If you want to start your own business in Massachusetts, creating a Massachusetts LLC is one of the easiest ways to do so. Limited Liability Company is a category of corporate company that is suitable for entrepreneurs as well as small and medium-sized enterprises.
A Massachusetts LLC has many of the benefits and safeguards of larger companies without any of the rules, legislation, and enforcement problems associated with larger business organizations.
You’ve made the decision to launch a new limited liability company. You’re excited about the possibilities of the new company, but you’re still unsure where to begin.
Don’t worry, this guide about how to form an LLC in Massachusetts will teach you the fundamentals so that you can proceed with trust, armed with the knowledge you need to navigate the system and get formed the right way. Follow this step-by-step LLC formation guide to become the official owner of a Massachusetts LLC.
What is a Massachusetts LLC?
The Massachusetts limited liability company (LLC) is one of the state’s most common business structures. It is a less formal and versatile type of company than a corporation, but it offers personal asset security that sole proprietorships and general partnerships do not.
In Massachusetts, LLC has clear formation and maintenance requirements, a variety of taxation options, and flexible management. The LLC is a common option for a reason, from one-person companies to multi-member LLCs with multiple owners.
Benefits of Setting Up an LLC in Massachusetts in 2021
Many small companies or new business owners select LLC as their business structure. This is due to the fact that LLC combines many of the advantages of a company with those of a sole proprietorship or partnership. It is especially useful for business owners looking for flexible management solutions and liability insurance.
Here are a few advantages to consider when forming an LLC in Massachusetts:
- Separation of personal and company finances: When you form an LLC, you can conveniently distinguish your personal and business accounts, debts, and liabilities, protecting your personal assets from the liability of the business.
- Avoidance of double taxation: When you are taxed as a corporation, you must pay taxes on both the income of the company and the profits you receive as an entity from the company. However, if you want to be taxed as a sole proprietorship or partnership, you will only be allowed to pay personal taxes on your actual business earnings if you want to be taxed as an LLC. If you want to be charged in this manner, you can also stop the Massachusetts excise tax.
- Customized management structure: There are no fixed criteria for managing an LLC in Massachusetts, so you can develop a management style and organizational structure that is appropriate for your business.
- Less reporting is required: Although businesses may have extensive reporting requirements, a limited liability company (LLC) do not.
See our breakdown of what an LLC is and how it compares to a company for a more in-depth look at why an LLC could be a better choice for you.
Although the basic tax setup is easy, you may want to work with an accountant if you don’t understand the tax forms or want a second pair of eyes to review your tax paperwork. This will help to avoid possible tax problems that could damage your LLC.
The following are the fundamental tax laws for an LLC formation:
- As the owner of an LLC, you will be responsible for paying into Social Security and Medicare through a “self-employment levy” that will be deducted directly from your tax returns.
- You may have very high earnings and believe that being taxed as a C or S company is more beneficial. If you want to be taxed as one of these entities rather than a company or sole proprietorship, you must file special tax forms: Form 8832 for C companies and Form 2553 for S corporations. You would also be required to pay the Massachusetts corporate excise tax.
- To escape tax penalties, LLC must make quarterly estimated tax payments per year. These payments must be made per quarter for both federal and state taxes. If your LLC hires workers, you must deduct federal, state, Social Security, and Medicare taxes from their wages. These withholdings must be reported to the IRS. You must create a wage withholding account through the MassTaxConnect government website. You would also be required to pay the Massachusetts unemployment insurance (UI) tax as an employer.
- If your LLC sells goods or services and receives sales tax, you must also apply for a sales tax license online via the Massachusetts government website.
Steps to Set an LLC in Massachusetts in 2021
Name your Massachusetts LLC
The name of your LLC is frequently the first impression you get to make on potential clients, so it goes without saying that this is a crucial move. When choosing a name for your business, you should consider the following factors:
Laws and regulations
Any limited liability company in the state of Massachusetts must have either the initials “LLC” or the word “limited liability company” in its name. Furthermore, you cannot use any terms that refer to other business forms (such as “corporation” or “incorporated”), nor can you use words that are widely used to refer to other types of businesses (such as “bank” or “law office”).
Before you can file your LLC in Massachusetts, you must first select a name for it that is distinct, shows people who you are and what you do or sell, and resonates with your target market. You must ensure that the name is not already in use by another organization in the state and that it is distinct enough to stand out.
Slight pronunciation, punctuation, and suffix variations will not suffice. To comply with state legislation, avoid using offensive terms or phrases that are insulting in nature. Create a list of potential names for your LLC and enter them into the business company name search on the Massachusetts Secretary of the Commonwealth’s website.
