Decisions, Decisions, Decisions
With the panoply of potential options for business formation, e.g., incorporation, limited liability company (LLC), limited partnership, partnership, sole proprietor, etc., it can be difficult to decide which corporate structure is best for your Massachusetts business. In addition to the sheer number of choices, the choice as to what corporate structure to use for your business is complicated by tax considerations and liability concerns. As a basic rule, if you are considering (perhaps on the advice of an accountant) incorporating your company for a particular tax purpose, you will achieve a considerable degree of liability protection under such a corporate structure. Liability is a major issue when making the determination as to which corporate structure to choose. And incorporating a business in Massachusetts has the potential to provide, assuming you follow all of the administrative and other burdens required of your corporation, personal asset protection from lawsuits.
How to Incorporate
Through conversation with counsel, a business seeking to incorporate in Massachusetts will need to do the following:
- Choose a name for the corporation that is different from existing corporations within the Commonwealth of Massachusetts
- Complete the Articles of Organization
- Name the officers and directors of the corporation
- Determine (often with advice of an accountant) an appropriate fiscal year
- Develop by-laws for the company
- Determine the number of stock shares and type of stock shares to be issued
- Prepare shareholder agreements which outline ownership rights
Compliance with Massachusetts Regulations for Corporations
Once a corporation has been formed in Massachusetts by filing the necessary documents with the Office of the Secretary of State, and once the corporation has been accepted by that same office, there are a number of procedural tasks which must be completed on a regular schedule. First, a corporation must file an annual report within 2 ½ months of the end of that corporation’s fiscal year with the Office of the Secretary of State. Annual reports must be filed timely and regularly to avoid serious consequences, the least of which are late fees associated with late filing.
Corporate taxes must also be paid to the Massachusetts Department of Revenue on an annual basis, again, this detail will be worked out with an accountant. It is also possible, depending on the type of business that is being operated, that the business will be required to pay a sales tax. Also, federal tax will be a consideration for any corporation. Questions pertaining to taxes specific to Massachusetts, or federal taxation should be handled by a business accountant.
Other Incorporation Matters
Licensing and Permitting
Licenses and permitting for Massachusetts corporations vary widely according to the type of business involved. Typically licenses and permits will be available to corporations from Massachusetts and/or municipalities in which the business is located or operates. Applying for required licenses or permits is typically a straightforward process for a business owner.
EIN
The federal employer identification number (EIN or FEIN) is a number that businesses are required to obtain. Acquiring an EIN is a very straightforward process and can be done for no cost online at the IRS Website.
Common Pitfalls
Many online services endeavor to produce articles of organization, bylaws and other documents online. Many of these online services claim to develop an end product that complies with state, federal, and local laws, rules, and regulations. The critical motto to live by when utilizing these online document services is “let the buyer beware.”
Because there are so many aspects of your business that are unique to your business, I do not believe it is possible to produce a one size fits all document that can possibly address all of your business and personal issues. Further, rules and regulations are constantly changing and relying on a third party with little to no liability for the product produced and sold to your company to stay updated with these rules and regulations is, in my opinion, a risky strategy. Better to spend some money upfront to craft as close to an airtight set of documents as possible to represent your business, rather than to fall back on the low cost but potentially higher liability involved with using online documentation services.
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.
