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Creating an LLC has a lot of advantages for your business, from providing asset protection to legitimizing your company in the eyes of your customers and business lenders. In Massachusetts, there might be some additional tax advantages as well.
Massachusetts offers several business incentives and tax credits for business owners who meet specific criteria. For example, the Economic Development Incentive Program Credit was created to provide tax credits to businesses that come to Massachusetts and create jobs.
If you start a job creation project, you can get a tax credit for each job that your company creates. For someone who already has a business in Massachusetts, tax credits like these can give them the incentive to take the steps forward to form an LLC to work through the application process.
LLC formation might seem intimidating, but the process is actually very straightforward. With the right help and resources, you can have your new LLC up and running in no time.
In general, you will use the following steps to start your Massachusetts LLC.
You can find a detailed explanation of each step below to help you get this process started.
Naming your business is one of the most important first steps in establishing your LLC. You want to pick a name that you will love for years to come—and that that conveys key facts about your company.
Massachusetts law requires that your LLC include the following designations so others know that it is an LLC.
In addition, a corporate name (including the name of an LLC) cannot be the same or similar to another business. Essentially, names should not be so similar that a customer could mistake one business’s name for another company.
You can do a business search on the Massachusetts Secretary of the Commonwealth website to see if there are any other businesses registered with the same or similar names. You might also want to do a trademark search both at the federal level and in Massachusetts.
Business owners in Massachusetts can reserve a business name if they are not quite ready to start their LLC right away. You can start creating your LLC by reserving a business name, but you do not have to reserve it ahead of time.
You might want to reserve a business name if you are certain of what you want your business to be called, but you have not finalized all the other documents to form your LLC. For example, it might be a good idea to reserve your business name while waiting for the IRS to issue you an EIN (employer identification number).
Name reservations cost just $30.00, and they allow you to reserve a name for 60 days. You can also extend the reservation period another 60 days for an additional $30.00.
Keep in mind that reserving your business name is not required. But, if you take too long to create your LLC, the name you have chosen might be gone. If you are concerned about losing a name you love, reserving the name ahead of time might be a good idea.
Some companies choose to have a legal name and a “DBA”. A DBA is a fictitious name for your business to use in everyday operations.
While you do not have to have a DBA, you have to register properly in Massachusetts if you plan to use one. You are required to register at the local level in Massachusetts if you have a DBA or fictitious business name you are using.
In fact, even sole-proprietorships and partnerships are required to file a business certificate—which likely means that your local area will also require your LLC to file a business certificate for each DBA as well. Business certificates must be renewed every 4 years from the date of filing.
Every local clerk handles these filings slightly differently, so contact the clerk in the area in which you will run your business for more information about specific requirements for registration.
A trademark is a unique brand or differentiator that sets your business apart. It is used by individuals or businesses to describe their goods so customers can distinguish their products from others.
Before registering your trademark, you need to be sure that it is unique. You can use the Massachusetts trademark search tool as well as the federal trademark search tool to verify that your trademark is not being used by someone else.
Registering your trademark in Massachusetts requires filling out an application and paying a $50.00 filing fee. The fee is only $45.00 if you choose to register by fax. Renewing or amending your trademark will have the same $50.00 fee (or $45.00 if filing by fax).
Trademarks, once registered in Massachusetts, continue to be registered for 5 years. There is no fee to cancel a trademark.
When you create an LLC in Massachusetts, you have to file a Certificate of Organization. Many other states refer to this document as the “Articles of Organization.” While the name is different, the document is similar.
This document can be pretty extensive if you want to include more information, but Massachusetts requires the following information at a minimum:
If your LLC provides professional services to customers, you need to set out what the service is. You also need to include a statement that you will abide by the liability insurance requirements set out in MGL Chapter 156C, Section 65. Of course, you should actually learn what those insurance requirements are and follow them.
While it is not required, you can also list out anyone else who can record instruments regarding real property and any other matter that an authorized person is allowed to do.