The following are some of the available LLC designations:
- Limited Liability Company
- Limited Company
That means you could use a different name, such as “Modern Movers L.C.” or “Modern Movers Limited Company” — the official company name only has to have the LLC designation at the end.
If you’ve found an available name for your LLC, you’ll need to decide whether you’re ready to file immediately or if reserving the name is in your best interests. If you aren’t quite ready to complete the paperwork, you can reserve your preferred name by sending an Application for Reservation of Name to the Secretary of the Commonwealth.
Your Massachusetts LLC name will be reserved for 60 days for a filing fee of $30. You can extend the name reservation for another 60 days for an extra $30. Please keep in mind that you must submit this document in person or by mail. You can submit the application and a check to:
Secretary of the Commonwealth
1 Ashburton Place, Room 1717
Boston, Massachusetts 02108-1512
If you decide to build a website for your Massachusetts LLC, you will need to purchase a domain name. Usually, companies choose a domain name that is identical to their actual company name. To see what domains are open, perform a fast domain search before you find one you want to use.
You can improve the protection of your LLC even more by registering trademarks at both the state and federal levels. Fill out the Massachusetts Trademark/Service Mark Application to file a trademark at the state level. You’ll mail it in and pay a $50 filing fee. The trademark is valid for a period of five years.
If you want to do business outside of Massachusetts and want wider protection, you can register your trademark at the federal level by visiting the website of the United States Patent and Trademark Office.
Finally, if you choose to operate under a different company name, you can obtain a Massachusetts DBA (“doing business as”) Certificate. Massachusetts DBA names are registered with the city or town clerk’s office in the city or town where your company will be doing business.
Choose a Massachusetts Resident Agent
Appointing a resident agent is a vital step in the LLC formation process, also referred to as registered agent in most states. In Massachusetts, a resident agent is an individual or agency who serves as the point of contact for all service of process documents and other legal documents.
If your business is subpoenaed or prosecuted, Massachusetts will send the necessary documentation to your Massachusetts LLC resident agent.
As the owner, you have the authority to serve as your company’s resident agent. Although it may seem to be the simplest and most rational option, it is not always in your best interests.
After all, being served in front of customers may have a detrimental effect on the image of your LLC.
Instead, you can benefit from hiring an outside registered agent service, which guarantees that all requirements (Massachusetts citizenship, permission to do business in Massachusetts, and a permanent address in the commonwealth) are met and avoids any unpleasant interactions in the future.
Some of the advantages of using an outside registered agent service for your LLC are as follows:
- Your sensitive details will be kept private.
When you use a third-party resident agent, your personal information is kept confidential. Any of this information will become public if you act as your own registered agent.
- You have complete control over your business hours.
When you serve as the resident agent for your Massachusetts LLC, you must be available during regular business hours at your primary operating address to collect the paperwork. If you do not want to be constrained by conventional business hours, you should work with third-party registered agent service.
File Massachusetts Certificate of Organization
Making your Massachusetts LLC official is the next move after you’ve agreed on a name and named a resident agent. To do so, you must complete and file your Certificate of Organization with the Corporations Division of the Massachusetts Secretary of the Commonwealth. You will need the following things to complete this form correctly:
Federal Employer Identification Number: You do not need this, despite the fact that it is the first item mentioned on the form. This is also known as an Employer Identification Number, or EIN, and it is usually obtained after you have filed your Certificate of Organization (see Step 5 below). If you already have it, please mention it here. Otherwise, you should leave this field empty.
- Your LLC name
Write your preferred company name for your LLC, followed by the LLC designator.
- LLC street address
Enter the company’s street address. If you do not have office space, you can use your home address. This is where documents will be stored.
- The general nature of the business
Explain briefly what the LLC will be doing.
- Latest date of dissolution
Indicate here if you plan to close your company on a particular date. Leave this blank if you want it to live forever.
- Name and address of your LLC’s resident agent
You’ll need to identify your Massachusetts LLC resident agent’s name and address here. For any legal documents, the agent will serve as a third-party intermediary between you and the Commonwealth of Massachusetts.
- Manager(s) name and address
If your Massachusetts LLC is managed by one or more named managers (rather than by the members), list each manager’s name and office address here. If your LLC is run by its representatives, you must have their contact details.
- Document authorization
The name and business address of each person allowed to execute documents filed with the Corporations Division, in addition to the manager(s). If there are no managers, you must name at least one.
- Real estate authorization
The name and business address of each person allowed to sign real estate transactions on behalf of the company. You should leave this section vacant if your business is not interested in real estate.
