If you’re looking to start a business in Massachusetts, then you might be feeling a little overwhelmed about how the process works. A lot of entrepreneurs choose to create an LLC (short for Limited Liability Company).
Here’s why: compared to a corporation, an LLC is simple to run—no complicated bylaws, shareholder regulations, board meetings, and so on. But, an LLC still gives you personal asset protection, which means you won’t lose your house or savings if something goes wrong with your business. That’s a win-win.
But to get the advantages of an LLC, you’ll need to form one officially. That’s where this guide comes in. We’ll walk you through all the steps you’ll need to complete to create your LLC in Massachusetts. Once you’ve finished, you’ll be all set to succeed!
Before we jump in: know that you don’t have to do this alone! Paperwork can be tedious and overwhelming (especially at the start). Thankfully, there are many fantastic LLC formation services that can form your LLC on your behalf. And with the top registered agent services, you can keep your business in good standing, worry-free.
These convenient online business services offer a lot of bang for your buck, allowing you to focus on what matters: running your business.
Creating a Massachusetts LLC
Creating a Massachusetts LLC is exciting, but it’s also a legal process. Thankfully, though, there’s not a whole lot of “legalese” involved. Follow these steps, and creating your Massachusetts LLC will be a cinch:
1. Name Your LLC
Your business’s name is a big deal—it goes on all of your official documents, your advertising, and it’s how your customers will get to know your business.
Name recognition goes a long way, right? And when it comes to what name you pick, the sky’s the limit…mostly. There are a couple general best practices to follow, and of course, there are a couple Massachusetts-specific restrictions, too.
For example, a business name should be…
- Unique
- Easy to say and spell
- Memorable
- Tell customers what good or service you offer
- Something you like!
Every name must also include the words “Limited Liability Company,” the abbreviation “LLC,” or some variation of the business type designation.
One last note: if your name includes specific words like Education, Academy, Bank, or something similar, you may need to get additional approval from the state’s banking division or Department of Education.
Beyond that, there are a few Massachusetts-specific rules you’ll want to follow. Most importantly, you cannot use a name that’s already been claimed by another business in Massachusetts. Thankfully, you can check if your desired name is still available by running a Name Reservation Search and a Corporate Database Search. Check out the Massachusetts About Name Reservations page for additional insight on business names.
If your desired name is available, you shouldn’t hesitate to claim it! Ultimately, you’ll officially claim the name when you file your Certificate of Organization (see Step 3). But if you’re not quite ready to file the Articles, you can reserve your name with the state. Simply fill out the Application of Reservation of Name form and pay the applicable $30 fee. This will protect your chosen name for 60 days, giving you time to prepare anything else you need.
2. Choose a Registered Agent
In your Certificate of Organization, you’ll be required to list the name and address of your registered agent. “Registered agent” sounds fancy, but don’t let the name overwhelm you: an agent acts as your primary contact for all official communications.
A registered agent accepts what the state calls “service of process” on your behalf. Basically, if your business ever falls out of good standing (or something similar), the state will send an official alert to your registered agent. Because of that, the registered agent needs to be available during all regular business hours.
In Massachusetts, you can serve as your own registered agent, but we don’t recommend it. You’d be tied down to your listed address, or worse, you might run the risk of missing an important letter. Plus, appointing someone else keeps your personal address private and cuts down on junk mail.
If you’d like to hire a registered agent, we have a few recommended services.
3. File the Formation Documents
Once you’ve chosen your name and appointed a registered agent, you’re ready to file your Certificate of Organization. This all-important filing is what will legally create your business in the state of Massachusetts, so it’s important to fill it out carefully.
Massachusetts needs a lot of important information from you, including:
- Your chosen business name
- Street address where your business correspondence will be maintained
- General purpose of your business
- Dissolution date (if planned)
- Name and address of your registered agent
- Names and addresses of each manager
- Addresses for individuals who are authorized to receive documents on your behalf
You can file your Certificate online or by mail. Either way, you’ll need to pay the $500 filing fee. You can pay by check, money order, or by credit card. All checks should be made payable to the Secretary of the Commonwealth of Massachusetts.
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Congratulations! Your LLC is now officially recognized by the state of Massachusetts.
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After You Set Up an LLC in Massachusetts
Your LLC is now an official entity in Massachusetts, but don’t get too comfortable. There’s still plenty of work to be done if you want to set yourself up for long-term success. Of course, this isn’t an exhaustive list, and you may need to address some requirements that are unique to your industry.
1. Get an Employer Identification Number (EIN)
If you have one or more employees (or expect to in the future), you should get an EIN from the IRS. This filing is actually pretty simple, and it’s completely free. You do need to complete the application in one sitting (you can do it online here), so be sure to have your valid Taxpayer Identification Number on hand.
If you file the form online, you’ll receive your number almost immediately.
2. Obtain any needed licenses and permits
Depending on your industry and location, you may need to obtain licenses and permits for your business.
Unlike some states, Massachusetts does not require a statewide general business license. That’s handled on the city or county level, so you’ll need to check out your local government to learn if you’ll be required to get a general business license. Massachusetts also upholds all federal-level licensing requirements. For example, business owners in industries like alcohol and agriculture need to get licenses from the Alcohol and Tobacco Tax and Trade Bureau and U.S. Department of Agriculture respectively.
