Congratulations! If you’re here it means you have either made the decision to begin a new LLC in the Commonwealth of Massachusetts, or are curious about the steps involved to create one. Either way, this is a wonderful opportunity to learn the steps to forming your own Massachusetts Limited Liability Company!
In this article, I’m going to discuss the steps involved in forming a Limited Liability Company (LLC), the benefits of this particular type of business, the reasons many small business owners choose LLCs over other business structures, and the options you’ll have available during the creation process so that you can make a well-informed decision about whether an LLC is the right model for your business.
(If you want to skip to the ‘how to form an LLC’ section, click here)
What Is A Massachusetts LLC?
A Massachusetts LLC is a Limited Liability Company formed in the Commonwealth of Massachusetts that is governed by the laws, regulations, and statutes of the Commonwealth of Massachusetts.
Why choose An LLC?
There are many benefits and advantages that you’ll experience over the years once you choose to form an LLC as opposed to other business entities, such as sole proprietorships and corporations. Here are some of the reasons that small business owners choose Massachusetts LLCs.
1. Limited Liability And Asset Protection
The first major benefit of forming an LLC instead of another business structure like a sole proprietorship or sole trader that leads small business owners to choose LLCs is that owners of LLCs cannot be held personally responsible for the debts and liabilities of their Limited Liability Company (LLC).
This means that if your Massachusetts LLC were to be sued or go bankrupt, the creditors of your LLC would not be able to seize your personal assets as a form of compensation. Therefore, your home, car, or personal finances cannot be listed as a means of fulfilling the financial obligations of your Massachusetts LLC.
If this past year has shown us anything, it’s that things can change overnight due to unexpected events. Even the most well-managed or well-prepared businesses can be toppled by a disaster or otherwise unexpected event (like a worldwide, viral pandemic). In these difficult times, the peace of mind granted by the Limited Liability and Asset Protection when you form an LLC is highly valued by many small business owners. Anyone who has put in the hard work and effort it takes to establish their business in Massachusetts will treasure the protections afforded to them by forming a Limited Liability Company (LLC)
Another reason that business owners choose LLCs is the ability to protect your personal information when you form an LLC in Massachusetts.
This is important because hackers and con artists have become very good at their criminal activities over the past decade. They can now steal your identity with seemingly insignificant information (like your name and address) which they can then use to steal your identity and amass thousands of dollars of debt in your name very quickly.
If you choose a sole proprietorship, partnership, or a sole trader model as your business structure then you have to register your name and address with the Massachusetts Secretary of the Commonwealth Corporations Division. This information is then listed on the public record on the Massachusetts Secretary of the Commonwealth’s website and it can be accessed by searching your business name. This leaves you vulnerable to the criminals and hackers who can access this information against your will.
If you form an LLC, however, you have the option to protect your information and keep it off public record.
You can hire an LLC formation service to help you accomplish this. An LLC formation service is a professional service that will register their information with the Massachusetts Secretary of the Commonwealth to be listed on the public record on behalf of your business in Massachusetts, rather than your own information. This allows you, the owner of the LLC, to maintain ownership of your Limited Liability Company and secure your information.
The last reason we’ll review for forming an LLC in Massachusetts is all the tax benefits LLCs receive. These tax benefits are most apparent when you compare a Massachusetts LLC to a corporation.
If you start a corporation rather than an LLC, you’ll experience what is known as “double taxation”.
Here’s a crash course on how “double taxation” works. The profits from corporations are charged a corporate income tax. Then the profits (which have already been taxed once with a corporate income tax) are distributed to shareholders as dividends, which are taxed at a different rate as well. This is why it’s called “double taxation”.
But when you form a Massachusetts LLC, you avoid “double taxation” entirely.
Taxation for LLCs works differently. Income for your LLC in Massachusetts will be taxed at company rates, rather than corporate rates that are then disbursed to LLC members as personal income and are later subject to personal income tax. So profits of LLCs are not immediately taxed twice the way that the profits of a corporation are.
There are more tax benefits for LLCs beyond simply avoiding “double taxation”.
