A limited liability company (“LLC”) is a specific type of business structure that a business owner or owners may form. According to United States business law, if an individual files a lawsuit against a corporation and the lawsuit is successful, only the corporation will be liable to pay money out of the corporation’s assets if the corporation is an LLC.
This means that individual members and owners’ assets will not be accessed when determining liability or paying corporate debts. As such, this is one of the main attractions for prospective business owners when choosing how to structure their business. Members and owners of an LLC are also not responsible for any damages awarded against the corporation in a lawsuit.
Similar to partnerships, LLCs are not taxed at the entity level. This means that, unlike corporations, they do not pay taxes as an LLC. The only taxes paid are paid by individual members who have earned profit.
To reiterate, limited liability companies differ from corporations in ownership structure. LLCs are owned by their members or individuals, while shareholders own corporations. Additionally, LLC owners generally are not personally liable for the liabilities or debts incurred by the LLC. This allows LLC owners to manage the business without being concerned with losing their assets.
Who Should Form an LLC?
In terms of who should consider forming an LLC, prospective business owners who wish to own a small business should always consider forming an LLC. As mentioned above, forming an LLC protects a person’s assets by limiting liability to the LLC’s resources. As such, if the LLC is sued, the small business owner will not have to pay the lawsuit damages out of their assets.
Business owners interested in forming a business with minimal paperwork and costs should also consider forming an LLC. This is because LLC formation only requires filing simple documents, such as articles of organization with the state. A small filing fee must also be paid. For the state of Massachusetts, the filing fee to form an LLC is $500.
Additionally, keeping track of LLC income and expenses is considerably simple. This is because under an LLC business structure, a separate tax return filing is not required. Instead, members and managers will report all their respective income and expenses on their tax returns.
The management of an LLC is also often simple. An LLC with two or more individuals can develop an operating agreement. In an operating agreement, the members will provide details regarding how the LLC is governed, how profits will be allocated to each member, and what members’ votes are needed for specific actions the LLC takes.
An operating agreement may also address how the LLC may be dissolved or shut down. The operating agreement will also commonly provide rules as to how disputes among LLC members are to be resolved and address what happens if a managing LLC member dies or becomes incapacitated.
How Do I Form an LLC in Massachusetts?
To form an LLC in Massachusetts, business owners must complete all of the state requirements. The following is a list of state requirements necessary to form an LLC in Massachusetts:
- Choose a Name for the LLC: The first step in forming a valid LLC in Massachusetts is to choose a name that is different from all other business names on record with the Massachusetts Secretary of the Commonwealth.
- One way to ensure that the chosen name doesn’t conflict with an existing business is to conduct a precursory search of the name in the Massachusetts Secretary of the Commonwealth’s online database;
- Additionally, the chosen name must also include the label “Limited Liability Company,” “LLC,” “Ltd Co.,” “LC,” or “Limited Company”;
- Obtain and Identify a Registered Agent: Massachusetts also requires that every business entity have a registered agent to ensure that any important information or legal issues are properly delivered to the LLC.
- Important the registered agent may be any individual or business, so long as the individual or business has a physical address in Massachusetts;
- File a Certificate of Organization: The next requirement is to file a certificate of organization with the Massachusetts Secretary of the Commonwealth.
- Importantly, the Massachusetts Secretary of the Commonwealth’s office provides online fillable Certificates of Organization for creating many business entities, including LLCs.
- A certificate of organization requires the name of the LLC, the physical address of the LLC, the name and address of the registered agent, as well as the names of the officers or directors of the LLC;
- Additionally, an operating agreement that outlines the legal duties and obligations of all of the LLCs members and managers must also be submitted for the past three years, if applicable; and
- File Annual Reports: After an LLC has been properly formed, all Massachusetts LLCs are required to file an annual report to remain in compliance and good standing.
What Benefits Does Massachusetts Give to LLCs?
The first major advantage of an LLC is that an LLC can elect to be taxed as a “pass-through” entity. Income is passed through the entity and to the LLC’s members. This prevents double taxation or income at both the business and manager levels.
The second major advantage of an LLC is that members are generally not liable for the debts of the LLC. Those doing business with the LLC are generally only able to pursue the assets of the LLC in the event of a lawsuit. For example, if an LLC were to break its contractual obligations with a customer, that customer could only successfully sue the LLC for compensation.
What Disadvantages Does Massachusetts Give to LLCs?
One major disadvantage to an LLC, compared to a partnership in Massachusetts, is that there are formal paperwork and recordkeeping requirements to form and continue to operate an LLC. This is especially true when there are multiple members and managers of the LLC.
Typically, each LLC will have an operating agreement detailing the legal rights and responsibilities of its members and managers. Each member and manager will then have certain obligations concerning the LLC’s other members and managers. Operating under an operating agreement can sometimes lead to legal issues regarding a breach of one’s duties, etc.
Further, another main disadvantage in forming an LLC could be double taxation. Double taxation means that corporate profits are first taxed to the corporation as earned, and then the profits are taxed to shareholders as capital gains income when the shareholders receive their respective dividends. Another example of a disadvantage associated with an LLC is that the liability of LLC structures is such that owners can still be sued for their negligent actions.
Do I Need a Lawyer for Help With Forming an LLC in Massachusetts?
To form an LLC in Massachusetts, you should contact an experienced Massachusetts lawyer. An experienced Massachusetts corporation attorney can help you navigate the LLC formation process. Additionally, an experienced business attorney will also be able to ensure that you choose the most appropriate business structure suited to the specific needs of your business.
Additionally, an attorney will also be able to educate you regarding the upkeep of the LLC, along with explaining local tax laws. Finally, an attorney will also be able to represent you in court, as needed, should any legal issues arise regarding the LLC.