Most people who organize an LLC in Massachusetts opt to file a very simple Certificate of Organization and then include some of the more in-depth information as part of their Operating Agreement. The Operating Agreement is not required to be filed in Massachusetts.
Massachusetts requires a filing fee of $500.00 to file your Certificate of Organization. Keep in mind that the fee to reserve a name is $30.00, so the actual total fee to form an LLC might be higher. However, you are not required to reserve a name before your file a Certificate of Organization.
Below are a few other fees that you might need to consider after the initial filing of your Certificate of Organization.
Some of these documents might be required because you need to show them to your lender or your insurance company.
If you need any of these documents quickly, the Secretary of the Commonwealth of Massachusetts can also expedite documents for a fee. The fee varies based on the value of the original filing. For example, the expedited fee for your Certificate of Organization is $20.00, but the expedited fee for a Certificate of Good Standing is only $6.00.
Before you start creating your Certificate of Organization, you will need:
Many members choose to simply list the same address as the LLC for their address. There is no requirement that members use their personal address—only a business address is required.
You also do not need a physical location for your LLC that is separate from your home. You are allowed to operate your LLC out of your home in most cases. However, some LLCs choose to have a physical location, even if it is just a post office box, because it adds some legitimacy to their company.
You can file your Certificate of Organization online by creating an account with the Secretary of the Commonwealth, Corporations Division. You simply have to email [email protected] to get a Customer ID Number and PIN to access the online filing portal.
You can also mail a completed Certificate of Organization to:
Secretary of the Commonwealth
One Ashburn Place, Rm. 1717
Boston, MA 012108-1512
If you are mailing your Certificate of Organization, be sure to include the $500.00 filing fee along with your document.
Once filed, a copy of the Certificate of Organization will be available at www.sec.state.ma.us/cor. If the document is rejected for any reason, the state will let you know that.
Most states refer to this person as a “registered agent,” but Massachusetts is one of just a few states that call this person a “resident agent.” The two designations are essentially the same.
A resident agent in Massachusetts is someone who is designated to receive important documents and information on behalf of the LLC. This person must reside in the state. The resident agent’s address can be the same as the LLC’s address, but it does not have to be the same.
The resident agent must be available to accept legal documents during normal business hours. Some people do not like to have their personal address listed as the business address simple for privacy concerns. If that is the case for you or your other members, you might want to ask someone else to be your resident agent.
A resident agent can also be a domestic corporation or a foreign corporation that is authorized to do business in Massachusetts. That means that you can often pay another company to be a resident agent on behalf of your LLC, or you can fulfill that role yourself.
An operating agreement sets out how your LLC will function in very basic terms. It includes things like how revenue will be split and how debt obligations will be addressed. It also will address key items like what will happen when a member wants to leave or how a member’s death or disability should be handled.
Being thorough in an operating agreement when you create your LLC can help you avoid headaches in the future. Solving disputes now when there are no conflicts is one of the best ways you can deal with issues that might arise down the road.
An operating agreement is especially important if you are part of a multi-member LLC. But it is still a good idea to have one if you have a single-member LLC as well.
Massachusetts does not legally require you to have an operating agreement. However, it is a good practice to create an operating agreement at the outset of developing your LLC. Updating it from time to time is a good habit to get into as well.
Massachusetts is unique because some of its limited liability statutes directly tie back to the operating agreement. That means that it might be even more important to have an operating agreement for Massachusetts LLCs.
For example, MGL Chapter 156C, Section 11 provides that a member or manager of an LLC can have full legal protection when they act in good faith reliance on their operating agreement and in the records of the LLC.
MGL Chapter 156C, Section 35 creates liabilities for members who receive distributions over and above what is in their operating agreement. This type of liability can be hard to impose if you and your other members of the LLC do not create an operating agreement to start with!