When the Tax Cuts and Jobs Act was instituted in 2017, it provided LLCs with a tax benefit known as Qualified Business Income Deduction (QBID). This provides a 20% tax discount to LLCs that isn’t available to other types of business entities.
How To Start An LLC In Massachusetts
Now that you know what a Limited Liability Company is and the reasons people would choose to form an LLC in Massachusetts, I can discuss with you how to form a Massachusetts LLC. If you’re sure that a Massachusetts LLC is the right structure for your Massachusetts business entity, then here are the five steps you’ll need to take to form an LLC in Massachusetts.
*IMPORTANT* If you’d like someone to guide you through all the red tape, legal documents, and form filing that will be necessary to form an LLC in Massachusetts, then I have good news. There are professional services that can help you. They’re called LLC formation services and they help the formation process go smoothly.
LLC formation services can charge fees as low as $0 plus the state filing fee to help you file all the legal forms to establish your LLC in Massachusetts. But, my favorite LLC formation service is ZenBusiness and they charge $49 plus the state filing fee.
If you’d like to learn more about LLC formation services and how they can protect your personal information while also helping you through the process of forming an LLC in Massachusetts, then check out my guide on the best LLC formation service.
1. Obtain Articles Of Organization Form
The first step to complete to form a Massachusetts LLC is to get your hands on a Certificate of Organization form from the Massachusetts Secretary of the Commonwealth Corporations Division.
You can get the Certificate of Organization form on the Massachusetts Secretary of the Commonwealth website here.
This is a PDF version of the Certificate of Organization form and it’s the primary form that you’ll need to file with the Massachusetts Secretary of the Commonwealth Corporations Division to form your Massachusetts LLC.
Therefore the remaining steps will relate to the Certificate of Organization form.
2. Choose Your Business Name
The first thing you’ll add to your Certificate of Organization form is your LLC name.
Unfortunately, this isn’t as simple as filling in the first business name that comes to mind. The laws set forth by the Massachusetts Secretary of the Commonwealth Corporations Division require all businesses and LLCs in the state to have unique names. This means you’ll have to choose an LLC name that isn’t already being used by another business entity. You also can’t use a name that is deceptively similar to the name of a business entity that’s already been registered with the Secretary of the Commonwealth Corporations Division.
You can check the business name database on the Massachusetts Secretary of the Commonwealth’s website here to determine whether the name you want to use is available.
Under Massachusetts state law, LLCs are required to have the words “Limited Liability Company”, “Limited Company” or the abbreviations “LLC”, “LC”, “L.L.C.”, or “L.C.” in their name, so keep this in mind when naming your Massachusetts LLC.
Once you’ve decided on a name for your Massachusetts LLC, you can file a Name Registration Form with the Secretary of the Commonwealth that will reserve your chosen business name for a period of 60 days. You can find this form here and you must send it by mail. The filing fee is $30, and you can extend your reservation for 60 more days by filing for an extension with the Massachusetts Secretary of the Commonwealth Corporations Division for an additional $30.
If the name you’ve had to register isn’t your style, you can register a DBA (Doing Business As) name, also known as a fictitious name, trade name, or assumed name.
A trade name is the name that you’ll present to the world and will appear on all of your LLC’s signs and advertisements. You’ll need to register your LLC’s trade name with the city or county in which your business is located.
3. Choose A Massachusetts Registered Agent
The next step to forming an LLC is to appoint a Massachusetts registered agent or resident agent. This is important because your resident agent or registered agent’s name and address will be included on your Certificate of Organization form.
A registered agent or resident agent must accept mail or legal documents like Service of Process from state offices like the Massachusetts Secretary of the Commonwealth Corporations Division or the Massachusetts Department of Revenue. The registered agent or resident agent must also be available during normal business hours on business days on behalf of your LLC to receive these official correspondences.
You can use a professional agent service to make sure your LLC’s legal resident agent or registered agent requirements are met. Resident agent services make sure you’ll receive all of your LLC’s important mail and legal documents (like Service of Process), while also ensuring that your personal information is secure and kept off the public record. A resident agent service will typically cost between $99-$299 per state per year.
