How to Incorporate in Massachusetts vs.
How to Start a Massachusetts LLC
A Guide to Choosing the Best Business Entity in Massachusetts
Once you’ve decided you’re ready to start a business in Maine, the first decision you’ll make is which business entity is right for you. The Limited Liability Company (LLC) and corporate entities are the most popular options in Massachusetts, given their desirable elements such as liability protection and flexible tax structure options. This Massachusetts LLC formation and incorporation guide will walk you through what each of these entities has to offer for your business, and which entity is the better option for you. We’ll go over the details of starting a Massachusetts LLC and a Massachusetts corporation, what to expect with their annual maintenance, and the advantages and disadvantages of each entity.
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LLCs vs. Corporations
There are main characteristics true of all LLCs and corporations, and they will help you begin making your decision:
- Maintenance
Corporations demand a high level of maintenance since they have more formalities than just annual compliance and taxes, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. Otherwise, LLCs only require a minimal amount of maintenance. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is the best choice if you have a small to medium-sized business and can only handle a low amount of maintenance. - Tax Structure
LLCs will need less time and paperwork for business owners during tax season, since an LLC is not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. For higher income LLCs, the tax rate is usually lower than a corporation. Corporations are more advanced for a business owner to take care of come tax season. A corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax. - Investors
A corporation has the biggest advantage for gaining investors. Investors are more comfortable investing their time and money in a traditional and reputable business structure like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. Conversely, investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you are serious about gaining investors. - Prestigious Title
The “LLC” or “Inc” ending on your business name will give it a level of prestige. These endings show permanence and encourage trust from potential investors or clients, and show that you are serious about your business. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and the prestige of an LLC is continuing to grow.
Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Massachusetts. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $9.)
MA LLCs vs. MA Corporations
After discussing the general characteristics true of all LLCs and corporations, next is to cover more specific characteristics of what makes a Massachusetts LLC or Massachusetts corporation unique from other states, which will bring us to the final answer on which entity will be best for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. The information in this section will provide these specifics for the Massachusetts LLC and the Massachusetts corporation.
- Massachusetts Corporate Excise Tax
Massachusetts is unique with its corporate excise tax, which is a combination of both a tax on income as well as net worth. Unfortunately, this can make the corporate excise tax expensive for many businesses, and you should examine in detail how this could affect your business if you’re considering a corporation.Generally, all corporations conducting business within the state of Massachusetts must pay the corporate excise tax, which is a combination of two tax measures:- $2.60 per $1,000 of either a corporation’s tangible property or taxable net worth
- 8% tax of a corporation’s taxable net income in Massachusetts
- No Entity-Level Tax for LLCs in Massachusetts
Unlike most states, Massachusetts does not subject its LLCs to any entity-level tax, saving LLCs in Massachusetts hundreds to thousands of dollars every year. - Massachusetts Individual Income Taxes
The individual income tax rate in Massachusetts is 5.05%, and is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes.
This flat rate is advantageous for an LLC, especially higher-income LLCs, since it leads to paying less on annual taxes as well as more simplicity around tax season. - Most Expensive Annual Report Fee
Massachusetts has the most expensive annual report costs for LLCs in the nation at $500 ($520 after the associated electronic filing fee). This fee is about four to five times higher than the cost of a typical annual report, and this extra annual cost should be taken into serious consideration when choosing your business entity. - Most Expensive LLC Formation Filing Fee
Much like its annual report fee, Massachusetts has the most expensive Certificate of Organization fee in the nation at $500 ($520 after the associated electronic filing fee). This filing fee is immensely expensive compared to other states. This is a one-time formation fee to form your LLC, and while it should be taken into consideration, it should not be a complete make-or-break element when choosing your business entity. - Massachusetts LLCs Required to Maintain a Business Office in the State for Records
Unlike most states, LLCs in Massachusetts have to state the exact physical address where their LLC records, such as member list, Certificate of Organization, or LLC agreement, will be maintained. This is often the same address as the principal office, but it can be a different location in Massachusetts if necessary.
