Steps to Forming an LLC
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How to Form a Massachusetts LLC
Forming an LLC in Massachusetts will help protect your personal assets from lawsuits and judgments against your business. An LLC is a business structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming a Massachusetts Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
Before getting into the six steps, here are a few things to know about Massachusetts LLCs.
How Much Does It Cost to Get an LLC In Massachusetts?
The filing fee for a Massachusetts Limited Liability Company is $500 by mail or $520 online, payable to the Massachusetts Secretary of the Commonwealth.
It normally takes 102 business days to file the LLC paperwork.
Massachusetts Annual Report and Annual Fees
Massachusetts requires all LLCs to file annual reports. The filing fee for a Massachusetts LLC annual report is $500 by mail and $520 online and is due each year by the end of the year the LLC was formed.
- Minimum Number – one or more
- Members/Managers- The name and address or each of the members and managers who are authorized to execute documents are required to be listed in the Certificate of Organization
- Residence Requirements – none specified
- Age Requirements – 18 and older
In addition to forming your LLC, you will need to check for Massachusetts business licenses and permit such as the sales tax registration with theDepartment of Revenue.
Steps to Forming a Massachusetts LLC
Step 1. Naming Requirements
Massachusetts LLC Name Search
Before settling on a name, you want to be sure nobody else is using it as each LLC must have a unique name. Here’s how to search available LLC names in Massachusetts. You can also visit our list of Secretary of the Commonwealth offices to do a free Massachusetts LLC name search.
If you find a business name you want to register, but aren’t ready to form your LLC, the Massachusetts Secretary of the Commonwealth to hold the name.
Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Also, there are some words that aren’t allowed to be used in the state, like those that could refer to a state agency or that require licensing from the state.
Step 2. Choosing a Resident Agent
What is a Resident Agent?
A resident agent (commonly referred to as a registered agent in most states) is the central point of contact for the LLC, that can be either an individual or business entity, that receives service of process (important legal documents, tax notices or communications with the state).
Resident Agent Requirements
The resident agent must generally be available during normal business hours at a physical street address in Massachusetts to accept service of process. A Post Office Box or personal mailbox is not acceptable. If the resident office includes a suite number, it must be included in the registered office address.
Who can be a Resident Agent in Massachusetts?
A resident agent in Massachusetts can either be a resident of the state or a corporation authorized to do business in the state.
Provided you as the business owner have a physical presence in Massachusetts, you can be the resident agent however, there are additional privacy benefits to having a third-party registered agent.
Check out our article on why an LLC Resident Agent may be a good choice for your business for more details.
Step 3. File the Certificate of Organization
The Certificate of Organization (known as the Articles of Organization in most states) is the paperwork used to form an LLC with the state. This is the most important step and many people believe that you need an attorney to file.
While we don’t discourage having an attorney, filing a Massachusetts LLC can be done by most people, but you can save considerable money over an attorney and make sure everything is filed correctly by using a formation service such as ZenBusiness.
Download the Massachusetts Certificate of Organization
Step 4. Creating an Operating Agreement
An LLC operating agreement is not required in Massachusetts but is typically a good idea, especially for an LLC owned by multiple people. The primary function of the LLC operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Learn more about creating an operating agreement
Step 5. Obtain an EIN
What is an EIN?
The Employer Identification Number (EIN), or Federal Employer Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
How to Register an EIN for a Massachusetts LLC
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Selecting the Tax Status of the LLC
In addition to the personal liability protection the Limited Liability Company provides its members, another key benefit of an LLC the four business entities don’t provide is the flexibility in taxation. There are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC – An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment taxes on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form 1065.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation will cost more in taxes as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corporation attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting for an LLC that elected S Corporation status.
Each of the four ways for an LLC to be taxed in Massachusetts can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost.
ZenBusiness has a special offer right now to form an LLC for $49 plus the cost of the state fees.
Step 7. Open a bank account for your business
Opening a separate LLC bank account is important as it establishes a clear division between your personal and business finances. Should the LLC be sued and you are using a personal bank account for your LLC’s finances, that would be considered a commingling of funds, which may make it difficult to maintain the liability protection of the LLC.
To open a bank account for your LLC, you will need to bring the following with you to the bank:
- Form of identification for each member, such as a driver’s license
- Copy of the Certificate of Formation
- LLC operating agreement
- Employer Identification Number – If you are a single-member LLC with no employees, you can simply use your Social Security Number
A bank resolution may be needed depending on the bank and the tax election of the LLC. A banking resolution is a formal document that provides authorization for who has access to the LLC bank account.
Learn more about opening a bank account for an LLC
Step 8. Obtain a sales tax permit (not required for all businesses)
If your business sells a taxable product or service you will also need to apply for a Massachusetts Sales Tax Permit through the Massachusetts Department of Revenue.
Wanting to form an LLC in a state other than Massachusetts to save money on taxes? This doesn’t typically do as much as you may think as you will likely register an LLC in the other state and will also usually need to file as a foreign LLC in your home state of Massachusetts as well. In addition to paying two filing fees to start the LLC and two annual reports each year, there will be multiple tax filings as well. Be sure to do your research as there are a lot of people promoting formation services in other states and weigh all the pros and cons before making this decision as it can be a costly one.