It is true that the initial stages of starting an LLC in Massachusetts are simple. Well, relatively simple.
The First Steps
The first thing you need to do besides choosing the business sector that you want to enter, and choosing the name of the business, is to file your LLC with the Secretary of State’s office of Massachusetts. In the Certificate of Organization, or Professional Certificate of Organization document filed with the Secretary of State’s office you’ll need to mention the following:
1. The EIN (federal employer identification number) of the business
2. The name of the LLC.
a. Keep in mind the work name must have LLC included. For example, RugsAreUs, LLC.
b. Must not be the same as or ‘deceptively similar’ to another LLC, PLLC, LP, or corporation organized in Massachusetts
c. The address where records of the LLC will be kept
d. The general purpose of the business.
e. Date of dissolution, if applicable>
f. Name, address of each manager of the LLC
g. agent who can receive service of process, and execute, receive, deliver, record, or acknowledge certain documents
You will then pay the $500 filing fee and you’re done. It is as easy is that.
Now the Hard Part
When you filed a Certificate of Organization with the Secretary of State’s office in Massachusetts, what you have actually done is created the beginnings of a liability protection plan. You have indicated to the rest of the world that your company is formed with a structure that is recognized by the Commonwealth. That structure serves as the base upon which a foundation of liability protection can be started.
But filing is only the beginning, you need to obtain an operating agreement for your LLC. Practically speaking, an operating agreement is needed, in my opinion, whether you have a single member LLC (meaning that you are the only person working for the LLC), or whether you are a multiple number LLC. In either case, you need an operating agreement because an operating agreement establishes the power and authority that the member or members of the LLC possess. Without such a document, you run the risk of experiencing much more of the legal system than you want to.
Single Member LLC Operating Agreements
That’s correct, even if you are the only person operating agreement you want to have an Operating Agreement. Why? Here’s why….
Perception
Operating agreements establish the rights and limitations that even a single member of the LLC has in the operating of the company (this also true with multiple member LLC’s). If there is ever a lawsuit brought against your LLC, you want to have the upper hand by being able to present to the court and your opponent that the rules laid out in the Operating Agreement were followed by you, that you respected and followed the typical formalities that a business operating in the State of Massachusetts operates by. Failing to be able to demonstrate to a court that your LLC is in fact a functioning business, where the funds of that business are kept in an operating account that is separate from personal funds and the funds of other business’ owned by a member, and that minutes of meetings were kept to demonstrate the actions and judgment of the LLC, could result in the court holding that the corporate veil has been pierced.
Piercing the Corporate Veil
You do not want to be in a position where a court makes a determination that your LLC is really a front, that the LLC is, in fact, mixed or comingled with another business. This could result in the court seeing your personal assets as an extension of the monies earned by the business, and therefore, these assets could be in jeopardy.
Default Rules
When an LLC does not have an Operating Agreement, it must operate its business by the rules promulgated by Massachusetts. While these rules are not necessarily harmful to an LLC, they are limiting and if not followed, are yet another reason that the LLC can be open to unnecessary liability.
The Good News
A strong Operating Agreement can, if followed, mitigate the risk to your personal assets that might be experienced by a living without one. And…here is the good news…an operating agreement need not be expensive. An experienced attorney in Massachusetts will charge between $500 and $1000 roughly to draft an operating agreement depending upon the complexities involved. Sure, there are online platforms which will draft an Operating Agreement for less, but I would think twice about taking this approach. Would you get your haircut by your ten-year-old nephew? Probably not. And that about sums up how I feel about online contract services. They simply lack the experience, can’t ask the necessary questions, and won’t dig deeper than what is seen on face value in the evaluation of a company.
The moral of the story…it is not worth saving $100 or $200 on a contract that is not up to par. While it is true that my 10-year-old nephew can arguably cut my hair for much less than my barber, it would definitely not be worth the price.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
