Starting a Limited Liability Company (LLC) in Massachusetts can be an exciting prospect for any entrepreneur. This article will lead you through the process of forming an LLC in the Bay State, from brainstorming business name ideas to understanding the fees and benefits involved. Whether you're a seasoned business owner or new to business, understanding how to incorporate an LLC is essential.
As we dive into the ins and outs of how to start your own business as an LLC, remember that it's about more than just legal paperwork, it's about creating a profitable business.
How to start an LLC in Massachusetts in 7 steps
01. Pick your business name
When starting a business in Massachusetts, the first step is to choose a name for your LLC. Your business name should be unique and must not be the same as or too similar to other names on record with the Massachusetts Secretary of the Commonwealth. To comply with state requirements, you'll want to make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company.”
To make sure your company name is distinctive and complies with all legal requirements you can check the the Massachusetts Secretary of the Commonwealth's online database to search for existing business names. You'll need to chose a name not already in use or registered to another business. You need to make sure you don't include any words in your name that might confuse your business with an established government agency. As part of the same process you should look up domain availability if you plan to also start creating a website.
Tip: If you're having trouble coming up with a unique name for your business, consider using a business name generator.
02. Choose your registered agent
Every LLC in Massachusetts must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Massachusetts.
Need help setting up your LLC? Wix has partnered with LegalZoom, the No. 1 choice for online business formation to help you start, run and grow your business.
03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in Massachusetts. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits to register your business, follow these steps:
Identify requirements: Check with local and state agencies to determine what permits you need.
Complete applications: Fill out all required paperwork accurately and submit them to the appropriate authorities.
Pay fees: Be prepared to pay any associated fees for obtaining your permits.
Learn more: How to get a business license
04. File a Certificate of Organization
The Certificate of Organization is a critical document that officially creates your LLC in Massachusetts. You'll file this with the Massachusetts Secretary of the Commonwealth, either online or by mail, along with the required filing fee.
To do this you'll need important details like your LLC's name, registered agent information and management structure of your planned business.
Fill out Form D, this is the specific form used for filing an LLC's Certificate of Organization in Massachusetts. Then complete the submission process by paying the necessary fee. This is $520 to file an LLC online or $500 by mail.
05. Draft your LLC operating agreement
While not legally required in Massachusetts, creating an operating agreement is highly recommended for any LLC. This internal document outlines ownership structures, member roles and operational procedures for business. It also proves that your LLC is a
separate business entity, which affords you the liability protections that come with this type of business
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is necessary for hiring employees, opening bank accounts and filing taxes for your LLC. To get yours you can apply online or via mail, it can be done for free through the IRS.
Remember to stay on top of state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Massachusetts for an LLC owner this means a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Massachusetts Comptroller's Office website.
07. Organize annual reports
Massachusetts requires LLCs to file annual reports to keep their information up-to-date with the state. These reports include current contact information and details about your business operations over the past year.
To ensure you’re compliant with this annual requirement you'll need to:
Know due dates: Your Massachusetts Annual Report is required each year before your LLC's anniversary date. Determine your LLC's anniversary date by referring to the date your Certificate of Organization was authorized. You can also search for your LLC using the Business Entity Search tool.
Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
Submit and pay fees: Complete the submission process by paying the $500 filing fee. ($520 online or by fax).
How much does it cost to start an LLC in Massachusetts
When you're planning to start an LLC in Massachusetts, it's important to budget for the various costs involved.
The main costs
Filing fee for Certificate of Organization: The state requires a fee when you file your Certificate of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $520 online or via fax, $500 otherwise.
Registered agent fee: If you choose to hire a professional registered agent service, they will charge an annual fee. Costs vary, so shop around for the best deal that suits your business budget.
Business permits and licenses: The cost for permits and licenses varies widely depending on your industry and location. Some may be one-time fees, while others could be annual.
Operating agreement: If you hire a lawyer or use a professional service to draft your operating agreement, this will incur a fee. However, many online resources offer templates that can reduce or eliminate this cost if you're comfortable handling it yourself.