- Consent of the resident agent
The form must be signed by your registered agent, showing that they recognize the position of registered agent.
You can fill out the form on paper and mail it in, or you can send it online through the portal. If you file by mail, you must pay a nonrefundable filing charge of $500, or $520 if you file electronically.
Bear in mind that this does not include any continuing expenditures. Every year, for example, you must file an annual report with the Secretary of the Commonwealth of Massachusetts, which carries a $500 fee by mail or a $520 fee online.
Create an LLC Operating Agreement
Build a concise plan that outlines how you will operate and handle your new company after you file an LLC in Massachusetts.
If you are a single-member Massachusetts LLC, you can believe that LLC Operating Agreement is unnecessary to start an LLC, particularly because it is not needed in Massachusetts. However, even if you are a single-member LLC, getting an Operating Agreement on file before you form an LLC will help your company.
This document explains how your business will be managed, how budgets will be treated, and how decisions will be taken, but it also describes what will happen to your company if you leave or become unable to lead. In the case of separation or bankruptcy, an Operating Arrangement will also cover you and your properties.
In order to open a bank account, you may be asked to have this paper. You should also bear in mind that any potential business partners or managing members may want to see your Operating Agreement before joining your company. After all, this paper acts as the overall performance strategy.
An attorney can assist you in developing your Operating Agreement, or you can build one from a free online template. Here are some basic details of operating agreements you should have:
- Ownership rates of individual members
- Rights and duties
- Voting rights and conference procedures
- Benefit and loss allocation
- LLC management guidelines
- Provisions for buying out or moving a member owner’s shares in the event of sickness or death
Handle Taxation Requirements
Federal Laws and Regulations
A federal employer identification number, or employer identification number (EIN), is required for the vast majority of LLC. An EIN is essentially the business equivalent of a social security number, and it is necessary for a number of important LLC functions.
For example, if you want to recruit workers, you’ll need to obtain an EIN, and many banks need them to open business bank accounts as well. You’ll also need one for tax purposes, which is why it’s called a federal tax ID number.
The IRS will provide you with a free EIN for your LLC. If you want to get a Massachusetts tax ID, you can acquire one by contacting the Massachusetts Department of Revenue.
Requirements of the State
Massachusetts levies state-level LLC taxes based on the nature of your company. Income taxes are the most critical of these. If your LLC is a pass-through corporation (typically a sole proprietorship or partnership), you can pay income taxes on your personal tax returns. LLC that elects to be taxed as corporations, on the other hand, would be subject to the state’s corporate income taxes.
Massachusetts imposes a sales tax on all retail products and services sold within the state. If your LLC will be making sales, you must raise and remit sales taxes to the state. The current sales tax rate on general merchandise is 6.25 per cent, although certain products, such as tobacco and alcohol, may be subject to additional taxes.
If you have an employee or employees in your Massachusetts LLC, you will need to register for withholding-payroll taxes using the Massachusetts Department of Revenue business registration page.
For example, as an employer, you would be liable for withholding taxes. Essentially, you can withhold a portion of an employee’s salary and send it to the state. The Withholding Taxes on Wages guide will help you learn more about this tax.
In addition, employers make quarterly contributions to the state’s Unemployment Assistance Fund. While it isn’t specifically called a “bill,” it is a charge that you must register for and pay on a regular basis.
Depending on where your LLC in Massachusetts is situated, you might even be forced to pay certain local taxes. The most popular location-dependent tax is sales tax, which is measured based on your property’s value.
The Massachusetts state website has a wealth of information on property tax laws to help you understand how you’ll be charged.
Finally, counties and towns in Massachusetts have the power to levy a sales tax in addition to the state rate. These local taxes may be important, so we highly advise you to contact your local government office to find out what taxes you will be required to pay.
Obtain Business Licenses and Permits
It is not required for a Massachusetts LLC to obtain a general business license in order to conduct business.
However, the state upholds the federal government’s licensing standards for some professions, such as agriculture, aviation, and others. Please refer to the Small Business Association’s list of federally controlled sectors that require licensure.
In addition to industry-specific tax regulations, the state has licenses and permits that are required for companies in specific industries. There are hundreds of these specialized licenses, ranging from commercial fishing to cosmetology to nursing.
To begin your quest for any licenses you may need, we suggest that you visit the state’s Professional Licenses and Permits page.
What To Do After Forming an LLC in Massachusetts?
Establish a business bank account
We strongly advise you to open a separate business banking account in order to keep your business and personal finances fully separate. This is important because it protects your personal assets while still making tax filing much easier. When you obtain your EIN from the IRS, you will be able to use it to open an account at your favorite bank or credit union.
