As an entrepreneur, one of the biggest decisions you’ll make is what entity type to form. A lot of aspiring business professionals are drawn to the Limited Liability Company (LLC for short).
And it’s not surprising why: an LLC gives personal asset protection and a flexible taxation structure without compromising flexibility and easy business upkeep. Long story short, it’s easy to operate an LLC (okay, relatively; all business is a bit complicated).
However, if you’ve looked at the Massachusetts Secretary of the Commonwealth’s business resources, you’ll quickly notice that not all LLCs are created equal. Massachusetts distinguishes between standard LLCs and PLLCs.
Not sure what that means? Don’t worry; we’ve got you covered. In this guide, we’ll cover everything you need to know about Massachusetts PLLCs, including how they differ from LLCs, who can form one, and more importantly, how to get started.
Massachusetts LLC vs. Massachusetts PLLC: What’s the difference?
On the surface, LLCs and PLLCs seem really similar. And quite frankly, they have more similarities than differences. Most importantly, both LLCs and PLLCs have what’s commonly referred to as “limited liability” or “personal asset protection.”
We won’t give a long-winded explanation, but essentially, personal asset protection ensures that your private funds, your house, your car, and other assets can’t be claimed if your business is sued or defaults on a debt. In other business types (a sole proprietorship, general partnership, etc.), that can happen—and the consequences can be disastrous.
In general, almost anyone can form an LLC. However, many states, Massachusetts included, don’t allow certain professions to form a standard LLC; they have to form a Professional Limited Liability Company instead (a Professional Corporation is also an option, but we won’t go into that here).
Here’s why: a PLLC combines elements of a standard LLC and a business like a partnership. Creditors cannot come after the personal assets of a PLLC’s members. However, the PLLC still allows for members to be sued for malpractice.
So if you’re an engineer and one of your designs causes an injury that gets you sued, you can be held accountable. But if another member is responsible for the malpractice, you’re not penalized.
Here are the Massachusetts professions that are required to organize as a PLLC:
- Certified public accountants
- Registered nurses
- Physical therapists
Massachusetts is pretty strict about who can be a member (i.e., owner) of your PLLC. Every single member must have an active license in the business’s profession. Some states allow half of the members to be unlicensed, but Massachusetts requires them all, no exceptions.
Does your business fall into one of the above categories? If not, check out our guide for forming a Massachusetts LLC. But if you’re one of the professions listed, then this guide can help.
How to Set Up a Massachusetts PLLC
Setting up a Massachusetts PLLC might seem complicated on the surface, but if you know what to do, it’s a fairly straightforward process. In the rest of this guide, we’ll cover everything you need to know for setting up your PLLC. By the time we’re through, you’ll have your business up and running.
If you’re busy and just want to hand off the PLLC formation, Incfile and Northwest are two good PLLC formation services that take care of it for you. Sadly, our favorite LLC service Zen Business does not (yet) offer professional LLC formation.
1. Ensure your professionals have the necessary licenses
Remember how we said that every member in a Massachusetts PLLC needs to have a license? You’ll want to take care of that before handling anything else. Thankfully, the state’s Business Licensing & Permits page is a great resource when you need to track down your licenses. Here, you can find links to the different licensing boards and get started on your necessary applications.
2. Choose a name for your PLLC
Technically speaking, you can take care of this step while you’re handling licenses. And if you’re like us, you’ll want to give it plenty of thought. Thankfully, Massachusetts doesn’t have a ton of rules on what your name has to be. For starters, your name cannot be the same as the name that’s already in use in the state. You can use a Name Reservation Search and a Corporate Database Search to check availability.
Massachusetts also requires your business name to include one of the following designations:
- Limited Liability Company
- Limited Company
As long as you meet those two requirements, just about any name is fair game. Your own creativity is the only limit. That said, we recommend that you pick a name that’s memorable, easy to say and spell, and gives your customers an idea of what services your business provides. Last but not least, pick a name that you and your members like—at the end of the day, it’s your business!
If you’ve thought of the perfect name but you’re not quite ready to use it, you can reserve it by filing an Application of Reservation of Name. There is a $30 fee for this filing, but once complete, it will ensure that your name is protected for 60 days.
3. Appoint a registered agent
Every registered business, regardless of type, is required to appoint a registered agent in Massachusetts. Essentially, a registered agent acts as the point of contact between the state and your business. Any official communications—whether that’s a reminder to file your annual report or service of legal process against your business—will be delivered to your registered agent, not your business.
You can serve as your own registered agent, but we recommend that you appoint someone else. It simplifies your life and keeps your personal address off the public record (an agent’s address is listed as public information). We have a few recommended services, too. For more information on registered agents and what the role includes, look here.
You are required to list your registered agent on your Certificate of Organization, so don’t skip this step!
4. File your Certificate of Organization
Once you’ve taken care of licenses and appointing your registered agent, it’s time to officially form your business! You can do so by filing the Professional Limited Liability Company Certificate of Organization. In Massachusetts, PLLCs and LLCs use different forms (both called the Certificate of Organization). So please make sure you use the right one.
In general, this document informs the state about your business, including what profession you’re involved in, who the members are, how the business will be managed, contact information, the name and address of your registered agent, and more.
