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by Mike Vestil 

What You Need To Know About Starting An LLC In Massachusetts: Cost Breakdown

Starting a limited liability company (LLC) in Massachusetts is a great way to protect your assets while doing business. But before you can get started, several steps need to be taken. In this blog post, I'll walk you through the process of creating an LLC in Massachusetts, the costs involved, and provide helpful tips that can make a big difference along the way.

LLC Fees In Massachusetts

Starting an LLC in Massachusetts requires a few upfront fees. The good news? There are some discounts available if you take the time to research and understand the rules. In this blog post, we’ll break down the fees associated with creating an LLC in Massachusetts and what you can do to save money.

  • LLC Formation Fee: The Corporations Division charges $500 for online filing, and a discounted fee of $500 if filed on paper. This fee is non-refundable and must be paid before your business can be formed.
  • Name Reservation Fee: If you want the peace of mind that your chosen name is reserved, it will cost another $30 for a pre-application name reservation request. This fee is also non-refundable, so make sure you choose the right name for your business before submitting payment!
  • Annual Reporting Requirements: Once you're LLC has been established, yearly reporting requirements come with an additional sum – businesses must pay the state's annual assessment of up to 500 dollars annually! While this may seem like a lot at first glance, keep in mind that it’s only a fraction of what most small businesses spend annually on other costs such as rent or utilities.

Starting An LLC In Massachusetts

Here are the steps to consider when starting a Massachusetts LLC.

Step 1: Choose Your Business Name

The first step in starting an LLC in Massachusetts is to choose a name for your business. This name must be unique and not already registered with Massachusetts. It must also include “LLC” or “Limited Liability Company.” The term cannot imply that the company is involved in any activity requiring special licensing or registration unless it has been licensed or registered accordingly. Additionally, it cannot contain certain words such as “bank” or “insurance,” which may imply financial services without proper licensing. Finally, avoid using terms such as “corporation”, which are reserved for C-Corps only, or any other entity formation other than an LLC.

Step 2: Select A Registered Agent 

Starting an LLC in the state of Massachusetts requires that you have a registered agent to accept legal papers if necessary.

A registered agent is an individual or business entity responsible for accepting legal documents for your LLC. This includes service of process notices, official government correspondence, and other legal notifications. The registered agent should be based in Massachusetts or authorized to do business within it. Additionally, they will need to maintain an address located in the state.

You must select reliable and trustworthy since they will manage essential documents related to your LLC’s compliance with the law. The registered agent must also keep their contact information up-to-date so that any changes can be reported to the Secretary of State’s office. This ensures that all filings are current and accurate at all times.

It would be best to consider several things when selecting your registered agent for your LLC in Massachusetts: availability, reliability, trustworthiness, and expertise. It’s best to choose someone who has experience with filing paperwork on behalf of businesses - such as a lawyer or accountant - because they understand how important it is to maintain accurate records and keep up-to-date with changes in regulations and requirements. Additionally, look for someone available during regular business hours so that if something needs immediate attention, there is always someone available to help you quickly and efficiently.

Step 3: File Articles Of Organization

Once you've chosen your name, selected a registered agent, and ensured all requirements had been met, you can file Articles of Organization with the Secretary of State's office (SOS). This document needs to include specific information about your business such as its name, purpose, address, members/managers' names/addresses, and more. You will also need to pay a filing fee when submitting this document which usually costs around $500 depending on what type of filing you choose (paper vs. online). 

Once approved by SOS, your LLC will officially exist.

The Benefits Of Forming An LLC In Massachusetts

Operating a business can be a complicated and overwhelming task. At the same time, various benefits arise from this endeavor. Here are some of the top ones.

No Personal Liability

Fortunately, creating an LLC (Limited Liability Company) allows owners to manage their business without taking on personal responsibility for the debt the company may incur. By filing the necessary paperwork and paying an associated fee, you can quickly create this legal entity that allows members of the association control over their contribution while protecting them from more enormous liabilities beyond what they have contributed.

Tax Advantages Of Forming An LLC

A significant benefit of forming an LLC is the tax advantages it provides. An LLC pays taxes separately from its members; this means that the profits are passed through to each member’s personal income tax returns, thus avoiding double taxation. Additionally, if members choose to file as a ‘C’ Corporation, they can defer tax payments until after dividends have been distributed among shareholders.

This could result in significant savings for those filing as C-corporations as opposed to other types of businesses, such as sole proprietorships or partnerships. Furthermore, depending on where you live and how your LLC is taxed, you may be eligible for certain deductions unavailable to other types of businesses, such as sole proprietorships or partnerships. For instance, Massachusetts offers deductions for small businesses that would not otherwise apply to different types of entities operating within the state.