Employer Identification Number (EIN): Obtaining an EIN from the IRS is free of charge.
Annual report filing fee: There is an annual fee for filing your LLC's report with the state of Massachusetts. This recurring cost keeps your business in compliance with state regulations.
State taxes: Depending on your LLC's earnings and tax structure, you may need to pay state income tax, sales tax or other business taxes.
Additional costs
Legal or financial consulting fees: If you need professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Costs here include domain registration and potentially hiring a web designer or using a website builder like Wix for making a website.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Learn more: How much does it cost to start an LLC
Who can start an LLC in Massachusetts
To form an LLC in Massachusetts, there are specific eligibility criteria that need to be met.
You must be at least 18 years old to form an LLC in the state.
There's no requirement for you to be a Massachusetts resident. You can start an LLC in Massachusetts whether you live in the state, elsewhere in the United States or even in another country.
Both U.S. citizens and non-citizens can form an LLC in Massachusetts. However, non-citizens may need to comply with additional federal regulations.
Most types of businesses can be structured as an LLC, but certain professional services may require a different business entity, such as a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC).
There's no minimum or maximum number of members required to start an LLC. You can start a single-member LLC or have multiple members.
Benefits of starting an LLC in Massachusetts
Forming an LLC in Massachusetts offers a range of advantages These benefits encompass legal protections and tax advantages, making it a popular choice among entrepreneurs.
Limited liability protection
Members of an LLC enjoy limited liability, which means their personal assets are protected from business debts and legal actions against the company.
A limited liability company—or LLC—is a type of business entity that offers some of the benefits of a corporation with less formality. One key benefit of an LLC is that it can protect a small business owner’s personal assets—like homes, cars, and personal bank accounts—from lawsuits against the business. Shylene D’Addario, VP and associate general counsel at LegalZoom
Pass-through taxation
LLCs typically benefit from pass-through taxation where profits are only taxed once at the member's personal income tax level, avoiding the double taxation faced by C Corporations, for example.
Flexibility in management
Unlike corporations, LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Credibility with customers and partners
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can also choose an .llc domain for your website to reinforce this credibility.
Ease of ownership transfer
Transferring ownership interests in an LLC can be simpler than with other forms of business entities.
Potential cons of starting an LLC in Massachusetts
When considering forming an LLC in Massachusetts, it's important to weigh both the benefits and potential drawbacks. Understanding these disadvantages will help you make an informed decision about whether an LLC is the right business structure for you.
Here are some challenges you may encounter with an LLC in Massachusetts:
LLCs must pay annual fees and file reports to maintain good standing with the state. Failure to comply can result in penalties or dissolution.
Members of an LLC may be subject to self-employment taxes on their share of the profits.
Some investors may prefer to invest in corporations rather than LLCs due to a familiar structure and potential for growth through stock sales.
For businesses that need a more rigid structure due to size or complexity, a corporation might be a better fit than an LLC.
Why start an LLC over another business entity in Massachusetts?
Choosing the right business structure is crucial when it comes to starting a business. In Massachusetts, forming an LLC is often preferred due to its multiple advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
You've formed your LLC in Massachusetts, now what?
After successfully forming your LLC in Massachusetts, the journey to building and growing your business is just beginning. Here are some next steps to consider after forming your LLC:
Open a business bank account
Keep your personal and business finances separate by opening a bank account specifically for your LLC. This will simplify accounting and tax filing.
Obtain necessary insurance
Depending on your business type, you may need various insurance policies, such as general liability insurance or professional liability insurance, to protect your business.
Comply with tax requirements
Stay on top of your federal, state and local tax obligations. This includes paying any applicable sales tax, payroll tax and state income tax.
Develop a strong brand identity
Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
How to start an LLC in Massachusetts FAQ
How long does it take to form an LLC in Massachusetts?
The time it takes to form an LLC in Massachusetts can vary. If you file online, the process can be completed in a few business days. Mailed applications may take longer, typically a few weeks.