If you choose to forgo a registered agent service, then you could be taking a lot of risks with your business in Massachusetts. Your information could be used for identity theft or cyber crimes and you could miss important official mail and legal documents like Service of Process and then it will be harder to defend yourself against lawsuits. You could even lose your business from either a default judgment against your business or because the Secretary of the Commonwealth finds that you are not in compliance with the state’s resident agent laws. For these reasons, I always suggest that new LLCs use a registered agent or resident agent service.
If you’d like to use a professional service to make your life easier and keep your personal information secure, click here to read my guide on the best Massachusetts registered agent service.
4. Choose Your LLC Address
The name for your LLC won’t be the only piece of information added to your Certificate of Organization form. The business address that you list on the Certificate of Organization form is important, along with the LLC name. This business address will be listed on the public record for the public to access online, as is the name of your Massachusetts LLC. The address you list is the location your business will receive official mail and important legal notices, as well.
If you’ve chosen not to use a registered agent service or LLC formation service, you can use your company’s physical street address. If your business in Massachusetts doesn’t have a physical location or street address, you’ll be forced to list your home address or office address.
However, if you’ve chosen to hire a registered agent service or LLC formation service, they will list their address on the form, rather than yours. The address they list can’t be traced back to your home address, so your personal information and your privacy remain secure.
5. Sign And File Your Certificate Of Organization
Once all the blanks are filled in on your form and you’ve reviewed it for accuracy, it’s time to sign and file the Certificate of Organization form for your LLC in Massachusetts.
Before you file a Certificate of Organization, make sure it includes all of the following:
- The LLC’s Federal Employer Identification Number (EIN).
- The name and address of the LLC. This address must be in Massachusetts and it can’t be a PO Box address.
- The general character of the business your LLC in Massachusetts will conduct.
- The dissolution date of your LLC if you’ve decided on one.
- The information for your LLC’s registered agent.
- The names and addresses of each manager, LLC member, or person with authority to make decisions for your LLC in Massachusetts.
You can sign and file the Certificate of Organization form for your LLC yourself, but you should know that doing so will result in your personal information being registered for public access online. If you hire an LLC formation service, they will enter their information on the form, which is a win-win for LLCs because the LLC owner retains ownership of the LLC and keeps their personal information off the public record.
You have a couple of options for filing the Certificate of Organization form for your LLC in Massachusetts. You can file online or file by mail by sending the form along with a payment for the filing fee. To file by mail simply send the form to this address:
Secretary of the Commonwealth
One Ashburton Place, Room 1717
Boston, Massachusetts 02108-1512
You can also choose to file online. You’re still subject to a filing fee when you file online, which you can do with a credit card. Click here to file your Certificate of Organization online.
After you file your Certificate of Organization form (which you can file by mail or online), the Secretary of the Commonwealth will email you after they’ve processed the formation documents, the form, and the state filing fee. This process usually takes around 24-36 hours.
Other LLC Activities
You aren’t finished once you file the Certificate of Organization for your LLC in Massachusetts. You still need to perform several activities for your business that aren’t related to LLC formation, but are important because they will keep your Massachusetts Limited Liability Company in good standing.
Massachusetts LLCs must file an Annual Report. You must file an annual report once per year and the annual report must be filed with the Massachusetts Secretary of the Commonwealth. You must file an annual report in Massachusetts before the anniversary of your LLC’s formation. The annual report can be filed online or by mail. Click here for the PDF Limited Liability Annual Report form, and here to file online. The fee for filing online or filing via postal mail is $500.
You may need to obtain a business license for your LLC. There aren’t state-issued business licenses for LLCs in Massachusetts. In order to find out if you need a local business license for your LLC, contact the county clerk in your area.
If your LLC sells goods and collects sales tax, you’ll be required to register your LLC with the Massachusetts Department of Revenue. If your LLC collects sales tax then you can register with the Massachusetts Department of Revenue using the online MassTaxConnect website, which you can find here.
If you live in another state but plan to form an LLC in Massachusetts, this is what is known as a foreign LLC. The process for establishing foreign LLCs in Massachusetts is pretty much the same as the steps I’ve described here to start an LLC. The main difference between starting foreign LLCs and starting domestic LLCs is that a foreign LLC is required to maintain a registered agent service in the state of Massachusetts. You must also file a Foreign Limited Liability Company Application for Registration. This application must be accompanied by a Letter of Good Standing or Certificate of Legal Existence from your LLC’s home state no more than 90 days before you fill out the application. The fees for this are $500 if filed by mail or $520 if filed online.
