If you’re thinking of starting a business in Massachusetts, then one of your options is the single-member LLC. But what is a single-member LLC? How do you start one? In this guide, we’ll cover all five essential steps to starting a Massachusetts single-member LLC.
A single-member LLC (SMLLC) is a limited liability company with only one member. “Member” is another name for an owner. In that sense, SMLLCs and sole proprietorships are the same. But there’s a very important difference between these two business types: a sole proprietor doesn’t have personal asset protection. A single-member LLC does.
After an LLC registers with the Massachusetts Secretary of the Commonwealth, it becomes a distinct legal entity. It’s separate from its owner. A sole proprietor and their business are legally indistinct; if the business gets into legal trouble, the owner’s personal assets can be confiscated.
Starting a single-member LLC in Massachusetts is an important legal process, but it doesn’t have to feel impossible. Follow these five steps, and you’ll be off to a great start with your LLC.
One quick note before we dive in: if you’re licensed for professional services, such as law or medicine, you’ll need to start a professional limited liability company (PLLC) instead. We don’t offer a formation service for this business entity, but we can help you understand how to start a Massachusetts PLLC.
Choose a name for your SMLLC. Your first task is to decide what customers will call your business. You’ll want to pick a memorable and descriptive name that will stand out. That said, your name should comply with Massachusetts state law. The state requires your name to:
Ideally, your name should also match an available domain name. Establishing an online presence is vital to success. We can also help you register your domain name for $125 a year.
If you need more time, Massachusetts lets you reserve your business name. This process protects your name for 60 days.
Choose who will be your resident agent. Massachusetts requires every single-member LLC to appoint a resident agent (called a registered agent in many states). A resident agent accepts service of process and some other legal communications on your behalf.
In Massachusetts, you can appoint an individual resident of the state or a corporation to serve as your agent. No matter which option you pick, the agent must be available at that address during all regular business hours. Alternatively, you can use our registered agent services to skip the hassle.
Submit the Certificate of Organization to officially create your LLC. Once you’ve picked a name and appointed an agent, it’s time to file your formation documents: the Certificate of Organization. Massachusetts offers paper or online filings for this form. Once it’s complete and accepted, your SMLLC officially exists.
Here’s a quick glimpse at the information your Certificate of Organization must include:
Next you’ll need to draft an operating agreement for your SMLLC. An operating agreement acts like a charter or constitution for an LLC; it’s an internal legal document that describes the specifics of how the business works. Typically, the agreement describes the responsibilities of each member, how business profits will be distributed, how membership can change, and more. They’re especially important for multi-member LLCs.
Massachusetts doesn’t explicitly require you to draft an operating agreement. If you don’t, your LLC is governed by all the terms of the Limited Liability Company Act by default. Even as a single-member LLC, it’s helpful to create your own operating agreement to set your own terms. A bank might even ask to see it before issuing a business bank account. Most importantly, an operating agreement helps maintain your personal liability protection.
Feeling overwhelmed by the prospect of creating your own? Our guided, customizable operating agreement template makes this process a snap.
Obtain a federal employer identification number (EIN) from the IRS. An EIN is a nine-digit code that the IRS uses to identify a business for federal tax purposes. It’s kind of like a business’s Social Security number. An SMLLC must get an EIN if they’ll have employees or meet one of the IRS’s other requirements for obtaining one.
Some SMLLCs don’t have to get an EIN, but it can be helpful to have. Plus, it’s free to apply for one with a simple online form.
By default, a single-member LLC is a “disregarded entity” for federal income tax purposes. Basically, the LLC itself doesn’t pay taxes or file a separate tax return; the LLC’s single owner reports that income on their individual tax return. This applies unless the LLC elects to be taxed like a C corporation or S corporation.
In Massachusetts, this taxation process repeats at the state level. You’ll pay taxes at the state’s personal rate by reporting your business income on your personal return.
Still wondering why you should form an SMLLC in Massachusetts? Starting one is an extensive process, but it’s worth the effort. There are several benefits to owning an MA SMLLC.
One of the biggest advantages of an SMLLC is personal asset protection. Your personal assets usually can’t be compromised if your business gets into legal or financial trouble. That’s because your LLC is a separate legal entity from you, the business owner. Sole proprietorships don’t have that option.
By default, you’ll pay taxes on your personal tax return at both the federal and state levels. That said, some SMLLC owners decide to opt for C corporation status (if the tax advantages for C corps can help their company enough to make up for the double taxation) or S corporation status (often for paying less in self-employment taxes). The real luxury is that you have the option to choose which taxation approach works best for you.
LLCs are pretty simple to run in the long term. Generally, each year you can expect to pay any tax liabilities, maintain any business licenses, and file your MA annual report. That might sound like a lot, but compared to a corporation, it’s very simple.
As the only member of your LLC, you get to call all the shots. You don’t have to answer to other members, shareholders, or a board of directors. If you have a business idea, you can go for it.
Some potential customers feel more comfortable working with an established brand that’s registered with the state. A business name ending in “LLC” has extra weight.
Starting a single-member LLC doesn’t mean you have to do everything by yourself. If you’re feeling overwhelmed by paperwork, our MA formation service can get you started at no cost apart from state fees. We can also help you reserve a business name, file for an EIN, and more. Our goal? To free you up to focus on your business goals, not red tape.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Massachusetts explicitly requires an LLC to have at least one member; there isn’t any requirement for more members. As a result, the single-member LLC is perfectly legal.
There isn’t one state that’s inherently the best for forming an SMLLC; there are pros and cons to each. Massachusetts, for example, has a pretty simple formation process, but their filing fees for formation and maintenance are pretty high. Some states have low start-up fees but high taxes. Others have extra formation steps. And some state courts aren’t friendly to single-member LLCs.
If you’re not sure which state is right for your SMLLC, we recommend chatting with a business lawyer to learn more. Often, though, they advise entrepreneurs to start their LLC in the state they currently reside in.
A Massachusetts single-member LLC is subject to pass-through taxation by default. Come tax time, you can expect to pay personal income tax rates at both the state and federal levels without the profits first being taxed at the business level. This always applies unless you elect a different tax status.
That said, if your LLC owes sales taxes or employer taxes, you’ll need to pay those accordingly. Since every LLC is different, we highly recommend consulting with a tax professional for help.
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