ZenBusiness who can guide you through this complex task.
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Reference:
- https://www.mass.gov/info-details/limited-liability-companies-and-limited-liability-partnerships
