If you want to start your own business, but have to obtain a professional license in Massachusetts before you can legally market your services, you may be interested in forming a professional entity. One option the Commonwealth offers professionals is the professional corporation (PC). So what exactly is a professional corporation, and is it a good choice for your business? Let’s take a closer look.
Determine whether a Massachusetts professional corporation structure is right for you
If you’re a licensed professional wanting to start a business with other professionals in your same field of employment, Massachusetts offers two options of professional entities to choose from: a professional corporation (PC) and a professional limited liability company (PLLC). Both exist for the purpose of rendering services related to a single licensed profession.
A Massachusetts PC consists of shareholders who hold stock in the company. On the other hand, a PLLC consists of members who have an ownership interest in the business. PLLCs are generally easier to set up but do not offer the same level of liability protection as a Massachusetts professional corporation.
However, PLLCs offer pass-through taxation, which means that profits are taxed only on the members’ individual tax returns. PCs on the other hand are generally subject to double taxation, which means profits are taxed both at the corporate level and on the shareholders’ individual income taxes. PCs that meet certain requirements may elect to be taxed as S corporations, which provides for pass-through taxation similar to PLLCs.
How to Form a Professional Corporation in Massachusetts
Once you have decided that a Massachusetts professional corporation is right for you, there are a number of steps to complete the formation process and get your business compliant and operational.
Choose a name for your Massachusetts professional corporation
You’re not legally required to reserve a company name for your Massachusetts professional corporation prior to submitting your application, but it’s highly recommended. The name of your business is very important, and you will want to choose something that clearly conveys the service you offer and is fitting for your style. You will also have to check that the name you want has not already been taken.
At ZenBusiness, we provide hassle-free business name registration services to help you get one more thing off your already full plate as you walk through the incorporation process.
There are some stipulations for naming your Massachusetts PC corporation. According to Commonwealth of Massachusetts General Law, Part I, Title XXII, Chapter 156A Section 8, the name must end with one of the following words or abbreviations:
- Professional Corporation
The name must also make it clear as to what services are provided. For example, if you’re forming a legal business, you won’t want to put “veterinary medicine” in your name.
Acquiring a domain name is not a business requirement, but it’s undoubtedly a valuable tool in the business owner’s arsenal. Rarely will a business succeed without an online presence. It’s likely that much of your client acquisition marketing will be done digitally. That means you need to be easy to find online for potential customers. Having a domain name that is clearly identifiable with your business could make a big difference in your ability to attract clients. Let ZenBusiness help you secure your business domain name before it’s no longer available.
Select a Massachusetts registered agent
Forming a Massachusetts professional corporation requires selecting a registered agent. This person or business serves the purpose of receiving legal notices and other important correspondence on behalf of the company. The registered agent must have a physical address in Massachusetts and be available during regular business hours. You can serve as your own registered agent or assign someone to that duty, but there are potential penalties involved if you’re unavailable. Vacations and coffee runs have to be planned very carefully.
Another option is to hire a registered agent service. At ZenBusiness, we provide a registered agent service to connect you with a local registered agent who complies with state requirements.
Complete your Massachusetts Articles of Incorporation
PCs must register with the state by filing Articles of Incorporation. You, or whoever submits the Articles of Incorporation, are deemed the “incorporator,” and this person takes responsibility for registering your professional corporation. Massachusetts requires basic information about the PC, as well as information about corporate structure, stock class, share transfer limitations, and additional provisions. Articles of Incorporation can be submitted electronically or in person to the Secretary of the Commonwealth of Massachusetts.
Establish a corporate record in Massachusetts
It’s important to keep track of everything that happens regarding the corporation, especially in the decision-making process. Under Commonwealth of Massachusetts General Law, Part 1, Title XXII, Chapter 156D, Section 16.01, a corporation is required to keep permanent records of all meeting minutes, including any and all actions taken by shareholders or the board of directors. Accounting records must also be maintained, along with a list of shareholders, and these records can be maintained as hard copies or electronically. They must be easily converted into written form if requested.
Designate a Massachusetts professional corporation board of directors
The incorporator will name the initial board of directors. Directors must hold the same professional license needed for the service your Massachusetts professional corporation provides. Initial appointed directors will serve until a meeting is held and shareholders vote on directors and officers.
Create Massachusetts corporate bylaws
Bylaws are important for your Massachusetts PC because they will determine the organizational structure of your business and hopefully contain provisions to deal with potential issues before they arise. According to Commonwealth of Massachusetts General Law, Part 1, Title XXII, Chapter 156D, Section 2.06, the bylaws of your corporation can contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with existing law or the Articles of Incorporation. Some important things to consider adding to your corporate bylaws include:
- How many directors will serve on the board and how they will be elected
- What constitutes a conflict of interest,
- Provisions regarding officers and their roles in the business
- Procedures to resolve any internal disputes
- Information about shares and transfers
- How frequently the board will hold meetings
It’s important to put a lot of thought into your corporate bylaws. They will be the administrative guide to how your organization conducts business. Bylaws are typically drafted by the incorporator and initial directors prior to the first board meeting but will have to be voted on for official approval.