Purchase Business Insurance
Any Massachusetts company with employees is required by law to obtain workers’ compensation insurance. This proposal will assist in paying a portion of the workers’ salaries if they are unable to work due to a work-related accident or illness.
For more information on this proposal, consult the Department of Industrial Accidents’ Workers’ Compensation for Employers guide. Once you’ve obtained the legally appropriate plans, you can possibly look at general liability insurance as well as certain industry-specific policies.
Recognize income reporting
Income reporting is just what it sounds like: it is the process of reporting the income generated by your company. It is important to remember that you must file this form regardless of whether you made or lost money during the fiscal year.
Recognize annual reporting
Every LLC in Massachusetts is expected to file an annual report with the Secretary of the Commonwealth. You can send your annual report online. Your annual report would simply serve to update the state on any relevant details about your company that has changed throughout the year. Please bear in mind that the annual report in Massachusetts has a $500 filing fee.
Locate an accountant
We do not recommend that you handle the company’s finances without the assistance of a specialist. There is far too much room for error, and a professional will potentially save you time and money by advising you on the best way to handle your company’s finances.
At the very least, recruit a specialist to help you set up the software and the processes for keeping track of your finances on a regular basis. Then, check with your accountant at least a couple of times per year – particularly during tax season – to ensure you’re keeping accurate records.
Frequently Asked Questions (FAQ)
How long would it take to shape my Massachusetts LLC?
If you register electronically, your Certificate of Organization will be processed with the Massachusetts Secretary of the Commonwealth within four hours of payment. Filing by mail takes slightly longer — four to five business days.
Is it necessary for me to register my Operating Agreement with the state of Massachusetts?
The Operating Agreement is held internally by the Massachusetts company’s owner, associates, or managers. While some states need an Operating Agreement for LLC, Massachusetts does not.
What tax structure can I use for my LLC?
Many Massachusetts LLC prefers to be taxed as a sole proprietorship (for single members) or a corporation (for multiple members) to escape the Massachusetts excise tax. Choosing to be taxed in the default manner means that you will only be taxed on income claimed in your personal tax return.
You may also elect to be taxed as a corporation, as certain large corporations do. You’ll want to recognize the other differences that are specific to the corporate tax system, in addition to having to pay the Massachusetts excise tax.
More information on these distinctions can be found in our comprehensive corporation tax guide. If the LLC has more than one member, the IRS would classify it as a partnership, with each partner paying taxes on their share of the company.
You may also incorporate it as a company. This path has advantages, but be sure to study the specifics of each choice to decide which is best for your business.
Is it legal in Massachusetts to form a Series LLC?
No, you are not legally permitted to form a Massachusetts Series LLC. A Series LLC is an LLC arrangement in which one LLC acts as a parent company over multiple child LLCs. Series LLCs are not allowed in the majority of states.
What licenses and insurance are required for an LLC in Massachusetts?
Some LLC needs a business license to operate, so it is vital to obtain one as soon as possible. While the state does not require a general business license, cities and counties can, along with other licenses and permits, so check with your local government offices.
Licensing exists at the federal, state, and local levels and is frequently industry-specific, so you’ll need to investigate or employ a service to decide which licenses and permits your LLC requires.
For information on state licensing, visit the state’s Business Licenses & Permits website. Depending on the industry and if you have employees, your LLC will also include a company insurance policy.
Technical liability insurance (typically required by consulting and law firms) to unemployment and workers’ compensation insurance are examples of required insurance. The government website has more information on the minimum insurance provisions for LLC.
If you’re stumped, we suggest using a professional service to do the research. They can provide you with a comprehensive plan that includes all of the licenses and insurance provided for your Massachusetts LLC, as well as assist you with the paperwork.
May I make changes to my Massachusetts Limited Liability Company?
You can update your LLC name, upgrade your resident agent, and make other changes online at the Massachusetts Secretary of State’s website. – change has its own form and filing fee, which can be filed and charged electronically via the filing system.
In Massachusetts, how do I dissolve my LLC?
When you dissolve your LLC, you must file a Certificate of Cancellation with the Secretary of the Commonwealth of Massachusetts. You can cancel your LLC registration by using the Massachusetts online filing system. The LLC should also be cancelled with the Massachusetts Department of Revenue.
Starting a limited liability company can be very exciting, but before you can concentrate on the day-to-day operations of your company, you must first choose a business structure. Forming an LLC can be a good option for small companies because it offers liability insurance as well as tax advantages.
It is also relatively simple to form your Massachusetts LLC if you follow the steps outlined above.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.