How to Start an LLC in Massachusetts
Once you are ready to begin the process of setting up your LLC, there are a few simple steps that will help you to formally register your business. This is done through the Massachusetts Secretary of the Commonwealth and requires you to know the basics of your business and provide the correct information. With this preparation, the process is simple and can be done quickly. Want to learn more? Follow this step-by-step guide to get your Massachusetts LLC up and running.
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Though it is small in area, Massachusetts is a large player when it comes to businesses, with the third-highest income per capita in the country. The city center of Boston and a huge number of college graduates mean that the labor market is competitive, and many people are turning to entrepreneurship. One of the most popular ways to do this is to start an LLC – this business structure offers tax benefits, personal asset protection, and a simple process for getting your business running smoothly.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
No company can be registered in Massachusetts without a business name. You will likely be thinking through your name hoping to choose something unique, relevant to your business, and easy to spell and say. While this is important, you must also consider the state laws surrounding names and be sure you are in compliance.
No two businesses in Massachusetts can share the same name, nor can they be considered indistinguishable. Slight variations in punctuation, spelling, or suffix are not enough to consider names distinguishable. Before you become committed to a name, look through the Massachusetts Business Name Search to see if your desired name can be used. Name availability can be a challenge.
Other naming considerations
When you’ve chosen an available name, you will also need to add something to the name to designate that the company is an LLC. This can be the phrase “limited liability company” or “limited company” or an abbreviation of these terms. You must also avoid words that imply the business is a government agency, serves a different purpose than it does, or that is offensive in nature.
It can also be helpful to look into whether your preferred domain name, social media usernames, and similar things are available. It’s important to know what a customer might see when they search your name or if you’d be confused about another business.
When to reserve a business name
Once you’ve determined that your chosen name is available and the best choice for your business, it is important to make sure that no one else claims the same name. Filing for your LLC will reserve your name and stop other businesses from using it. However, if you aren’t ready to file yet, you are able to reserve a name for 60 days. By filling out the Application of Reservation of Name and paying a $30 fee, you can ensure that no one else claims your name.
You can file a name reservation in Massachusetts to hold a name for one year.
Select a registered agent
Part of the paperwork to form your LLC will include naming a resident agent for your LLC. This is sometimes called a registered agent in other states and is meant to be the designated point of contact between your business and the government of Massachusetts. The appointed agent is responsible for receiving all official correspondence and legal documents, including service of process (served during a lawsuit), and state tax forms. As a part of this responsibility, the resident agent is committing to be available during all normal business hours to receive this mail.
Any individual who is an adult and has a physical address in Massachusetts (not a P.O. box) can be named as the resident agent. This includes the owner of an LLC, any employee, or someone unaffiliated with the company as long as they meet the availability requirement.
Another option is to use a registered agent service, which will fill this role for a small annual fee.
File Certificate of Organization
The step that will formally create your LLC and have it recognized by the state of Massachusetts is the completion of the Certificate of Organization, known as Articles of Organization in other states.
The information you will need to provide on the Certificate of Organization is:
- The name of your LLC
- The Massachusetts address of the LLC
- The “general character of the business” or purpose
- Latest date of dissolution, if you would like to specify one
- Name and mailing address of the resident agent
- Name and business address of each manager, if address is different from the primary address given
- Name and business address of each person who can authorize and execute documents, if address is different from the primary address given
- Name and business address of each manager, if address is different from the primary address given
- Name and business address of each person who can execute, acknowledge, deliver, and record any recordable instrument purporting to affect an interest in real property recorded with a registry of deeds or district office of the land court
- Signature of resident agent
- Signature of the person filing documents
Once you have completed the form, it will be submitted to the Secretary of the Commonwealth either online, in person, by mail, or through fax. (In other states, it’s usually submitted to the Secretary of State).
If entrepreneurs elect a different type of business, like a sole proprietorship, this document isn’t necessary.
You can fill out and submit your LLC formation documents here and pay the filing fee with a credit card.
There is a $500 fee payable to The Commonwealth of Massachusetts that is due when turning in the Certificate of Organization. This fee is not refundable for any reason, so it is important to make sure your information is complete before submitting.
Massachusetts processing time
Once your Certificate of Organization is received, it will be processed and approved in 24 to 36 hours. You will not receive any mail alerting you to the approval, so you will need to check using the state’s online portal to ensure you have been approved.
Create an LLC operating agreement
More formal business structures like corporations are often required to have detailed documentation of their processes and bylaws. For LLCs in Massachusetts, this is not the case. However, it is recommended that any LLC has an operating agreement in place. Not only does this safeguard a company against future conflict, but it can protect members as well.
The purpose of an operating agreement is to outline ownership and operating procedures for the LLC. You can choose to include anything you’d like, but the common provisions you will find include:
- The equity structure of your company, or how ownership is divided between members of the LLC.
- Information on what capital contributions were made by each member and how additional capital would be raised.
- How profits and losses will be distributed among members for the purposes of tax filing.
- When a vote will be held and how votes are weighted, along with when a unanimous vote vs. a majority is required.
- The company’s management structure be it member-managed, manager-managed, or a single-member LLC.
- What happens when a member leaves the company or a new member is added.
- What happens when the company is dissolved.
If there is any conflict over these topics, the operating agreement serves as a way to solve these simply. Without an agreement in place, the default Massachusetts LLC laws will be applied, regardless of whether they are in your company’s best interest.
Another reason that an operating agreement is important is its role in your personal asset protection. By forming an LLC, your personal assets are protected from any of the business’s obligations and debts. However, this relies on the business operating as an independent entity from an individual. An operating agreement can further delineate these entities if there is ever a question.