Massachusetts does not have any specific state requirements for operating agreements. However, they will have certain permits and licenses that you might need to obtain that vary a great deal based on the type of LLC you are creating.
EIN stands for “Employee Identification Number”. This is the unique tax identifier that the IRS uses for your business. Every business should have an EIN, just like every individual taxpayer has a tax ID number (like a Social Security number).
In general, if you have employees, you are required to get an EIN. Multi-member LLCs and any entity taxed as a corporation will also need an EIN. While there are some rare occasions where an LLC might not need to get an EIN, it is still a good idea to get one anyway.
If you do not have an EIN, you have to use your tax ID number for business matters (usually your Social Security number). Because of this, the benefits of getting an EIN include:
Of course, you cannot hire employees without getting an EIN, so having one now, even if you are not ready to hire employees, might be a good idea. That way, you are ready to go when you want to make that kind of move.
Applying for an EIN is as simple as filling out an application on the IRS’s website. You can also fill out Form SS-4 and apply by fax or mail in the completed form. In general, it takes just a few weeks to get an EIN.
Keeping up with tax obligations as a business owner can be a bit overwhelming. However, there are actually likely a lot of tax obligations that do not affect your business at all. The trick is to hunt down the specific requirements that affect businesses in your industry.
Having a tax professional or an attorney help with this process is a helpful way to ensure you are meeting all of your requirements.
You will be expected to pay income taxes on the income you receive as a member of an LLC, just like any other Massachusetts resident who earns a regular wage.
For income tax purposes, an LLC is usually treated like a “pass-through” entity. That means that single-member LLCs are taxed like individuals, and multi-member LLCs are taxed like partnerships.
In a multi-member LLC, each member will pay taxes on their individual share of the profits on their personal income tax returns.
It is a good idea to consult with a tax professional to assist with your tax needs in Massachusetts.
Most LLCs will be treated as “pass-through” or “disregarded” entities, which means that whatever income tax rate you pay as an individual will be the rate that your income from the LLC is taxed.
However, LLC owners have the option to elect to have the LLC taxed like a corporation. If you do that, the corporate income tax rate is 8% of the income or a minimum of $456.
Then, you must also pay individual taxes on whatever distributions you receive as a member of the LLC as well. These amounts are in addition to the federal income tax requirements too.
While you will have to pay income taxes as an LLC (just like an individual), you also need to pay other taxes that you might not have encountered before. Below are some of the main taxes you should know about to get you started.
Massachusetts has a Sales and Use tax of 6.25%. This tax applies to the sale, rental, or use of any tangible personal property.
Restaurants also have a sales tax that applies to all prepared food and beverages of the same 6.5%. Some local governments will have additional taxes on meals and hotels as well.
If you know you will have more than $100 in sales tax collected, you must file a sale tax return every quarter. If the dollar amount is over $1,200, you have to file every month.
At a minimum, businesses that sell products will have to file a Business Use Tax Return once per year. You can file online with the Massachusetts Department of Revenue, or you can fill out Form ST-10 and mail it in with your sales tax payment.
The IRS imposes a self-employment tax of 15.3% on all revenue you receive from self-employment. Of that amount, 12.4% goes to Social Security, and 2.9% goes to Medicare. These amounts are calculated on your annual income tax filing.
Thankfully, individual states do not have individual self-employment taxes. Instead, Massachusetts allows a tax deduction of up to $2,000 for the self-employment tax you paid to the IRS.
Massachusetts requires some taxpayers to send quarterly payments to address their individual income taxes based on self-employment (if they make over $400 in self-employment income). Some taxpayers are also required to pay online. Others can mail in their payments using printable estimated tax vouchers.
The IRS will also require estimated tax payments for taxpayers who make above a certain amount in self-employment. You can send Form 1040-ES by mail, pay online, by phone, or even using a mobile device.
If you have employees, you are required to withhold certain amounts for payroll taxes. You calculate these taxes based on tax tables and the number of exemptions the employee claims.