Hold your first board meeting
There are a lot of things to go over in the first board meeting, so make sure you designate someone to bring snacks. The incorporator usually arranges this first meeting. Some agenda items will include:
- Reviewing, amending, and approving the corporate bylaws
- Assigning officers to manage the day-to-day operations of the business
- Approving the issuance of stock certificates in accordance with the Articles of Incorporation
- Choosing the tax structure of your professional corporation
- Determining which bank to use for company finances
Someone needs to record the minutes of the meeting and file them in the company’s official records.
Handle Massachusetts tax obligations
One of the biggest decisions that your board of directors will have to make is the type of corporate structure you will use for tax purposes.
Choosing to File as a C Corporation or S Corporation
You may have two options when it comes to how the federal government will tax your PC.
- C corporation. Many professional corporations choose to file as C corporations because they are subject to few overall restrictions. One thing to take into consideration is that C corporations are subject to “double taxation.” They are taxed at both the corporate level and again on the personal income tax returns of company shareholders.
- S corporation. An S corporation is taxed only at the shareholder income level, which is considered a “pass-through” tax structure. S corporations can only issue one class of stock, must have less than 100 shareholders, and can have no foreign shareholders. A Massachusetts professional corporation also can’t be owned by another business if it files as an S corporation.
If you and your board of directors are not familiar with tax implications, you may consider consulting with a tax professional or financial advisor before making a decision. All ZenBusiness customers are entitled to a free assessment to review their bookkeeping, accounting, and tax needs. The assessment will be available in your dashboard after your formation is complete.
Massachusetts State and Local Business Taxes
Plan on having to pay a corporate excise tax. Other state-level taxes such as use tax and sales tax may also apply, depending on the nature of the services you provide. You may also be subject to other local taxes specific to your industry and location.
Acquire a federal EIN
To file your taxes, open business accounts, and hire employees, you will need a federal tax identification number (EIN). Your number can be obtained from the IRS or by using ZenBusiness’s hassle-free EIN service.
Obtain Massachusetts business licenses and permits
Unlike many states, Massachusetts doesn’t require you to have a general state business license. But the state does require PCs operating in certain industries to obtain a Massachusetts state license or permit to conduct business. Some such industries include:
- Buildings and trade
- Professional training and career development
- Environmental-related businesses
- Real estate
- Commercial Transportation
The city or county where you conduct business may also have additional licensing requirements. It’s your responsibility to have all the correct licenses and permits for your industry and location. However, ZenBusiness can help by offering a business license report, where we compile a list of the licenses and permits you will need for your business’s particular location and industry.
Acquire insurance for your Massachusetts professional corporation
All employers in Massachusetts are required to purchase workers’ compensation insurance for all employees regardless of staff numbers and how many hours are worked. There are penalties for not holding workers’ compensation insurance.
It’s also a good idea to have general liability insurance to protect against property damage, third-party bodily harm, or personal and advertising injury. Depending on your service industry, there may also be additional types of insurance required, such as professional malpractice insurance.
Open a business bank account
Mixing business and personal finances is a big no-no in the corporate world. To maintain the liability protection provided by your Massachusetts professional corporation, finances must be kept completely separate. Once you have an EIN, you can open a business bank account, and ZenBusiness can help.
Massachusetts Professional Corporation FAQs
What are the filing fees for a Massachusetts professional corporation?
Government fee structures are subject to change. You can find the most recent filing fees for a Massachusetts professional corporation on the Massachusetts Secretary of State’s website.
Do I need a lawyer to form a Massachusetts professoinal corporation?
You can complete the Massachusetts professional corporation formation process without an attorney, though legal help may be beneficial depending on your industry. You can simplify and streamline much of the process using tools from ZenBusiness, like our registered agent service, Worry-Free Compliance service, and business name reservation service.
Does Massachusetts have other professional entity types?
Massachusetts has two professional business entity types to choose from. Depending on the nature and scope of your business, you may choose to form a Massachusetts professional corporation (PC) or a professional limited liability company (PLLC).
Can professionals from different fields form a Massachusetts professional corporation together?
No. All shareholders of a Massachusetts professional corporation must hold the same professional license required for the services offered by the PC.
Will I be taxed as an S corporation or C corporation in Massachusetts?
You have the opportunity to choose whether your Massachusetts professional corporation is taxed as an S corporation or C corporation. This takes place during the formation process.