Let's dive a bit deeper into taxes and the various rules and regulations.

LLCs vs. LLPs: Disregarded Entities & Partnerships

The way LLCs and LLPs are taxed closely follows federal taxation rules. Single-member LLCs—those with only one owner—will typically be “disregarded” from owner taxes. Said differently, any money earned by the LLC will not count as taxable income for the individual owner or members. On the other hand, partnerships with two or more members remain treated as such.  They must file partnership returns, and any income earned will be reported on each partner’s tax return. Any LLP or LLC classified as a corporation for federal purposes will also become taxable by state law; these entities must file corporate returns and pay corporate taxes on their profits.

Massachusetts Taxes On Income & Deductions

Massachusetts taxes residents at graduated rates based on taxable income levels ranging from 5% to 8.8%, while non-residents are subject to flat rates ranging from 5% to 12%. 

These rates apply to individuals who report their incomes through W-2 or 1099 forms and businesses registered as pass-through entities such as LLCs and LLPs. Such businesses are required to report their earnings through personal income taxes rather than corporate tax filings.

Deductions are available for certain business expenses that can help lessen your overall tax burden, including employee wages, rent payments, union dues, and more. Make sure you consult your accountant before filing, so you don’t miss out on these valuable deductions.

Cost Of Starting An LLC In Massachusetts

The cost of creating an LLC in Massachusetts is relatively low compared to other states; all it takes is $500 to file your Certificate of Organization with the Secretary of the Commonwealth. 

When filing your LLC Certificate of Organization, you'll need to include essential information such as your LLC's federal identification number, name, and address, info about its general purpose, date dissolved (if applicable), names and addresses of managers & authorized document executors. You can also choose to submit your registration online or by mail through the CorpU portal on the Secretary of State website.

This fee must be paid at the time of filing and is non-refundable. This fee covers processing your application and registering your business name as an official legal entity within the state. Filing online usually takes less than 10 minutes, and you can expect approval within 3-5 business days. It’s important to note that if you file by mail or fax, processing time may take up to two weeks longer than online filings.

In addition to filing fees, ongoing costs are associated with having an LLC in Massachusetts, such as annual registration fees, corporate taxes, insurance costs, and more. These fees vary depending on factors such as employee size and revenue generated from operations within the state. Additionally, many entrepreneurs choose to form their LLCs through professional services for additional guidance and assistance when navigating these processes. These services typically charge anywhere from $100-$500 depending on what type of service you need (e.g., forming an LLC vs. creating multiple entities).

Keeping Your Records Up To Date

As a business, you need to take specific steps to ensure that your LLC stays compliant with state regulations. One of the most critical steps is keeping your records up to date by submitting an annual report on the anniversary of your business’s formation.

An annual report is a document that must be filed with the Secretary of the Commonwealth’s Corporations Division every year after your LLC has been formed. The report verifies that your LLC remains in good standing within the state and will ask for information such as the name and address of its registered agent, principal office address, contact information for all members, and any other changes since its initial filing date.

You have two options when submitting your annual report – online or by mail. It is recommended to submit your yearly information online as it is much faster than mail service, but Massachusetts accepts both methods. When you submit it online, you will need a valid email address and a credit card number for payment. (the cost is $500). 

If you opt for mail service, make sure to include a completed copy of Form DLS/CORP/715 (the Business Corporation Annual Report), along with payment via check or money order made out to the “Commonwealth of Massachusetts” (the cost is also $500). All documents should be sent directly to the Corporations Division at One Ashburton Place, Room 1719, Boston, MA 02108-1512, United States.

Submitting your annual report on time every year ensures that your LLC remains compliant with all state regulations while avoiding costly penalties or fines for late payments. Additionally, having up-to-date records may help protect members against personal liability should legal issues arise regarding their business activities.

How To Secure Your Business Name In Massachusetts

You'll want to ensure that your business name is reserved before you launch. The process is simple, and you can have everything sorted out quickly.

The first step is to file an Application of Reservation with the Secretary of the Commonwealth. Once your application is approved, your name will be reserved for up to 60 days - and if you need it extended, you can file another application and pay the $30 fee again.

You might also want to apply for "Doing Business As" (DBA) certificates depending on where your business is located. The county clerk's office issues these certificates, so make sure to check their website for more information on how to apply and what documents are needed.

Once everything has been filed, you may need certified copies or Certificates of Good Standing from the Secretary of the Commonwealth. You can order these documents online with just a $7 fee plus $2 per page - if you'd like them sent outside of Massachusetts, there's an additional $25 fee.

