Liability Protection
The first and most obvious reason to incorporate a business in Massachusetts is for liability protection. If you are operating businesses as a single owner in Massachusetts and have not incorporated under any formal corporate structure you might be liable personally for any negligence or errors or damage that is caused to another person or company as a result of your business operations. Similarly, if you are a group of people conducting business together and have not followed the steps necessary to incorporate you may be considered a partnership (even though you have not formally named yourself as a partnership in Massachusetts) and therefore, you may be liable jointly and severally for the damages done to another person or business as a result of your business operations.
Be Sure to Avoid Common Pitfalls
When a business is incorporated, the members of the business are shielded, ideally, from personal liability because the corporation is viewed, in the eyes of the law, as its own entity capable of being sued. However, what is known as piercing the corporate veil can sometimes occur. The corporate veil is pierced by a court when a court decides that because a business has comingled funds between businesses or engaged in fraudulent activity between businesses, or any host of other activities beyond the immediate scope of this article, the personal assets of the owners may be reached. When this type of activity occurs, there is no real corporate structure and the court may view the corporation as simply an extension of the owner, making the owners personal assets at risk and the subject of a judgment by that court. There are many ways to limit the potential of ‘piercing of the corporate veil’, including keeping separate bank accounts as operating accounts (separate from personal account and other business accounts), not commingling funds, and keeping good track of business operations and the way that the business follows its Bylaws and other agreements.
Corporations are Attractive to Banks and Other Lenders
Banks and other lenders are typically more trusting and attracted to businesses which have a formal corporate structure. The more sophisticated your business is and appears to others, the more likely you are to appear as a credible business to those lenders. This, mainly because, incorporation is a well-known and time-tested structure for a business to operate under.
Live Long and Prosper
Sorry, I can’t resist a Star Trek reference. Under the Shareholder’s Agreement or Bylaws of a corporation, the corporation can dictate what future ownership of the business looks like. For example, how are shares transferred, can they be transferred, what happens if a Shareholder dies or becomes incapacitated? Moreover, since there is no limit to the time that a company can exist (unless limited by agreement), the company can go on ad infinitum. So, if you are in business for the long haul or at least plan to be, incorporating is one way to achieve everlasting life.
Lower Cost Maintenance Expenses
The cost of initial filing for incorporation and the cost for filing annually at the Massachusetts Secretary of State’s office is $275. Compare this to $500, the filing fee for a Massachusetts LLC initially and every year. It is clearly cheaper to incorporate when considering filing fees.
Disadvantages of Incorporating a Business in Massachusetts
Rigid corporate structure could be a disadvantage of incorporation to some. This is because the corporate structure is fairly rigid, requiring shareholders, stock, a board of directors and other details that need to be understood by the incorporators and owners in order to operate the business according to the Bylaws set forth in the beginning days of the corporation. Contrast that with an LLC, which requires very few formalities to be followed in Massachusetts.
However, once learned, the corporate structure and the work required to maintain a corporation correctly is manageable. But for those wishing to get a quick start, the LLC maybe a better choice. An attorney who is skilled in the laws applicable to LLC’s and corporations in Massachusetts will be able to guide you based on your individual business needs and circumstances towards which option is the best choice.
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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.
