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When you decide to open a new company in Massachusetts, it’s important to create a business entity that will separate the owner from the business. If a firm has more than one founder, the right decision is to form an LLC. An LLC in Massachusetts is an ideal business structure that protects the owners from legal issues by differentiating assets from business debts.
Also, LLCs in Massachusetts enjoy lower debts than corporations and partnership businesses. However, opening an LLC can be challenging if you don’t know the right steps to take. If you want to know how to open LLC in Massachusetts, the benefits of opening one, and the challenges to face, this guide will provide you with detailed information.
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Pros and Cons on starting LLC in Massachusetts
Opening a startup business in Massachusetts comes with so many expectations. Choosing the right legal framework on which your business will stand is not an easy decision
The foundation a business stands on will determine how it will grow in the future.
The best decision business owners can make in Massachusetts is choosing to open LLC in the state. There are many benefits of llc in the state which makes it appealing to interested parties. Entrepreneurs get to enjoy many favors and incentives which can make opening one a good decision. However, starting an LLC also comes with some cons.
Pros
Here are some benefits of opening an LLC in Massachusetts :
Tax Breaks
When you open a new business in Massachusetts as LLC, there are several local tax breaks you would enjoy. These tax breaks are provided under the economic development incentive program which aims to help LLCs in the state.
Perpetual existence
Except it is stated in the certificate of Organization, an LLC will continue to exist forever. What this implies is that while the owners of the business can change, the company won’t dissolve. A member’s withdrawal, death, or retirement doesn’t affect the operation of the business. Massachusetts state laws provide that an LLC can only be dissolved when :
- An event as specified on the certificate of Organization occurs
- Members all consent that the business be dissolved
- A judicial pronouncement
The continued existence of an LLC outside of natural causes by members makes customers more believe in the business. It makes the business more reliable, credible, and trustworthy.
Limited Liability
When you open an LLC in Massachusetts, you will enjoy limited liability protection similar to what a huge corporation enjoys. This limited liability ensures that in case of debts or legal issues, you won’t be at the receiving end. When your firm runs into any troubles, it is the business that can be sued in the courts.
Avoid double taxation
When you open LLC in Massachusetts, you will enjoy what is known as flow through taxation. This flow through taxation will ensure your business doesn’t experience double taxation which is coming with other businesses. Your business will only be taxed according to what is due and expected.
Easy Profit Distribution
As an LLC in Massachusetts, your business will have the chance of choosing different ways to circulate profits. This is excellent because you have the final say on how you want to use your profits and avenues for its distributions. Unlike Partnerships where profits are to be shared 50:50.
Many Business Tax Credits
As a Massachusetts LLC entity, you will have the chance to have access to many tax credits. For a business to survive and grow in Massachusetts, having access to tax credits is important.
Cons
Here are some disadvantages of opening LLCs in Massachusetts :
Cost
The Cost of opening an LLC in Massachusetts is higher than a partnership or sole proprietorship business. You will pay formation fees and annual fees. Also, you might need to pay lawyer’s fees if you use their services when drafting your operating agreement and Certificate of Organization.
Difficult to transfer ownership
In case you want to transfer ownership of the business in the future, it’s harder to transfer an LLC entity in Massachusetts than a corporation. To transfer a corporation, all you need is to sell stocks to people interested except if there is an agreement by shareholders not to do so. However, for LLCs in Massachusetts, everybody must agree before ownership can be transferred.
7 Steps on How to Start LLC in Massachusetts
For those interested in how to start LLC in Massachusetts, here are the steps to follow :
1. Reserve Your LLC Business Name
The First Step when opening an LLC is visiting the Secretary of the Commonwealth of Massachusetts website to check if your chosen name is available. There are several search options to use to get previously reserved names. You need to be fast about this because people reserve names quickly, you will therefore need to check your business name availability.
If you are interested, you can reserve a name by submitting an Application of reservation of Name form. It costs $30 and allows you to reserve a name for 60 days. This form needs to be delivered in person or via mail, as Faxes won’t be accepted. Don’t forget that any business name reserved nuts have a limited liability company or LLC.
2. Buy a Web Domain
Although not compulsory, it’s important to have a Website for your business. This will allow customers to see your product easily and help them contact you. If you don’t have a business website, this will affect customers’ trust which won’t help your business in Massachusetts in the future.
3. Get a Resident Agent for your business
It is necessary to hire resident agents for any LLC operating in Massachusetts. These agents will help prepare all important documents such as court papers for your business. A resident agent can assist you on how to open a business bank account for an llc which your business can use on all transactions. The state accepts that a Massachusetts resident with a business address can fill this position. However, it doesn’t come for free as LLC resident agents in Massachusetts charge between $50 and $ 300 yearly.
