Estimated reading time: 14 minutes
Creating an LLC in Massachusetts
Companies looking for an environment where their business can flourish need look no further than Massachusetts.
One of the biggest advantages to small business owners in the state of Massachusetts is its ongoing economic growth. Many entrepreneurs have noted that the state has recovered strongly from the 2008 financial crisis and the environment is such that people and businesses are willing to spend money.
So, let’s dive into how to start an LLC in Massachusetts step by step.
Table of contents
- Creating an LLC in Massachusetts
- Choose a Business Entity for Your Massachusetts LLC
- Create a Business Name
- Massachusetts LLC Registration
- Massachusetts LLC Operating Agreement
- Get Your Employer Identification Number or EIN
- Assign a Registered Agent for your LLC in Massachusetts
- Open a Business Bank Account
- Tax and Regulatory Requirements
- File Annual Reports
- Getting Started with Your Massachusetts LLC
Choose a Business Entity for Your Massachusetts LLC
To understand how to start a business in Massachusetts, you need to understand entity formation. Limited Liability Companies (LLCs) and Corporations are the most popular business types.
Startup formation is important because it sets your company apart as a professional company and not just a hobby.
A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.
Limited Liability Company
LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formation protects the owner’s personal assets and also shields them from personal liability similar to a corporation. They also possess the “pass-through” tax benefits of a partnership.
There are two types of LLCs. LLC run by just own person (single-member LLC) and LLCs run by multiple people (multi-member LLCs)
Forming an LLC in Massachusetts can be difficult and confusing, especially as a first time business owner. But with a company like Inc Authority in your corner, you’ll not only have your LLC formed for you, but you’ll also get expert guidance beyond business formation, so you never have to wonder or worry about what to do next!
What About DBAs?
DBAs (which stands for “doing business as”) grant business owners the ability to conduct business under an assumed name. A DBA is also referred to as a fictitious business name and is an authorization by the state for your business to operate under an assumed name.
For sole proprietors and owners of LLCs, DBAs offer an affordable way to gain legal recognition for the secondary name of your choice.
- Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
- LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.
A DBA provides privileges like the ability to open a bank account, create enforceable contracts and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in Massachusetts, get the proper legal recognition early on to start off on the right legal footing.
Massachusetts State Filing Fee
The Massachusetts Corporations Division charges a $520 filing fee for online filing and $500 for a paper filing. It also costs $30 to file a name reservation application, if you want to reserve your LLC name prior to filing the Certificate of Organization.
Create a Business Name
Under Massachusetts law, an LLC name must contain the words limited liability company,” “limited company,” or the abbreviations “L.L.C.,” “L.C.,” “LLC,” or “LC.” The name may contain the name of a member or manager of the LLC.
Your LLC’s name cannot be deceptively similar to the names of other business entities already on file with the Secretary of the Commonwealth Corporations Division. Names may be checked for availability by searching the Massachusetts name database. You may reserve a name for 60 days by filing an Application for Reservation of Name. The filing fee is $30. The reservation can be extended by an additional 60 days by paying an additional $30 fee before the initial 60-day period expires. The application must be filed by mail with the Secretary of The Commonwealth Corporations Division.
Using a Fictitious Name or “DBA”
You don’t have to use your LLC’s official legal name registered in your articles of organization when you do business. Instead, you can use a DBA, short for “doing business as.” DBAs are also called fictitious business names, assumed names, or trade names. In Massachusetts, you should register your DBA with the city or county where your business is located.
Massachusetts LLC Registration
Let’s take a look at how to register a business in Massachusetts, including payables such as the cost, government fees, and so on.
File a Certificate of Organization
A Massachusetts LLC is created by filing a Limited Liability Company Certificate of Organization with the Secretary of the Commonwealth Corporations Division. The certificate must include:
- the LLC’s federal (employer) identification number (if any)
- the LLC’s name and street address in Massachusetts
- the general character of the LLC’s business
- the date of the LLC’s dissolution, if any
- the name, address, and signature of the LLC’s registered agent
- the names and addresses of each manager, if any: and
- the names and address of any people authorized to execute documents for the LLC–there must be at least one such person if the LLC has no manager.
The filing fee is $520 for online filing and $500 for paper filing. The articles may be filed online or by mail.
Massachusetts LLC Operating Agreement
An LLC operating agreement is not required in Massachusetts, but creating one is highly advisable. The Operating Agreement is the primary document that establishes the rights, powers, duties, liabilities, and obligations of the members among themselves and to the LLC.
The Operating Agreement is an internal document and is not filed with the Department of State. If an existing or newly created LLC does not adopt an operating agreement, its existing articles of organization, bylaws or operating agreement, and/or its member control or limited liability company agreement will collectively become its operating agreement.
Issues that should be defined by your LLC Operating Agreement include:
- Member powers
- Rules for meetings
- Members’ voting rights
- How your LLC will be managed
- Guidelines for losses and profits
- Buyout provisions
Once the operating agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed on the terms of your operating agreement and have signed the document, you should keep the agreement in a secure location.
Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork.
Get Your Employer Identification Number or EIN
The next step you’ll want to tackle is getting your EIN or Tax ID number (TIN). This number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.
Additionally, an EIN is required by your bank to open a Business Checking Account, file tax returns, obtain payroll services and credit cards, and pay for any LLC cost that Massachusetts laws require.
To apply for your EIN, you’ll need to complete form SS-4, which can be found on the IRS website.
Assign a Registered Agent for your LLC in Massachusetts
There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a business in your home, you’re definitely not alone.
But did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and hours? Without an office address, that would be your street address or P.O. box.
As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.
A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC in Massachusetts.
Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:
- Limit third party access to your personal information
- Ensure that you never miss important documents
- Protect the privacy of owners
- Eliminate junk mail
- Ensure you’re never served with legal papers in front of your clients
- And more!
Setting up a Registered Agent Service
Every Massachusetts business must have an agent for service of process in the state. This is an individual or business entity that agrees to accept legal papers on the LLC’s behalf if it is sued. A registered agent may be an individual who resides in Massachusetts or a domestic or foreign corporation authorized to do business in Massachusetts. The registered agent must have a physical street address in Massachusetts.
Learn more about our registered agent services here.
Open a Business Bank Account
To keep your personal and business expenses separate and to stay in good standing with the Internal Revenue Service (IRS), you need to open a business bank account for your LLC or corporation.
Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete, and file your federal income tax returns with the Department of Revenue, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. Bank accounts also provide better protection in the event of legal action.
Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.
Types of Business Bank Accounts
Not all business bank accounts are created equal. That’s why it’s important to distinguish between the good, the bad, and the best business bank accounts.
A business checking is the most common type of business bank account and the first one you’ll want to open for your business. This because business check accounts allow you to:
- Accept deposits (over-the-counter cash, checks, credit card, and electronic deposits).
- Pay for business-related expenditures (payroll, taxes, business insurance, vendors, lenders, and everything imaginable that you’ll need to operate your business).
- Keep detailed records of all expenses and income.
- Protect your money. This account is Federal Deposit Insurance Corporation (FDIC) insured, meaning you’re covered up to $250,000 by the federal government should anything happen to the bank or your money.
- Support dual signatures. If you have a partnership or hire employees, you may wish to make it required that two signatures be present whenever a withdrawal or deposit is made.
This one should come as no surprise. A business savings account (like a personal savings accounts) lets you safely save money in a bank. You don’t need this right away though, only when you have an abundance of capital sitting in your business checking account, will you need to open a savings account. It allows you to:
- Make saving money a habit. The most successful companies (think blue chips like Wal-Mart, Amazon, General Mills, Hershey’s, and General Electric) all have solid reserves of capital.
- Protect your business during a cash-crunch. Incidentally, 80% of businesses fail because of cash flow problems.
- Save money so that you don’t have to take out expensive business loans.
- Maintain liquidity. With a business savings account, you can liquidate assets to buy equipment, purchase real estate, and make other big purchases for your business.
- Build business credit. Yes, having a business savings account can actually help you establish and build business credit.
Business Certificate of Deposits
A business certificate of deposit (CD) is a term account that offers maximum security and a guaranteed rate of return. You agree to lend your business’s money to the bank for a set period of time at an agreed-upon interest rate. The interest rates are usually higher than you’d receive from a business savings account or interest-bearing business checking account.
Here are the main features of a business certificate of deposit:
- It pays out 1% or more in interest. Some CDs pay over 2% in interest
- You cannot liquidate the account until the term expires. This means you can’t spend the money.
- The longer the term, the higher the interest rate.
- Different banks offer different term limits. Some CD terms are for a week, months, or even years.
Money Market Accounts
This is a lesser-known type of business a bank account and isn’t for every business owner. You’ll want this type of account if you have a lot of money saved, want higher interest rates than a business savings account or interest-bearing business checking account, but still want some access to your money.
Here are the main features of a business money market account:
- Six withdrawals per month.
- Deposit money anytime.
- Deposit as much money as you like.
- Higher interest rates (currently between .1% and 1.6% APY)
- Require a minimum balance.
- Penalties if you withdraw more than six times in a month. Ask your banker what the penalty is if you withdraw more than six times.
How to Open a Business Bank Account
Opening a business bank account is as simple as gathering some information together and completing an application. Here are the steps to open a business checking account:
- Do your due diligence. Research different banks and discover what each one offers. Then decide which one will work best for your business type. An easy way to do this research is to check out some of our business bank reviews.
- Get a tax ID number. You can get one free EIN from the IRS. If you think you already have one, here’s how to look up an EIN.
- Gather your business formation documents.
- Gather your business license or business name filing paperwork.
- Call the bank and find out what other items you’ll need to open a business bank account. Every bank has different requirements, so make sure you check with them first before attempting to open a business bank account. Sometimes this information will be listed on the bank’s website.
- Go in person or online to complete all necessary paperwork and submit your business documents.
At Inc Authority, we make getting a business bank account easy. How so? Well, when you form your business with us, you gain access to a free Bank of America business checking account. So, don’t wait! Form your LLC in Massachusetts today!
Tax and Regulatory Requirements
Additional tax and regulatory requirements may apply to your Massachusetts LLC. These may include:
EIN: If your LLC has more than one member, it must obtain its own IRS Employee Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you still need to obtain an EIN or elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website. There is no filing fee.
Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses.
Department of Revenue: In some cases, for example if you have employees or will be selling goods and collecting sales tax, you’ll need to register with the Massachusetts Department of Revenue (DOR). You can register online using the DOR’s MassTax Connect.
File Annual Reports
All LLCs doing business in Massachusetts must file an annual report with the Secretary of the Commonwealth Corporations Division. Domestic LLCs file a Limited Liability Annual Report. Foreign LLCs file a Foreign Limited Liability Annual Report. The report must contain the same information as the certificate of organization.
The report must be filed by the LLC’s anniversary date. The report can be filed online or by mail. The filing fee is $500.
Getting Started with Your Massachusetts LLC
Forming a professional LLC or corporation in Massachusetts is an exciting opportunity, but like starting any business it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?
We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business. We can also advise you on the things you need to pay, such as LLC cost, Massachusetts state fees, and other payables.
Not to mention we offer a ton of free management and report tools to help make running your business as simple as possible. Please contact us or visit our website today to get started!
Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the protection due to you and your business under the law.