Massachusetts LLC or Massachusetts Corporation? Final Answer.
Your decision to form either a Massachusetts LLC or a Massachusetts corporation can be made by considering the size of your business, level of maintenance you require, priority of investors, and the most beneficial tax structure for the future of your business.
The Massachusetts LLC will be your best choice for small to medium-sized businesses. LLCs in this state are less time-consuming to form and maintain than corporations, and provide easy management, flexibility and liability protection. The formation and annual fees are high, but in the long run, they still win the decision for smaller businesses and stay true to character in their low maintenance and simple tax structure. If investors are not one of your top priorities, and you’re looking for liability protection for your business, the LLC is your answer.
The Massachusetts corporation will be your best choice if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. A Massachusetts corporation remains true to design in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.
How to Incorporate in Massachusetts
In order to start a corporation in Massachusetts, also known as incorporating, you must file the Articles of Organization with the Massachusetts Secretary of the Commonwealth. Massachusetts is unique and refers to this document as the Articles of Organization instead of the typical Articles of Incorporation.
You can file the Articles of Organization in the following ways:
- Online at the Massachusetts Secretary of the Commonwealth website (recommended)
- By postal mail
- In person
- By fax
The state of Massachusetts charges a $275 filing fee for the Articles of Organization for up to 275,000 shares. You’ll need to pay an additional $100 for every extra 100,000 shares past 250,000 shares.
There is no expedite option for incorporating, but the standard filing time is only about two days.
To complete your Massachusetts Articles of Organization, include the following information:
Enter your corporation name exactly as you would like it to appear. Your corporation name must include words like “Incorporated,” “Corporation,” “Company,” or an abbreviation of one of those words.
Your corporation name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Organization. The name can’t already be in use, and can’t sound similar to the name of any other company in Massachusetts.
Describe the purpose for creating your corporation. The purpose doesn’t need to be specific, and is best left as a general statement. For example, a business that provides writing services would use a a purpose statement such as “To provide writing services and to engage in any other lawful activity for which corporations may be incorporated in this state.”
Massachusetts allows corporations to have more than one class of members, and allows guidelines for the classes to be set forth in this document or in the company by-laws. These guidelines include things like voting rights and duration of membership.
If necessary, use this space to include other lawful provisions involved for the regulation and limitations of the corporation or its members.
If you would prefer the anniversary date of your corporation to be a different date than the approval date, enter it here (can’t be more than 30 days after the filing date).
Enter the physical street address of your Massachusetts principal office.
Enter the names, residential addresses, and post office addresses of all the directors and officers in your corporation.
Choose the month in which its last day will be the end of your corporation’s fiscal year.
A resident agent (also referred to as registered agent) is a person or entity in the state that receives service of process from the government on a businesses behalf. A resident agent is required by the state for all businesses to have, and can’t be located at the address as the principal business office. Enter the name and physical business address of the resident agent here.
Have the incorporator sign and date here.
How to Start an LLC in Massachusetts
In order to form an LLC in Massachusetts, you must file the Certificate of Organization with the Massachusetts Secretary of the Commonwealth.
You can file the Certificate of Organization in the following ways:
- Online at the Massachusetts Secretary of the Commonwealth website (recommended)
- By postal mail
- In person
- By fax
The state of Massachusetts charges a $500 filing fee for the Certificate of Organization, with a standard filing time of about 2 days.
To complete the Massachusetts Certificate of Organization, include the following information:
Enter your LLC name exactly as you would like it to appear. Your LLC name must include the words “limited liability company,” “limited company,” or the abbreviation L.L.C., L.C., LLC or LC.
Your LLC name can’t imply it is organized for a purpose other than what is mentioned in the Certificate of Organization. The name can’t already be in use, and can’t sound similar to the name of any other company in Massachusetts.
State the street address of the office where the LLC records will be kept. LLCs in Massachusetts are legally required to state the exact physical address where their LLC records, such as member list, Certificate of Organization, or LLC agreement, will be maintained. This is often the same address as the principal office, but it can be a different location in Massachusetts if necessary.