Massachusetts requires a pretty hefty $500 filing fee, and you can file by mail or online. Once the state processes and approves your Certificate, your business will be an official entity in the state of Massachusetts!
What’s next: Maintaining your Massachusetts PLLC
Your PLLC is now an official entity within the state. Exciting stuff, right? Take a deep breath, congratulate yourself on your hard work…and then get back to it, because there’s more to be done.
Honestly, forming the business is the relatively easy part. There are plenty of ongoing requirements you’ll need to take care of. Failing to do so could cost you your good standing in Massachusetts (or just make life more difficult than it needs to be).
Let’s jump into what you should do after filing your Certificate of Organization.
1. Draft an operating agreement
Unlike a corporation, which must file bylaws with the state, an LLC or a PLLC is not required to file an agreement with the state. However, that doesn’t mean you don’t need to write one. All PLLCs should draft an LLC operating agreement.
The document itself doesn’t need to be complicated; long story short, it should dictate how your business operates. But writing one at the outset will help down the road. For example, an agreement can detail how new members join the business, how they buy out, how profits are distributed, the rights and responsibilities of each member, and more. By setting these policies out in the beginning, you can set yourself up for success.
An operating agreement is also essential if you intend to get a business bank account; most banks request a copy of your agreement when you open an account.
2. Get general business licenses
Don’t confuse this step with the professional licenses we’ve listed above! As a PLLC, industry-specific licenses are part of the game. You can’t technically exist without those. However, it’s not uncommon for states to also require a general business license.
Massachusetts doesn’t have a statewide general business license that applies to every entity in the state. As long as you’ve obtained the professional licenses you need, you’re probably set to go. But just to make sure that you’ve covered all of your bases, we recommend that you check out the Business Licensing & Permits page offered by the state. There’s a small chance that your business will need a unique license type that we haven’t touched on here.
3. File for an Employer Identification Number (EIN)
If you plan on having employees—even if it’s just one or two—then you’ll need to obtain an Employer Identification Number from the IRS. Technically, you can hire someone to file this form for you, but we recommend doing it yourself. It’s free to do on your own, and (unlike a lot of IRS tax forms) pretty easy to file.
Please note that you need to complete the filing in one sitting, so be sure to have your Taxpayer Information Number (the SSN for most people) on hand. Once you complete the filing online, you’ll receive your number almost immediately.
4. Look into business insurance
You’re a licensed professional. You’ve taken the exam, or you’ve worked hard to obtain the certifications needed for your trade. But don’t assume that your license alone will protect you from all the things that can go wrong while running your business.
Ideally, nothing too drastic will happen, but just in case, it’s a good idea to obtain liability coverage for your business. Massachusetts does not require you to have a general business policy, but we recommend it.
Massachusetts does require all businesses with employees to obtain workers’ compensation insurance. This policy helps protect both you and your employees if and when there’s an accident on the job. You can learn more at the Massachusetts Workers’ Compensation Advisory Council.
Last but not least, you should get a business auto policy for any company-owned vehicles (if applicable).
5. Complete annual filings
Every year, your PLLC will have two primary annual filings: taxes and annual reports. Almost every state requires both types, but the exact timing and procedures for them varies from one state to the next. Let’s talk about taxes and annual reports in Massachusetts.
One of the biggest advantages to a PLLC is that you can choose your taxation structure. You get to elect to be taxed as a corporation (the business itself pays the taxes) or as a pass-through entity (the tax burden passes through to the members, who pay the tax as individuals).
In some states, taxes are pretty complicated; Massachusetts keeps things relatively simple. For both the corporate and the individual income tax, there’s a flat rate. The corporate rate currently sits at 8% and the individual one is 5.05%. If you’re involved in the sale of a qualifying good or service, you’ll also need to collect and pay the state sales tax (6.5%). You can read more about the sales tax here.
We could also dig into all of the miscellaneous taxes in Massachusetts, but we don’t want to make this guide tedious! To get a complete look at taxes in the state, check out the Massachusetts Department of Revenue.
All PLLCs in Massachusetts must also file an annual report; it’s a different form than your annual tax return. Essentially, the document updates the state about the current standing of your business, from your finances to your registered agent and several things in between.
In Massachusetts, the due date for an annual report matches your PLLC’s anniversary date. The filing fee is pretty high: $500. It’s important to file this report on time, since failing to file can cost you your good standing with the state. In extreme cases, the state could administratively dissolve your business.
6. Set up a business bank account
One of the biggest advantages to a PLLC is the fact that your personal assets are protected (with the exception of malpractice). However, those assets are only protected if you keep your personal funds and your business funds completely separate. Mixing them is a major legal no-no.
To keep them separate, you’ll need to get a business bank account. As an added bonus, you’ll be able to get checks and debit cards for your business, which makes it easier to buy supplies for your business. Plus, a lot of people are more comfortable writing checks to a business than they are writing a check to “John Smith.” It gives you another level of credibility with your clients.
By permitting professionals to form PLLCs, Massachusetts provides you with unique opportunities: liability protection, opportunities to work with fellow owners, flexible taxation, the reputability of a registered business, and more. Setting up a PLLC isn’t a walk in the park, but by following the steps in this guide, it doesn’t have to be difficult. We hope this guide has helped you do just that, and we wish you the best as you start a PLLC in MA.