There’s also a very good chance that your industry or profession requires licensure, too. For example, Massachusetts regulates real estate, commercial transportation, cosmetology, and more. Unfortunately, you’ll need to do your own research to learn what licenses you need. The Massachusetts Business Licensing & Permits page is a great place to start. You’ll find a near-comprehensive list of licenses in the state.
3. Meet zoning requirements (if you have a physical location)
Cities and counties across Massachusetts have careful regulations regarding how land and property is used.
For example, some properties can only be used for residential purposes, not commercial. It’s vital to check the zoning requirements for your physical location (or before building on your property) to ensure that you’re not violating zoning requirements.
To learn more about zoning requirements in your area, we recommend checking out your county and city websites.
4. Draft an Operating Agreement
An operating agreement is almost as important as your Certificate of Organization, but you don’t have to file it with the Secretary of State.
Here’s why the Operating Agreement is so important: it details just how your LLC is going to succeed. For example, the Operating Agreement will describe how profits are distributed to members of the LLC, how members can join (or leave), ownership policies, the rights and responsibilities of each member, and more.
Even if you’re a single-member LLC (you’re the only one running it), you should draft up an Operating Agreement. Who knows? Your business might grow, and an Operating Agreement will ensure you’re ready to bring new members into the game.
On top of that, a lot of banks request to see your Operating Agreement before you can open a business bank account.
You can hire a business attorney to help you draft your Operating Agreement. But if you’d like to save money, there are plenty of free templates online that you can customize to meet your LLC’s needs.
5. File federal and state taxes
Nobody likes taxes. We get it. But it’s part of life while running a business. Every year, you’ll need to pay taxes on the federal, state, and local levels. And on top of that, you’ll need to make reports of your business income.
We’re not accountants, so we won’t go into a ton of detail about taxes here. But we do want to give you a good idea of what you’ll be up against in terms of taxes.
First off, it’s important to note how you’ll pay taxes. By default, members of LLCs will report the profits they get through distributions on Schedule C of their individual tax forms. They then pay individual tax rates on those profits. However, LLCs can also elect to be taxed as corporations, and if they do, the LLC itself will pay taxes at the corporate income tax rate.
Your state income tax rate will largely depend on the way your business is taxed. If you elect to be taxed as a corporation, you’ll pay a flat income tax rate of 8%, but if you’re taxed as an individual, your rate will be 5.05%. Beyond that, if you run a retail business, you’ll also be expected to collect and pay the state sales tax (6.5%). You can learn more about Massachusetts sales taxes here.
Employers in Massachusetts are also required to make regular contributions to the state unemployment insurance fund. (Technically speaking, it’s not a tax; but it acts like one, so we’ve listed it here).
Last but not least, you may need to pay some industry-specific taxes. For example, Massachusetts has unique taxes for room occupancy, marijuana, alcohol, and more. You can find out more about these taxes at the Massachusetts Department of Revenue.
6. File your annual report
In addition to filing your annual business income taxes, Massachusetts also requires you to file an additional information document in order to inform the state about the financial standing of your business.
In Massachusetts, this document is called the annual report. Everyone’s due date is slightly different; you’ll need to file by your LLC’s anniversary date. So when you celebrate your business’s birthday, be sure to file your annual report, too!
It’s relatively simple to file your annual report online, but if you’d rather file by mail, you can download the form and send it in instead. Regardless of how you file, though, you’ll need to pay the annual report fee. For LLCs, it’s a bit high: $500. But filing the annual report maintains your business’s good standing, so it’ll be worth it in the long run.
7. Understand business insurance requirements
Massachusetts has two primary insurance requirements for businesses.
First, all businesses with employees must get worker’s compensation insurance. This policy protects you and your employees if someone ever gets injured on the job. If you’d like to learn more about the state’s policies regarding worker’s compensation, check out the Massachusetts Workers’ Compensation Advisory Council.
Second, if you have any company-owned vehicles, you must get a commercial auto insurance policy.
Beyond that, you can pick and choose what insurance policies you’d like to get. Which policies you choose depend on a lot of things: your own risk tolerance, how dangerous or risky your industry is, how much capital you have, and more. In general, it’s a good idea to get a general business insurance policy. Accidents, while (hopefully) rare, happen. Insurance will help protect all the time and money you’ve invested in your business.
8. Start a business bank account
Even before you have your grand opening, you’ll want to set up a bank account that’s unique to your business. A business account presents several advantages. Most importantly, these accounts keep your personal and business finances separate (mixing them is a major legal no-no).
Plus, a business bank account gives you credit and debit cards and checks under your business’s name. For some customers, writing a check out to a business (instead of a person) is more comfortable. The business name feels more legitimate.
Most banks will request to see your Operating Agreement before they’ll give you a business bank account, so be sure to tackle Step 4 (Draft an Operating Agreement) before you go!
In Conclusion
Setting up an LLC can seem overwhelming, but if you follow the right pre- and post-formation steps, you’ll set your business up for success. We hope this guide has helped take out some of the scariness of creating your business.
These steps are the do-it-yourself route to forming an LLC. It’s completely legal to complete the process yourself, and it can save you a lot of money. But if you’d rather enlist some help to get your business up and running, you’re not alone.
Hiring an LLC formation service (such as Zen Business, LegalZoom and Incfile) lets you avoid the tedium of filing your own paperwork, freeing you up to focus on your passion: your business.