4. Submit a Massachusetts Certificate of Organization
After the above-mentioned steps, you will need to start filing forms for an LLC in Massachusetts. Unlike other states where the form is called an article of Organization, it’s known as a certificate of Organization in Massachusetts. You should complete the form and pay a filing fee of $500. If you want the process to be fast, you will need to pay an extra fee of $20.
Moreover, if it’s a foreign business entity that wants an LLC in Massachusetts, aside from paying the $500 fee, you must complete an Application for Registration which must be accompanied by a certificate of Legal Existence. While foreign entities can submit their paperwork by fax, this process can’t be completed electronically.
5. Create an LLC Operating Agreement
Although not a legal requirement in Massachusetts, an operating agreement is still vital when it comes to LLC formation. Every serious business in Massachusetts should know what is an LLC operating agreement because of its importance to business legitimacy. These Operating Agreements are crucial for protecting the integrity of your business by allowing you to state clearly how you want to run the business. A valid llc operating agreement template will contain the following information :
- Individual member responsibilities and day-to-day operations
- What each member contributes to the business
- The voting rights of each member
- How new members can be accepted into the company
By having an LLC operating agreement, you are avoiding problems and Disagreements which might come up later in the future. This document is also useful to show that your LLC is legitimate.
6. Apply for an Employer Identification Number (EIN)
Any business that wants to become an LLC in Massachusetts will need an EIN or Federal Tax Identification Number (FTIN). The Tax Identification Number helps you open a business bank account easily in Massachusetts and allows you to process payments with ease.
With your EIN, you can easily manage your business with the best business bank account llc in Massachusetts. This business checking bank account helps you process payments and transactions easily. Although single-member LLCs who don’t have employees can use their social security number, it is still advised that everyone has an EIN. Instead of sharing your SSN with the public, a safer option is using an EIN. To apply and get an EIN, visit the IRS website to apply for a tax ID and they are free of charge.
7. Get all business licenses and permits
To make sure your LLC business follows all state and Federal laws. It’s important to avoid having problems with the authorities because the penalties are usually severe. The requirements for business permits and licenses differ based on the industry and the business is done. Popular businesses in the state are Retail, Healthcare, transportation, nutrition, and real estate. For those into any of these businesses or others, you should check the Massachusetts official government website to check the licenses required for your business.
FAQs On Starting LLC (Frequently Ask Questions)
What is the Cost Of Set Up an LLC in Massachusett?
The cost of opening an LLC in Massachusetts is a $500 formation fee and a $500 annual report fee. This fee is important and can be paid via checks or Bank orders. In Massachusetts, many corporations pay $275 for filings and then $125 yearly. However, these fees don’t include registered agent or Lawyer fees because it varies from one agent to another.
Do LLC pay taxes in Massachusetts?
In Massachusetts LLCs and LLPs pay taxes for different reasons. These taxes are similar to what is paid for Federal income tax purposes. A single-member LLC is known as a separate entity in Massachusetts just. The taxes accrued to LLCs depends on the business they are doing. People who deal in Arms, Healthcare, Medicare, Food, and Alcohol will have different tax returns.
How Long does it Take for an LLC to be Approved in Massachusetts?
The duration that an LLC will be approved in the state of Massachusetts differs. If you file your documents online, the state will process the LLC filing between 2-3 business days. Once filed online, your certificate or organization will formally crest your Massachusetts LLC. However, if you file physically or send through a Fax, it takes about 5-7 business days to be approved.
Do you need a business license for an LLC in Massachusetts?
Yes, You will require a business license in Massachusetts before you can open an LLC. In Massachusetts, all businesses such as LLCs, corporations, and partnerships need to register with the Secretary of the commonwealth in the state before they can start operating legally. Also, you will need to provide annual updates of all business operations to the secretary of state office.
Does a single member LLC need an operating agreement in Massachusetts?
Yes. While it might sound weird to sign an operating agreement yourself, a single member LLC must have this document. Aside from the legal nature of this document, you may require an operating agreement when you want to open a business bank account in Massachusetts. Also, anytime there is a lawsuit against your business, the operating agreement will help protect your LLC status.
How often do you have to renew your LLC in Massachusetts?
An LLC in Massachusetts needs to be renewed annually. You must ensure you fill out an annual report yearly to let the state know about your business. This is required for all LLCs and Corporations in Massachusetts. Even if your business is in debt and you didn’t make any money, an annual report is necessary
This is to ensure you keep your LLC in compliance and in good standing with the state.
Conclusion
Massachusetts is a place where businesses thrive easily for all entrepreneurs. Business owners must open an LLC in the state to protect their business from liability. The guide above has provided detailed information on how to start an LLC in Massachusetts, the benefits of opening one in the state, some drawbacks, and the necessary steps needed to form one. Moreover, we also answered many numerous questions which will guide you when starting an LLC in Massachusetts.