Operating agreements are internal documents and do not need to be submitted to anyone. You should keep them available for reference or be amended as needed in the future.
With a formally established LLC, you are on your way to being able to operate your Massachusetts business. However, there are a number of administrative tasks that are important to maintaining good standing with the Commonwealth. By getting ahead of these items, you will be able to start your business quickly and maintain all requirements moving forward.
Get your EIN
An EIN, or Employer Identification Number, is a nine-digit tax ID that the IRS assigns to businesses in order to identify them for tax purposes. In the same way that your personal Social Security Number is used, an EIN is the primary federal identifier for your business.
By law, businesses only need to have an EIN if they have employees or pay excise taxes, which will not be true for every LLC. But it is still recommended to have an EIN if you don’t meet these criteria. Having an EIN offers a number of benefits:
- Banks and lenders will often require an EIN before you can apply for any funding or accounts.
- Customers and vendors may request your tax ID. Without an EIN, you will need to provide a personal Social Security Number, which could be risky. EINs are less sensitive information and safer to share.
- Having an EIN can also lend credibility to your business in the eyes of customers and vendors.
Obtaining an EIN is free and can be done in a matter of minutes.
You can get your EIN by visiting the IRS website.
Get Massachusetts business licenses
Businesses can be licensed at the federal, state, and local levels. It is important to ensure that you have all the necessary licenses in each jurisdiction before beginning to operate your business.
Most business activity is regulated at the state level, but some activities are instead the domain of the federal government. Any business that works in one of these areas will need to apply for the appropriate business licenses. Regulated activities include agriculture, aviation, commercial fisheries, and nuclear energy.
Massachusetts state licenses
There is one state-level license that most Massachusetts businesses will need to obtain called the Sales and Use Tax Registration Certificate. This is sometimes also called a seller’s permit and is necessary for any business that intends to sell or lease goods or services subject to state sales and use tax.
The Sales and Use Tax Registration Certificate can be obtained online at the MassTaxConnect website. There is no fee and it does not need to be renewed once your license has been approved.
Additionally, some professions and locations may be required to have additional licensing. Massachusetts maintains a Licenses and Permits website where you can find more information.
Local Massachusetts licenses
Each local government in Massachusetts can set rules about businesses in their jurisdiction, including requiring licensing and permits separate from state and federal ones. For example, Boston’s city government requires all businesses that work with flammable chemicals to have an annual permit from the local fire department.
Open business bank accounts
Keeping all income and expenses in a single bank account can make accounting much simpler. When it comes time to file taxes, this saved time can even save you money as there is less accounting work to do. But having a business bank account also serves the important purpose of proving a separation between you and your business.
The personal asset protection afforded by an LLC is dependent on the business operating separately from its members. This includes not mingling any finances, which is easier to prove with a separate bank account. Risking this could mean losing your asset protection and cost you a lot of money.
Review LLC tax rules in Massachusetts
One of the primary reasons you may have chosen an LLC for your business structure is the tax treatment of these companies. LLCs are pass-through entities, which means that federal and state income taxes pass through the entity itself and avoid corporate income tax. Instead, individual LLC members pay income taxes on their allocated profit and loss. Massachusetts does not impose additional taxes on an LLC beyond this allocation.
Some LLC owners will choose to treat the business like a corporation for tax purposes. If this is how you choose to set up your business, it will be subject to the Massachusetts corporation income tax. This is usually calculated as taxable tangible property plus 8% of income attributable to Massachusetts sources. There is a minimum of $456 that must be paid each year.
File an annual report
Regardless of the tax election you choose, every LLC must file an annual report in the state of Massachusetts. This can be done by mail or online through the Corporations Division with only a few pieces of information. Annual reports are due each year on or before the anniversary of filing for the original Certificate of Organization. There is a $500 annual report filing fee due at this time as well.
In other states, the annual report is called a Statement of Information.
Get insurance for your LLC
After you have invested time and money in your business, you will want to protect it from lawsuits and other threats. The best way to do this is by purchasing the proper insurance coverage. Most business entities will choose general liability insurance, which provides coverage in the event of lawsuits related to bodily injury, personal injury, or property damage. You may also purchase professional liability insurance if you are at risk of malpractice accusations.
In addition to these plans for business protection, Massachusetts requires some businesses to have workers’ compensation insurance. If your business has any employees who are not owners of the business, you will need this policy in place to offer coverage if they suffer an illness or injury at work.
Additional resources to help you set up a business in Massachusetts
Much of the process of establishing an LLC can be done online through the state’s provided websites. To assist business owners during the process, the state website also offers a range of resources, including:
Does an LLC have liability protection in Massachusetts?
Yes. If you’re doing business as an LLC, you have personal liability protection, which means personal assets like a home or car can’t be used to settle any business debts.
Does Massachusetts require workers’ compensation insurance?
In Massachusetts, any startup with one or more employees must have workers’ compensation in place. This does not include business owners or LLC members. This coverage is meant to help workers who are injured or fall ill as a result of their work.
How are LLCs taxed?
Business owners pay federal taxes and state taxes on the income made from the business via their personal tax returns. Tax forms are filed with the Internal Revenue Service. There’s no LLC tax, so the LLC itself isn’t taxed.
Is there a general business license in Massachusetts?
At the state level, no general business license is required in Massachusetts. A seller’s permit is required, which will apply to most companies. Localities may also require a general business license, so it’s important to check with local cities and counties to ensure you have the proper licensing.
How fast can I form an LLC in Massachusetts?
Once your LLC paperwork is submitted, the expected processing time in Massachusetts is 24 to 36 hours before you receive approval. From there, you can operate as an LLC, though you will still need to go through the process to obtain licenses and ensure other requirements have been met.
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