Did you know that 99.5% of all companies in Massachusetts are small businesses, and nearly half (45.5%) of all local workers work for a small business?
These are some telling stats. So what makes Massachusetts a great place to start a new company?
Several Ivy League schools call Massachusetts and the surrounding states home. So there’s no shortage of high-skilled talent! Plus, being close to major commercial and financial markets in Boston and New York City makes The Bay State a solid choice for starting a new LLC.
A limited liability company (LLC) provides legal advantages over sole proprietorships, such as limited personal liability for owners. Meaning your personal assets are safe if your company runs into legal or financial difficulties.
But what’s involved in company incorporation? We’ve got it all covered in this guide!
Steps to Start an LLC in Massachusetts
- Step 1: Choose a business name for your Massachusetts LLC
- Step 2: Designate a registered agent
- Step 3: File the Massachusetts LLC Certificate of Organization
- Step 4: Obtain an EIN (Employer Identification Number) from the IRS
- Step 5: Register with the Massachusetts Department of Revenue
- Step 6: Prepare an LLC operating agreement
- Step 7: Open a business bank account
Step 1: Choose an unique business name
To get started on this journey, you’ll need to come up with a name for your new business if you haven’t already.
Be sure to pick something unique, marketable, and identifiable. Since Massachusetts requires all company names to be different, you should search the Secretary of State’s database of registered business names before going any further.
And even if you don’t plan to have a website anytime soon, you may want to go ahead and purchase the domain name to keep another business from using it.
Quick fact: Massachusetts also requires the term “limited liability company” or “limited company” (or their abbreviations) to be included in all LLC names.
Reserving a business name isn’t required to form an LLC in Massachusetts. But you’d want to consider this option if you need extra time to file your formation documents.
Name reservation costs $30, and it lets you hold a selected name for up to 60 days. And if you need longer, you can get 60 more days by paying another $30 fee.
If you have plans to operate your business under a name other than your legal name, you’ll want to register a trade name.
Trade names can have different monikers:
- DBA (doing business as)
- Fictitious names
- Assumed names
Trade names are also a good idea if you plan to offer multiple products or services under your LLC.
For example, if you’re starting a lawn care business but will also do irrigation installations and repairs and landscaping, your business registrations might look like this:
- Dave’s Complete Lawn Care, LLC (your legal name)
- Complete Irrigation by Dave (a trade name)
- Total Landscaping by Dave (a trade name)
In Massachusetts, trade names are registered with the city or town where your company operates, not with the Secretary of State. Filing requirements and fees vary.
In Cambridge, for example, you’ll need to apply for a business certificate that:
- Costs $50
- Is valid for four years
- Must be notarized
Check-in with a local authority to confirm the details.
Step 2: Hire (or become) a registered agent
A critical task every LLC needs to consider is the company’s registered agent, also known as a resident agent.
The registered agent is responsible for receiving service of process and other important legal and tax documents on the company’s behalf.
Massachusetts registered agents can be:
- Any individual who’s a resident of the state
- A domestic corporation
- A foreign corporation authorized to do business in Massachusetts
Although you can be your own registered agent, you should consider using a professional service too.
Why use a professional registered agent?
A registered agent service provides distinct advantages over a DIY option, such as:
- Having a dedicated team to receive essential documents on your behalf
- Eliminating the need to be available 9-5, year-round
- Providing privacy for business owners that work from their home
The cost of using a professional varies depending on the level of service they provide. But you can expect it to cost between $100 and $300 per year.
Step 3: File the Massachusetts LLC Certificate of Organization
To officially form your LLC, you’ll need to file the Massachusetts Certificate of Organization (called Articles of Organization) in other states.
The Massachusetts secretary of the commonwealth encourages electronic filing using the Corporations Division Online Filing System. But paper filings are also accepted. Regardless of the filing method, the state filing fee is $500.
