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From catering to students in Springfield’s Knowledge Corridor to fishing in the back bay, your Massachusetts small business should form an LLC to insulate yourself from claims
SIMPLE STEPS TO FORM YOUR MASSACHUSETTS LLC
- Choose a Name
The name of every Massachusetts LLC must contain one of the following: “L.C.,” “L.L.C.,” “LC,” “LLC,” “limited company,” or “limited liability company.” The name cannot be “the same as, or deceptively similar to,” the name of any domestic business entity, or any foreign entity that has qualified to do business in Massachusetts.
- Filing the Certificate of Organization
LLCs come into existence by filing a certificate of organization with the Secretary of State and paying a $500 filing fee. The certificate of organization is executed by an “authorized person” and must contain: the name of the LLC, the MA street address where the LLC’s records will be maintained, the general character of its business, the name and address of the registered agent, the signature of the registered agent indicating acceptance of their job and the name and address of each manager and person authorized to execute documents for the LLC. You can also include a latest date of dissolution or any other provisions you deem necessary.
- Operating Agreement
Massachusetts allows operating agreements to be written or verbal agreements that will regulate “the affairs of a limited liability company and the conduct of its business.” Otherwise, there are very few statutory requirements for operating agreements in Massachusetts. We would recommend a written operating agreement, executed by all members.
- Continued Good Standing
EIN: Multi-member LLCs and LLCs with employees will need an EIN from the I.R.S. This can be done directly, or a service like Incnow can make it easier by doing it for you.
Annual Report: Per the Secretary of State, “an annual report shall contain all of the information as a Certificate of Organization with the filer adding any necessary changes.” This is accompanied by a $500 annual filing fee.
WHY FORM AN LLC IN MASSACHUSETTS?
The Benefits and Advantages of Creating a Massachusetts LLC
The U.S. Chamber of Commerce ranks Massachusetts third in median family income. Massachusetts is second in academic research and development intensity, and sixth in share of high-tech businesses.
- Advantages of Forming a Massachusetts LLC
The Massachusetts LLC Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses. An LLC’s members can specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than their portion of capital contributions. This gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
In addition, an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests. Likewise, an LLC agreement may establish classes of managers with different rights, powers, and duties, including voting and non-voting powers. This facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.
The Massachusetts LLC Act does not require LLC members to be listed with the Department of State. A “person” may organize an LLC, and the person does not need to be a member of the LLC. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s certificate of organization with the Massachusetts Secretary of State.
Dealing with Business Partners
The Massachusetts LLC Act gives members contractual freedom to customize the duties each party to an LLC’s operating agreement owes to the other parties. The Act expressly states that any fiduciary duties a member or manager has “may be expanded or restricted” by an LLC agreement.
In addition, the Act allows members to specify in an LLC agreement whether, and under what conditions, to allow contracts and transactions between an LLC and one or more of its managers or members. The Act states that “[e]xcept as provided in a written operating agreement, a member or manager may lend money to, borrow money from, act as a surety, guarantor or endorser for, guarantee or assume one or more specific obligations of, provide collateral for, and transact other business” with an LLC, and that they have the same rights and obligations as third parties. This gives members certainty in business planning and the ability to take advantage of mutually beneficial opportunities.
Preventing Unwanted Business Partners
The Massachusetts LLC Act protects membership interests from members’ creditors. An LLC agreement may provide that a membership interest cannot be assigned. Even if a membership interest is assigned, an LLC agreement may provide that the assignee cannot participate in the management of the LLC, become a member, or exercise any non-economic interests of the assignor. And if a judgment creditor obtains a charging order against a member’s membership interest, the judgment creditor has only the rights of an assignee.
- Massachusetts Registered Agent Services
A Massachusetts LLC must list a Massachusetts registered agent for service of process. A commercial registered agent service may act as a Massachusetts registered agent.
- To Keep a Massachusetts LLC in Good Standing
The Massachusetts LLC Act requires LLCs to file annual reports. The fee for filing the report is $500. This fee is required whether an LLC is domestic (Massachusetts) or foreign (out of state). Therefore, if you are living in Massachusetts or doing business there, you will owe this fee whether or not your LLC was formed in Massachusetts or elsewhere. You cannot avoid this fee simply by forming in another state. Because of this, people sometimes form an LLC in Massachusetts to avoid paying two states’ annual fees, one for the domestic company (Massachusetts) and one for the foreign LLC (formed outside Massachusetts, but registered to do business in Massachusetts).
Unusual Aspects of Massachusetts
The Massachusetts LLC Act requires LLCs to maintain an office in the state to keep records for review by members and managers, although the LLC does not have to use the office as “a place of its business” in Massachusetts. The records an LLC must keep at the office include (1) a current list of each member and manager; (2) a copy of the certificate of organization; (3) a copy of the LLC agreement; (4) copies of the LLC’s federal, state, and local income tax returns and reports for the previous three years; and (5) copies of the financial statements for the previous three years.
Because of the advantages of forming an LLC in Massachusetts, over 13,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Massachusetts. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Massachusetts with your Delaware LLC (Form Delaware LLC).
- Massachusetts Corporations and Associations Code References
§ 2 “Definitions” § 5 “Office and Agent for Service of Process in Commonwealth” § 7 “Transaction of Business Between Member or Manager and Limited Liability Company” § 9 “Records and Documents” § 12 “Certificate of Organization” § 20 “Admission as Member of Limited Liability Company” § 21 “Rights, Powers and Duties of Classes or Groups of Members” § 29 “Allocation of Profits and Losses” § 39 “Assignment of Interest” § 40 “Judgment Against Member Payable with Interest in Limited Liability Company” § 41 “Membership of Assignee” § 48 “Registration of Foreign Limited Liability Company” § 63 “Duties and Liabilities of Members and Managers”
Massachusetts vs. Delaware LLC's: Which State Is Better?
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|