What is a Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is a business structure that protects its owners from being personally responsible for its debts. For example, if your LLC goes bankrupt, your assets can't be used to pay your creditors.
According to the Small Business Administration, LLCs can be a good choice for medium- or higher-risk businesses. LLCs are quick to set up and offer a fair amount of flexibility in how you can run one.
Establishing an LLC in Massachusetts
1. Make sure your business name is available
The Secretary of the Commonwealth lets you search for a Business Entity to make sure the name you want is available.
Consider also searching for businesses with names similar to yours to see what kinds of businesses might appear next to yours. For example, 2 businesses with very similar names might compete for search engine rankings.
2. Create an operating agreement
An operating agreement is a legal contract that outlines how your business will operate. It is signed by all members and establishes rules, structure, and helps address issues during business operations.
3. File with the Secretary of the Commonwealth
To start an LLC, you'll file a Certificate of Organization with the Secretary of the Commonwealth. The filing fee for the Certificate is $500. An LLC only legally exists after the state approves its certificate of organization, which provides a public record of its name and contact information.
4. Report beneficial ownership information (BOI)
After the Secretary of the Commonwealth accepts your filing, you may have to file a beneficial ownership information (BOI) report. Filing is free and submitted to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
Your BOI report must include information about your business (like its name, location, and tax ID number) and its ownership (like names, dates of birth, residential addresses, and proof of ID).
Some types of businesses don’t have to file a BOI report.
For businesses created during/after 2024: You'll report information about your business’s company applicant(s). There will either be 1 or 2 company applicants. The first is the person who first registered with the Secretary of the Commonwealth. You may need a second if more than 1 person was involved in registering: The second is the person responsible for directing or controlling the filing.
Here are some examples of company applicants:
- 1-person example: You're starting a business. You register with the Secretary of the Commonwealth. You're the only company applicant.
- 2-person example: You're starting a business. You ask your administrative assistant to file with the Secretary of the Commonwealth. You and your administrative assistant are both company applicants.
You can learn more or file online at the FinCEN website.
5. Decide if you need a business certificate (DBA)
You must file a business certificate (sometimes called a DBA or “doing business as” name) if your business operates under any name other than its legal name. The “legal name” is the official name used when incorporating.
For example, imagine you have a business called, “Smith Printing, LLC." However, you think you'll get more clients using the name "Creative Printing Services."
You'll file your business certificate in the city or town where your business is located.
Learn more about if your business needs a business certificate and how to get one.
6. Get an EIN (Employer Identification Number) from the IRS
Many LLCs must get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This is sometimes called a Federal Tax Identification Number and the application is free.
If you’re a single-member LLC and answer yes to any of these questions, you must get an EIN. If you answer no to the questions, you will use your Social Security Number to identify your LLC.
7. Register your business with MassTaxConnect
If your business is responsible for collecting and paying taxes to the state, you'll need to create a MassTaxConnect account. An EIN is required to register. You can pay business taxes to the Department of Revenue through MassTaxConnect.
Important: If you're a single-member LLC that doesn’t require an EIN, you’ll register with a Social Security Number.
Taxes and LLCs
According to the IRS, an LLC can choose to “pass through” profits and losses to each member. Members report their share of income or losses on their tax returns and pay self-employment taxes for Medicare and Social Security. Learn more about self-employment tax.
Members may also decide that they'd like to be taxed as a corporation. In this case, the LLC will file a separate tax return and pay corporate excise tax. Corporate excise tax is made up of net income and either tangible property or net worth.
You can determine your tax filing requirements by understanding how your LLC is treated for tax purposes.
- A single-member LLC is taxed as a sole proprietorship
- A multi-member LLC is taxed as a partnership
- LLCs can also file as corporations
LLCs are classified for Massachusetts tax purposes the same way they are for federal income tax purposes.
Additional operating requirements
Check if you need workers' compensation insurance
All Massachusetts employers must carry workers’ compensation insurance. This is required no matter how many employees you hire. This also applies to you if you’re going to be an employee of your business.
Annual reporting to the Secretary of the Commonwealth
LLCs must file an annual report with the Secretary of State by the anniversary of the LLC's original filing. The filing fee is $500.
| Date published: | June 20, 2024 |
|---|---|
| Last updated: | November 5, 2024 |