Describe the general character or purpose of your LLC. This can’t be completely general, and must have some level of detail. For example, you could write “taco shop,” or a general use sentence after your detail, such as “taco shop and any lawful business for which a limited liability company may be organized under the laws of the Commonwealth of Massachusetts.”
If you’d like to set an end date for your LLC instead of letting it be perpetual (indefinite existence), write that date here.
A resident agent (also referred to as registered agent) is a person or entity in the state that receives service of process from the government on a businesses behalf. A resident agent is required by the state for all businesses to have, and can’t be located at the address as the principal business office. Enter the name and physical business address of the resident agent here.
If your LLC is manager-managed (where certain members are appointed as managers to make the decisions and run day-to-day operations), enter the names, residential addresses, and post office addresses of all the managers in your LLC here.
If your LLC would like to authorize more persons than just the managers to execute documents within the LLC, enter their names and business addresses here. If your LLC does not have managers, at least one person must be listed here.
Any additional rules or regulations you would like to impose on your LLC can be listed here.
Have an authorized person sign and date here.
Massachusetts Annual Report
Completing your annual maintenance tasks will let your business maintain good standing and stay updated with the state of Massachusetts.
1. File your annual report
2. File your annual Massachusetts business taxes
Below, we’ll walk you through the basic instructions and resources you’ll need to help you take care of your annual maintenance.
What is a Massachusetts annual report?
Massachusetts LLCs and Massachusetts corporations that transact business in the common wealth are required to file annual reports with the Massachusetts Secretary of the Commonwealth. The report is meant to update or confirm the records for your business, and lets your business remain in good standing. You can update information such as business address, directors, officers, and managers using the annual report form.
How do I file an annual report in Massachusetts?
Massachusetts LLCs and Massachusetts corporations need to file their annual reports online at the Secretary of the Commonwealth website (recommended), by postal mail, in person, or by fax.
How much does it cost to file an annual report in Massachusetts?
For LLCs, the annual report fee in Massachusetts is a steep $500.
For corporations, the annual report fee in Massachusetts is $125. If you file online, the fee drops to $100.
When are Massachusetts annual reports due?
The Massachusetts annual reports for LLCs and corporations are due within two and a half months of the fiscal year end date.
Massachusetts Business Taxes
Preparing your business for tax season involves prior planning and complex paperwork, and you probably have a lot of questions. The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.
Take a look at our Massachusetts Business Tax FAQ below:
What is the Massachusetts corporate excise tax?
Generally, all corporations conducting business within the state of Massachusetts must pay the corporate excise tax, which is based on both income and net worth, and with a minimum rate of $456.
Massachusetts’s corporate excise tax rates are a combination of two tax measures:
- $2.60 per $1,000 of either a corporation’s tangible property or taxable net worth
- 8% tax of a corporation’s taxable net income in Massachusetts
What tax form does a Massachusetts corporation need to file for the corporate excise tax?
A Massachusetts corporation must file federal Form 1120, and Form 355. If your income is under $100,000 and not subject to a corporate tax in another state, you must file Form 355SBC (small business corporation) instead of Form 355.
How can I file the Massachusetts corporate excise tax?
If your corporation’s gross receipts and sales in Massachusetts are above $100,000 annually, you must file electronically. Otherwise, you can file electronically (the recommended method) or by paper form return.
What is the Massachusetts individual income tax rate?
The individual income tax rate (applicable to LLCs due to their pass-through taxation status) is a flat rate of 5.05%.
What tax forms does a Massachusetts LLC need to file?
For single member LLCs, submit a Schedule C as part of your personal tax return.
For multi-member LLCs, submit Form 1065 along with Schedule K-1, included within the form.
When are my Massachusetts business tax returns due?
Corporations and LLC’s must file their tax forms by the 15th day of the 4th month after the end of the corporation’s taxable year (calendar or fiscal year).