When an individual proprietor or partnership begins to think seriously about preserving the protection and longevity of a business, registering the business as a limited liability entity is one of the first steps. Many considerations about the nature of the business come into play during this process, and a number of government entities must be notified. Consider this brief overview as the foundation you will use when consulting with your Massachusetts business attorney.
Applying for your Federal Employer Identification Number
The Employer Identification Number (“EIN”) is akin to a social security number for an entity with respect to paying taxes. The number is not so much related to an employment as it is to taxes, and it is necessary for any entity that receives income: Some examples include an estate, a trust, a non-profit, or any business including an LLC. Massachusetts will also require the number for its own Department of Revenue.
To receive an EIN the business must submit an IRS application form SS-4, which requires a few key pieces of information. First the business must declare whether it is in fact going to be an LLC. Next, regardless of whether the business is an LLC, the correct “Type of Entity” box must be checked which may trigger additional documentation. If, for example, the “Sole Proprietor” box is checked, the individual will need to provide his or her own social security number.
Another important consideration for the EIN application is whether the LLC in Massachusetts has or plans to hire employees during the tax year. Part of the reason for this information relates to the employer’s payment of employment tax (i.e. social security, Medicare and Medicaid). If a very minimal level of tax liability is expected to be reached then the employer must file taxes on a quarterly basis rather than annually.
Other details to be submitted include the fiscal year accounting schedule, and the nature of the business. Many specialized operations, for example in transportation or energy, may require additional documentation for purposes of various usage taxes due by the LLC. Massachusetts business owners engaged in such businesses should be in touch with a good CPA in these instances.
Registering the LLC | Massachusetts Secretary of State Requirements
Frequently, though not all the time, business owners are under the impression that applying for the EIN is enough to maintain limited liability status for their LLC. Having downloaded and signed a basic operating agreement, it can seem to some like all of the general requirements have been fulfilled. But nothing could be farther from the truth. Civil liability is a body of law based within the state of Massachusetts, and those laws have nothing to do with taxes. The most important step is therefore to notify the Secretary of State by filing.
In order to file with the state (and thereby obtain limited liability status), the business must submit a “Certificate of Organization.” This document is kept on file as a public record and contains key information regarding the character, management, location and contact person(s) for the company. But some of the basic mandatory pieces of information are as follows:
- The name of the company, which must contain the words “limited liability company”, “limited company” or the abbreviation L.L.C., L.C., LLC or LC.
- The LLC’s Massachusetts street address of the company, not P.O. Box, where all records including the operating agreement must be kept and made available to company members.
- The general character of the business. Note: Any business activities conducted outside of the stated character of the business may forfeit limited liability.
The initial filing fee for an LLC in Massachusetts can be conducted by mail, fax or online and costs about $500. An additional $20 fee will be added to filings made over the internet. Each year, the business will also need to file the LLC “Annual Report” including any necessary amendments with respect to business information on the Certificate. The filing fee each year is the same amount as for the initial filing.
Maintaining the LLC – Massachusetts Filing Requirements
Although not as complex as for an S Corporation, maintaining limited liability for an LLC in Massachusetts requires some basic element of diligence. In our experience, most single proprietors who lose their limited liability status do so because of some lapse in the annual filings. For those operating a business continuously throughout the year, there is little priority to think about such minor technicalities as an annual filing date. But forgetting a minor technicality can cause major repercussions.
That is why many businesses are wise to hire a business attorney when starting a business. Our office serves our business clients not only in setting up and maintaining an LLC from year to year, but also by serving as a general legal advisor on the inevitable events that may arise. If you are thinking seriously about registering your LLC in Massachusetts, call one of our Cape Cod business law attorneys today to help start the process.