Massachusetts Startup
A Massachusetts startup can take many forms: a partnership, corporation, LLC, or
even a sole proprietorship DBA.
Let's take a look at the various types of Massachusetts startups available so that
you can make an informed decision and select the business structure that's right
for you.
Massachusetts DBA
A Massachusetts DBA,
or "doing business as," can have one of several ownership structures: a sole proprietorship,
an unincorporated partnership, or even a corporate DBA. (A corporation or LLC, too,
can "do business as" a name that isn't the legal entity name by filing a DBA.)
Regardless of whether the owner of the DBA is a corporation or an individual, any
Massachusetts DBA is to be filed with the city clerk of of the city in which the
business is located (which differs from the DBA filing process in most other states;
it is common for DBAs to be filed with the state or the county). The Secretary of
State does not handle DBAs, corporate or otherwise.
As an example, a Boston DBA would be filed with the city clerk of Boston, and not
with the Suffolk County Clerk. However, be aware that even in the case of a sole
proprietorship in Boston, specific license and permits may be required from the
state and county as well as the city, depending on the activities and purpose of
the business.
Incorporate in Massachusetts
To incorporate
in Massachusetts, simply submit Articles of Incorporation to the Secretary
of State's office. Your Articles of Incorporation will give the state basic information
about your business: the name of your corporation, your registered agent's name
and address, and so on. This will create a C corporation, an entity legally separate
from its owners and their individual assets.
C Corporation
A
C corporation is the default type of corporation, distinguished by its unique
corporate tax structure and ownership flexibiliy.
Specifically, a C corporation is subject to what is commonly known as "double taxation"—corporate
income is taxed both at the corporate level and the individual level. As far as
ownership, a C corporation is allowed to have any number of shareholders. There
is no citizenship requirement placed on these shareholders.
S Corporation
Some smaller corporations in Massachusetts, rather than remain as a C corporation,
go on to file an S Corporation election form with the IRS. By this process, an
S corporation is formed. The main draw of an S corporation is its tax structure;
rather than experiencing double-taxation, an S corporation is not taxed a corporate
income tax at all, and dividends are taxed only when distributed to shareholders
as dividends.
Not all corporations are eligible for the "S" classification. An S corporation cannot
have over 100 shareholders, and all of its shareholders must be US citizens or resident
aliens. Only one class of stock can be issued. Because of these restrictions, some
larger corporations with foreign interests are not eligible for the "pass-through"
tax structure of an S corporation.
Massachusetts Foreign Corporation
Corporations registered in another state or country must submit
Massachusetts Foreign Corporation paperwork within ten days of beginning
to do business in the state. Failure to do so may result in additional fees or penalties.
A Certificate of Good Standing (sometimes called a Certificate of Status or Existence)
from the original state of incorporation must be submitted along with the foreign
registration application—this shows the Massachusetts Secretary of State that
the corporation is in good standing with its original state. If the legal name of
the foreign corporation is already in use in the state, a DBA filing is required
and the legal name of the corporation in its original state cannot be used in Massachusetts.
Massachusetts LLC
Forming a Massachusetts
LLC, or limited liability company, is a similar process as forming a corporation—formation
documents are registered with the Secretary of State, and filing those documents
creates a legal entity that is separate and distinct from its owners.
However, with an LLC, it is Articles of Organization (rather than Incorporation)
that should be drafted and submitted to the state.
A Massachusetts LLC shares many characteristics of an S corporation, but other characteristics
of a partnership. Like an S corporation, an LLC can elect to be considered a "pass-through"
entity with respect to the fact that there is no corporate tax, and profits are
taxed only when distributed to the owners (which are called "members" rather than
"shareholders").
Unlike an S corporation, however, there are no limits on the amount of members or
the citizenship of those members.
Massachusetts Nonprofit Corporation
Forming a tax-exempt 501c3 Massachusetts nonprofit corporation is a two-step process:
first you must register your nonprofit corporation in Massachusetts; then, once
that filing has been accepted, you must apply for—and receive—501c3
status with the IRS.
It's important to note that until your 501c3 application has been accepted by the
IRS, you will not legally be able to operate as a tax-exempt organization. (Your
application could be incomplete and could be rejected in the meantime, or your purpose
might not be deterined not to fall within the accepted purposes of a
501c3.) Until you are certain the IRS has accepted your 501c3 application,
you are simply a Massachusetts nonprofit corporation.
In addition to the federal tax benefits of a 501c3, there are great local incentives
for starting a Massachusetts nonprofit corporation. For example,
Partners with Non-Profits (PNP) is an incentive program in Boston that matches
grants up to $25,000 for qualifying organizations that benefit the community.