Along with filing an annual report, it’s also important to ensure that you pay your taxes and obtain a Certificate of Good Standing. Your business may not be legally allowed to conduct business in the state of Massachusetts if you forget or neglect any of these activities.
This seems like a lot of paperwork to file, and there’s a good reason for that – it is. If you’d prefer help filing these documents, you should consider hiring a Massachusetts PEO service and subscribing to online legal services. This should cut back on your form filing workload.
Massachusetts LLC Fee Summary
How much does it cost to start an LLC in Massachusetts? Regardless of whether you’ve chosen to start an LLC on your own or you’ve decided to enlist the aid of an LLC formation service, there are several filing fees and taxes you’ll have to pay for your LLC in Massachusetts. Here’s a list of some of the taxes and filing fees you can expect to pay for your LLC to give you an idea of the costs to start an LLC.
Articles of Organization filing fee: $520 online, $500 by mail.
Name Reservation filing fee: $30
Registered Agent Fee: $99- $299
Annual Report filing fee: $500
State Personal Income Tax: 5%
State Corporate Income Tax: 8%
After Starting Your Massachusetts LLC
Congratulations! You’ve taken the first steps towards starting your LLC and your business journey. It’s important that you enjoy this business victory, so celebrate with a few drinks, go out to dinner, go on a weekend trip, or have a night out with your friends or business partners. Don’t relax for too long, though, because there’s still work to be done to make sure that your LLC has the right foundations and can function normally as a business.
Here are the three important steps you’ll need to complete after filing your Certificate of Organization.
Step 1. Create An Operating Agreement
The Commonwealth of Massachusetts doesn’t require LLCs to form an Operating Agreement, but it’s definitely in your business’s best interest to do so. Without an operating agreement, your LLC will be governed by Massachusetts LLC law for your operations, which you may not like. It’s better to choose how you want your company to run by creating an LLC Operating Agreement.
To explain the importance of Operating Agreements to you, I’ll use a metaphor. Think of your business as a computer. The LLC would be the computer’s case, which protects it. The LLC Operating Agreement would be like the computer’s operating system, which tells it what to do and how to react to certain stimuli.
An Operating Agreement is a document that serves as both a contract between LLC members and a list of precise instructions about how your business should operate. The Operating Agreement should list every LLC member, then set up all of the structural, managerial, financial, and operational facets of your business, along with the effective date of your LLC.
*IMPORTANT* Before you draft an LLC Operating Agreement, you should decide if it will be managed by a single member in the case of a single-member LLC, or use a multi-member managerial system, or if it will have managers at all. This helps to decide who will make important decisions for your business and how. If you utilize a multi-member managerial system, they all vote on each important business decision. If you choose to use a single- member LLC, then one member will call the shots.
The Operating Agreement for your business should begin with a list of each LLC member, clarifying which of these members has the authority to make high-level business decisions and then continue to clearly indicate the ownership percentages and percentages of profits and losses of each member. Your agreement should clearly spell out the roles of each LLC member as well as their interactions and relationships with each other as well as with the other departments. Designing Operating Agreements this way will ensure that LLC members know their roles, which member or departments they should most closely interact with, who their superiors are and the roles and tasks assigned to each member in that department to quell infighting among LLC members.
One important part of your Operating Agreement is instructions for what to do if an LLC member leaves or if a new LLC member joins the business. A lot of people leave this out of their Agreement but if you add it in your business will have a clearly-written set of instructions about what to do if there is a falling out between LLC members. Having a set of clearly written rules or guidelines for these situations is extremely helpful during difficult times when emotions are running high.
Operating Agreements are very important documents for young LLCs during their beginning stages. They explain the jobs of your LLC members, how much they’ll be paid, and provide comprehensive instructions about how the business should be run. Although LLCs aren’t required to have Operating Agreements in order to legally do business in Massachusetts, if you choose to create one, you should include the guidelines and instructions for Operating Agreements that I’ve listed here because leaving them out can heavily impede your business.