Other Key Considerations When Starting An LLC In Massachusetts

In general, if your business has employees or sells goods in Massachusetts, you will need to register with the Massachusetts Department of Revenue for further licensure requirements. 

Even if you are a service-based business operating out of your home, you may still need permits or licenses depending on your services. The best way to know is by researching your specific industry and understanding what is required.

These regulations vary significantly, so it’s essential to research before beginning any operations that could result in fines or penalties for non-compliance. It’s also important to check with your local municipality, as certain types of businesses may require permits or licenses at that level as well. For example, if you plan on opening a restaurant or retail store, you will likely need a permit from your city or town to operate legally.

Finally, some businesses require professional licensures, such as lawyers and physicians, who must demonstrate their expertise through certification before providing services within their respective fields. In most cases, these professions require practitioners to obtain state licensure before practicing legally. Hence, it’s essential to research and understands all applicable laws when setting up a shop in Massachusetts.

Keep Your Annual Report Up To Date

Every year, all LLCs in Massachusetts must submit an Annual Report with the Secretary of the Commonwealth Corporations Division—either a Limited Liability or Foreign one.

An Annual Report is an annual filing that outlines key details about your business. The report typically includes information about who owns and manages the company, as well as other factors such as any changes that have occurred since the formation of the company. It’s important to note that this document does not replace the need for regular tax filings – it is simply an additional requirement for businesses operating in Massachusetts.

Submitting an Annual Report every year ensures that your LLC remains compliant with all necessary regulations and keeps up-to-date records available for public view. The Secretary of the Commonwealth Corporations Division uses these documents to ensure that all registered businesses follow state laws. Failure to file an Annual Report can result in hefty fines or even the dissolution of your business, so it’s essential to stay current on your filings!

To submit your report, you must go online, complete a simple form, pay the associated filing fee ($500), and hit ‘submit’. Depending on how many changes have been made since last year, you may also need to provide updated documentation like bank statements or Articles of Organization. Once you’ve submitted everything correctly, you should receive a confirmation email within 5-7 days confirming receipt of your document(s).

Why An Operating Agreement Is Essential For Your Massachusetts LLC

An Operating Agreement can help you in many ways - it helps to define the roles and responsibilities of each member, outlines how profits and losses will be divided among members, and provide guidelines on how decisions are made regarding the business's day-to-day operations. It also helps to ensure that all members understand their rights and obligations within the company, which can prevent potential disputes down the line. Additionally, a comprehensive Operating Agreement can help safeguard your limited liability status by ensuring that all members act by state laws.

Drawing up an effective Operating Agreement requires careful consideration and planning. While having a lawyer create this document for you isn't necessary, having legal advice is often helpful in ensuring that all potential issues are addressed upfront. This document should include information such as how profits and losses will be shared among members, how voting power is allocated within the company, what happens if one member decides to leave or sell their share of the company, and other important matters related to the operation of your business. You should also ensure that it complies with all applicable state laws so that it cannot be challenged in court if needed.

Easily Apply For An EIN In Massachusetts With The IRS

Whether you are a sole proprietor in Massachusetts who's thinking of converting to an LLC or starting from scratch, you'll need to obtain an Employer Identification Number (EIN) from the IRS. An EIN is like having your own business Social Security Number and is necessary to open a business bank account, manage taxes, and hire employees. Here's how to apply.

Applying Online

The online application process is relatively simple and takes 15 minutes to complete. You'll need to provide your name and other personal information, such as address and date of birth when filling out Form SS-4. Once complete, submit your Form electronically through the IRS website. Once approved by the IRS (typically within minutes), you'll receive a confirmation email with your new EIN that you can use immediately.

Applying Via Mail

If you'd instead apply through mail, simply download Form SS-4 from the IRS website or pick up a copy at any post office or library. Fill out the Form completely with all required information before sending it off in the mail to the appropriate address listed on it – no postage is required! The processing time may take up to four weeks after sending out your application, but once approved, you will be mailed back a notification with your new EIN Number, which you can use for starting an LLC in Massachusetts.

Conclusion

Starting an LLC in Massachusetts doesn't have to be complicated - with the proper preparation and knowledge, you can quickly launch your business in no time. Knowing the costs associated with forming an LLC can help ensure that your business is set up to run efficiently and legally.

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About the author 

Mike Vestil

Mike Vestil is the author of the Lazy Man's Guide To Living The Good Life. He also has a YouTube channel with over 700,000 subscribers where he talks about personal development and personal finance.

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