How to Start an LLC in Massachusetts: A Step-By-Step Guide
As a business owner, one of the first and most important decisions you’ll need to make is how you will legally structure your business. Limited liability companies (LLCs) are a popular option for entrepreneurs looking for flexibility and freedom. Our comprehensive guide and FAQs below will tell you everything you need to know about how to start an LLC in Massachusetts.
What Is an LLC?
LLCs are business entities, like corporations and partnerships. Business owners have a choice of what type of entity they’d like to form at the outset of forming their new business. The various structures have pros and cons, depending on factors such as experience level, the makeup of the business, industry and overall goals for the company. LLCs also have several benefits:
Understanding the Benefits of an LLC
When most owners research how to start an LLC in Massachusetts, they often don’t realize there are many benefits to forming an LLC.
Limited Liability
One of the most significant benefits of LLCs can be found in its name: Limited liability. This means that LLCs provide a layer of protection to business owners that is not found in other types of businesses.
For example, LLC owners are not held personally liable for any debts incurred by the LLC or for business-related lawsuits. As the business owner, your personal assets, such as your home or investment accounts, will not be in danger if your company has financial struggles or is sued.
Flexibility
Flexibility is another attractive feature of LLCs, which provides a great deal of peace of mind for owners. Other entity structures, like corporations, require extensive corporate formalities that can be burdensome for employees and owners. This means entrepreneurs have greater control over how to run the business, which can be a huge perk for anyone considering starting a Massachusetts LLC.
Pass-Through Taxation
When deciding how to start an LLC in Massachusetts, it’s important to consider the tax implications of your choice of business entity. Owners can choose how they will be taxed because the Internal Revenue Service (IRS) considers LLCs to be “pass-through” entities.
This means owners are not automatically subject to a corporate federal income tax. Business income “passes through” to owners and is reported on their personal income tax returns. This tax structure avoids double taxation faced by corporations.
Management Structure
Unlike other business entities, LLCs are flexible regarding how the company will be managed. Entrepreneurs have the choice of designing an LLC that is single-member, member-managed or manager-managed.
Single-Member LLC
In a single-member LLC, the entity is separate from the “owner or member” for tax purposes. With this formation, the “owner-member” isn’t liable for business debts aside from the amount they invested into the business.
Member-Managed LLC
In a member-managed LLC, owners (considered “members”) have management authority within the company.
Manager-Managed LLC
Conversely, a manager-managed entity may be preferable when starting a Massachusetts LLC for business owners who want to have a smaller group of designated professionals in charge of day-to-day operations.
How to Start an LLC in Massachusetts
Now that you know more about the business structure, our guide will explain what you need to know about how to start an LLC in Massachusetts.
1. Decide How You’ll Manage Your LLC in MA
One of the first decisions you’ll make when starting an LLC in MA is whether the company will be member-managed or manager-managed. Most small businesses are member-managed LLCs. Member-managed LLCs may be a better option for smaller or newer companies with limited resources, where multiple management tiers are unnecessary.
Manager-managed LLCs may be the right choice for larger, more complicated LLC operations where the owners prefer not to be fully involved in the day-to-day operations. Manager-managed LLCs are also attractive to passive investors who may be interested in investing in companies but uninterested in taking on managerial duties or running the business.
2. Choose Your Unique Business Name
When you’re learning how to start an LLC in Massachusetts, one of the most exciting steps is to determine what name to call your LLC. Massachusetts law requires owners to follow these LLC naming conventions:
- Include the phrase “limited liability company,” or “LLC,” “LC,” “L.L.C.,” or “L.C.”
- Be distinguishable from any other Massachusetts LLC or business
- Not include names that make it sound like your LLC could be a government entity (like FBI or Treasury)
Once you’ve picked your company’s name, you’ll need to make sure another Massachusetts business hasn’t claimed it by running a name search on the Secretary of the Commonwealth’s database. This process will ensure that you can register the chosen name and aren’t in violation of any other company’s trademark.
3. Choose Your Registered Agent
Any LLC Massachusetts needs a resident agent to be responsible for collecting mail, legal documents, lawsuit notifications and official government correspondence. Your registered agent must be authorized to work in the state and be over 18 with a street address in Massachusetts.
You can elect yourself as your LLC’s registered agent or someone else.
4. File Your Certificate of Organization
You must file a document called the Certificate of Organization with the Massachusetts Secretary of the Commonwealth and pay a fee. This document will collect some information about your company, like the general character of the business, the business name, and address. It can be mailed, filed online, sent via fax or delivered personally.
5. Create Your Operating Agreement
An operating agreement is an important legal document that outlines your company’s operating procedures. While not required by Massachusetts law, it’s a good idea to draft one. It should include information about how your LLC functions, including details about the business’s structure, the individual responsibilities of members and how the company will be run.
Operating agreements are a good way to ensure that all stakeholders in the business are on the same page when deciding how to start an LLC in Massachusetts.
6. Obtain Your LLC EIN
The IRS uses nine-digit Employee Identification Numbers (EINs) to identify businesses. Generally speaking, all businesses must have an EIN (excluding single-member LLCs) in Massachusetts. You need an EIN to complete important business functions like filing taxes and opening business bank accounts. Apply for your EIN for free online.
7. Maintain Your LLC
Running an LLC means that you need to comply with certain state and federal obligations. For example, you’ll need to file annual reports with the Massachusetts Secretary of the Commonwealth Corporations Division.
Some LLCs will also have to register with the state’s Department of Revenue. You’ll need a seller’s permit if your LLC sells a physical product. Depending on what industry you’ll be working in, you may need to do further research to see if your business has additional Massachusetts permit requirements. For example, if you’re opening a restaurant or other business that sells food, you’ll probably need to obtain a food safety permit.
To ensure you meet your federal obligations, check out the U.S. Small Business Administration licenses and permits page.
How To Start an LLC in Massachusetts FAQs
How much does it cost to start an LLC in Massachusetts?
As of 2022, LLC owners will have to pay $500 to file a certificate of registration and an additional $500 yearly for the filing of an annual report.
Can I operate a Massachusetts LLC from out of state?
Yes, you may be able to operate an LLC in Massachusetts even if you formed your LLC in a different state (referred to as a “foreign LLC”). Learn more on the Secretary of the Commonwealth’s Foreign LLC information page.
What are my Massachusetts LLC tax obligations?
Your tax obligations will vary depending on what industry you’re working in. If you sell products, you’ll need to collect sales tax. If your company has employees, you’ll have to register for Unemployment Insurance Tax and sign up for Employee Withholding Tax.
You’ll also need to be aware of your federal LLC tax requirements. Most LLCs will be required to report income to the IRS annually.
Can I merge or consolidate my LLC?
Yes. An LLC can merge or consolidate with or into other business entities.
How do I dissolve my LLC in MA?
If you no longer want to operate your Massachusetts LLC, you must submit a Certificate of Cancellation to the Massachusetts Secretary of the Commonwealth, Corporations Division. There is a $100 dissolution filing fee and the process usually takes about three to five business days.
Still Need Help Setting Up Your LLC?
We’ve guided you through the steps for learning how to start an LLC in Massachusetts, but the process can still be complicated. Set your business up for success and hire a professional corporation formation firm to help you prepare your LLC paperwork.
Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.