To be clear: the rules set forth for your business in the Operating Agreement are the specifications for the operation of your business and your business is legally bound to operate according to the framework laid out in your Agreement, so a poorly-written Agreement means your business may not experience the growth you want. You can easily botch the Operating Agreement for your business by forgetting to leave room in the document for things like business growth, change, or innovation. A well-written agreement means you should be able to sit back and watch as your business thrives without being held back by the unclear instructions of a poorly-written Operating Agreement.
If you haven’t written an Operating Agreement before, there are services that can help you.
Northwest Registered Agent provides a free Operating Agreement template on their website. If you want assistance with the wording, some LLC formation services will include one in their LLC formation package. If you want to form your own LLC and just want qualified legal assistance with the Operating Agreement, some online legal services can also assist in doing it right the first time.
Step 2. Apply For An Employer Identification Number
If your LLC has more than one member or you plan to hire employees or open a bank account that is solely for your LLC, then you’ll need to apply for an Employer Identification Number (EIN). An EIN qualifies your business for certain permits and licenses. Your small business isn’t required to hire employees to qualify or register for an EIN. The EIN is simply an identification number for businesses much like a Social Security Number or Serial Number.
An EIN is a number used to identify businesses in a similar way that Social Security Numbers are used to identify individuals. You can apply for an EIN through the Internal Revenue Service (IRS). Applying for an EIN is also surprisingly simple to do as well.
Many LLC formation services found in the Commonwealth of Massachusetts will apply for an EIN for your LLC on your behalf as part of their services, which takes a lot of the work out of applying for an EIN. But you can also apply for an EIN yourself without the help of an LLC formation service. All you have to do is go to the IRS website on Monday-Friday between the hours of 7:00 am and 10:00 pm, fill out and submit the EIN application.
Step 3. Open A Business Bank Account
The last step you need to take to make sure that your Massachusetts Limited Liability Company will be able to properly operate and function is to open a bank account dedicated to its business transactions.
Many small business owners overlook this step but it’s an important one you won’t want to miss. These business owners run both business and personal transactions through their personal accounts and assume that having one bank account will save them some trouble. But there are two major reasons why you shouldn’t do this.
The first reason is that opening a dedicated business bank account is massively helpful when filing taxes. Many small business owners assume they’ll be able to remember which transactions were and weren’t related to their businesses for tax filing purposes. Unless you plan on keeping a detailed ledger to track which purchases were made for your business, it’s far simpler to open a separate account for your business because it’s much easier to file tax information when you can get a statement listing your business transactions made through a dedicated account.
The second reason you benefit from having a dedicated business account is that you don’t want to leave yourself vulnerable to lawsuits. If you conduct business transactions through your personal account then your information is vulnerable and so is the money kept in that account. This means that not even the asset protection that you enjoy when you form an LLC can help you if you conduct business in this manner.
In short, to make filing taxes easier and protect your personal assets, open an account that’s dedicated to your LLC.
To open an account for your LLC, you’ll need what’s known as a “bank kit”. A bank kit contains things such as a copy of your Certificate of Organization, Operating Agreement, and your EIN as well as your company’s initial resolution. Basically, you’ll have to collate all of the formation documents that you’ve obtained and filed so far.
If you’d like to get someone to gather all of these documents for you, hire an LLC formation service. Many LLC formation services in Massachusetts create bank kits as part of their services.
You’ve already taken a huge step towards business independence when you made the decision to form an LLC in Massachusetts, so congratulations!
If you have chosen to forego an LLC formation service (which typically charges a fee as low as $0 plus state filing fees), here are the five steps you must take to form an LLC in Massachusetts:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It’s easy to feel like you’ve been swamped by the overwhelming amount of red tape, piles of forms to file, applications to submit (some of which you can file online and some you can file by mail), filing fees to pay and all of the legal jargon that owners of LLCs must go through to start an LLC in Massachusetts. But, once all of this work is done and you’ve single-handedly completed this daunting task, you’ll love the feeling you get from having accomplished it all on your own. It’s definitely worth all the hassle just to feel that rush!
Congratulations on your new LLC and good luck on your business journey!