Businesses that have employees are required to register with the Department of Revenue (DOR) to collect withholding taxes. You collect each employee’s W-4, report all new employees, and file quarterly reports of wages through DOR.
Massachusetts DOR provides a helpful guide that you can use to start withholding payroll taxes on their website.
Massachusetts has an alcohol tax for the sale of certain types of alcohol. The rate is based on the amount sold, and it varies substantially by variety. Alcohol taxes must be paid monthly.
Cigarettes and other tobacco products also have a tax that is generally based on a percentage of the cost of the sale.
Other taxes that crop up for business owners in Massachusetts include:
Financial institutions and insurance companies also have additional taxes in Massachusetts as well.
Once you have started your LLC, you may be thinking—now what? The hard work is over, right? Not quite. You still have to do a few more things to upkeep your LLC and ensure that the benefits it provides (including limited liability for its members) remain intact.
If you do not keep up with ongoing obligations, your LLC might get dissolved by the State of Massachusetts. Ignoring some of your other responsibilities regarding permits and licenses can land you in legal trouble as well.
Having a separate business bank account is not technically required for an LLC, but it is a good idea. One of the benefits of having an LLC is that it provides a shield for individual owners to help protect them from liability because of the LLC’s actions or inactions. However, if the LLC does not operate as a separate entity, that protection can disappear.
Having a business bank account helps you keep the necessary separation between your personal accounts and your business account. It also helps you track your income and expenses for the LLC a lot easier.
Any income that you receive from the LLC’s operations should be deposited into the business bank account. Any expenses should be paid out of the same account as well. Disbursements to members should also come from the business account.
Having all income, expenses, and disbursements involve just one account will help you track every financial aspect of your business.
You are required to file an annual report to maintain your LLC. Filing the annual report in Massachusetts costs $500.00.
Requirements to file the annual report are pretty simple. You will need to list:
Essentially, the Secretary of the Commonwealth of Massachusetts simply wants to ensure that none of this vital information has changed since you filed your initial Certificate of Organization.
You also need to ensure that you keep the state up to date with any changes regarding your resident agent. If your resident agent moves or the place where you keep your LLC’s books and records changes, you are required to file a Change of Resident Agent form. The fee for that notification is $25.00 if you file on paper or by fax. There is no fee if you file electronically.
Your LLC can be administratively dissolved if you do not file your annual report. Reinstating your LLC after it has been dissolved will require that you file a request for Reinstatement Following Administrative Dissolution and pay a $100.00 fee.
Your LLC can be administratively revocation for other reasons as well. If that occurs, you will also have to file a request for Reinstatement Following Administrative Revocation. That fee is also $100.00.
Keeping track of the LLC’s finances is vital, but it can be a little daunting. Having an experienced tax professional or advisor help you set up your finances is generally a good idea. An attorney might also be a good resource if you have specific legal concerns related to your finances.
Having professional help will ensure that you keep up with your ongoing obligations (and you know and understand what those obligations are).
Before you open your doors as an LLC, you should apply and obtain the necessary licenses and permits to operate. Every business is different, and the specific permits and licenses you need to operate legally will vary.
Every business in Massachusetts needs to register to do business in the state, but that process is “built-in” to getting your LLC started for LLCs. Other permits and licenses you need will vary by industry and your local area where you conduct business.
The Massachusetts Office of Business Development provides a helpful guide for those starting a new business. It provides a list of some of the most common permits and licenses necessary to get you started.
If you have employees, you will be required to get workers’ compensation insurance and pay into the state for payroll taxes and unemployment insurance.
Unemployment insurance is required if you have one or more employees working at least one day every 13 weeks or you pay wages of $1,500 or more each quarter. There are some exceptions for agricultural workers and domestic employees.
Payments to unemployment insurance are due with your quarterly employment and wage detail report. You can find a full guide to unemployment insurance contributions for employers on the Massachusetts Department of Unemployment Assistance website.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.