Make sure you have all the information you need to fill out your application, including:
- Complete company name
- Company’s business address
- Nature of the business
- Contact information for all LLC members
- Name and address of your registered agent
- Your federal employer identification number (FEIN), which we’ll talk about next
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
For federal tax purposes, the IRS assigns each eligible business entity an EIN. You need to apply for an EIN if:
- You are a multi-member LLC, reporting taxes as a partnership, S-corporation, or C-corporation
- Your company plans to hire employees (not contractors)
- You withhold wages or make other distributions to a non-resident alien
Single-member LLCs reporting taxes as a sole proprietorship can make do with a social security number. If you don’t have a FEIN yet, leave the respective field blank on the company formation documents.
Step 5: Register with the Massachusetts Department of Revenue
There’s a good chance you’ll need to register your company with the Department of Revenue (DOR) to collect and pay taxes. Common taxes your LLC may be responsible for are:
- Sales tax (currently 6.25%)
- Unemployment insurance
- Family and medical leave
Getting your company registered with the DOR is quick and easy when you use the online portal, MassTaxConnect. There’s no fee to register. Once you’re set up, you’ll be able to file your state tax returns and pay taxes online.
Step 6: Prepare an LLC operating agreement
Another critical document you’ll want for your LLC is an operating agreement. This document is essential to outline how your company will operate and be governed.
Massachusetts doesn’t require you to file your operating agreement with other company formation documents. But that doesn’t mean you are good without one.
When an LLC doesn’t have an operating agreement, any possible business disputes will be settled using the default LLC laws in Massachusetts. And these may not always be in your favor. So it’s better to be safe than sorry!
Your operating agreement should cover things like:
- Profits and losses allocation among LLC members
- Process for adding new members
- Rules around member exits
- Who will manage the day-to-day operations
- Company dissolution process
You can find operating agreement templates online or work with an attorney to draft a tighter document.
Step 7: Open a business bank account
Sole proprietors often think they can use a personal account for business banking. But that’s not the case.
Legally, you can’t commingle personal and business funds as an LLC owner. Doing so can lead to legal troubles. So get yourself an account as soon as your papers get approved.
Generally, you have two types of banks to choose from.
1. National banks (e.g., Chase Bank, PNC Bank)
You’ll likely have no problem finding a local branch of a national bank in your neighborhood.
These banks are great for offering many services, like foreign currency exchange and bill payment. But these conveniences come with a price. You can expect monthly service fees to be at least $15 per month for a business account.
2. Regional/local banks or credit unions (e.g., Eastern Bank, Mass Bay Credit Union)
You may prefer to go with a local bank since they often tailor their services to small business owners. Typically, you’ll find all the essential services you need for a cheaper price tag. And with their focus on the local community, they may have more lenient lending requirements should you need financing.
Massachusetts LLC taxes, costs, and fees
There’s more to running a Massachusetts LLC than the startup costs. Because once you get incorporated as a business structure, other types of annual fees and expenses kick in.
The first one is an LLC annual report. In Massachusetts, all LLCs need to submit yearly reports no later than the company’s anniversary date. The cost is $500 and an extra $20 if you want to expedite the processing.
Also, your company may need to pay certain state taxes such as:
- Sales taxes: If you sell taxable goods in Massachusetts, you’ll need to collect the 6.25% state sales tax from your customers.
- Exercise tases: These are more related to the nature of your business and include taxes for alcoholic beverage sales or room occupancy rates.
Generally, LLCs won’t pay franchise taxes in MA unless they elect to be taxed as a corporation.
Massachusetts business permits and licenses
Massachusetts has no general business license requirement. But running a business in a specific industry may require a professional license.
Common examples include:
- Health care professionals
- Building and construction trades
- Environmentally-sensitive specialists
- Financial and accounting services providers
The state fees for these specialty licenses vary.
For example, dental hygienists pay a $126 fee while architects pay a $260 fee. Mass.gov provides extensive information on professional licensing requirements.
Pros and cons of starting an LLC in Massachusetts
Putting down business roots in The Bay State provides a strategic advantage by being close to the commercial hotspots of Boston and New York City. But it’s not without drawbacks.
- Convenient online company formation process
- No annual franchise taxes
- Attractive business tax credits
- Great community support for small businesses
- High LLC formation and maintenance costs
- High specialty license fees for regulated professionals
Massachusetts LLC FAQs
Below, we’ve answered your most frequently asked questions (FAQs) about forming an LLC in Massachusetts.