SMALL BUSINESS FORMATION & CONSULTING

For the purpose of limiting liability to business owners, LLCs are a popular and flexible business structure.  Business owners known as members are typically not personally liable for the LLC’s debts, obligations, and other liabilities.  In order to create a Massachusetts LLC, a certificate of organization is filed with the Secretary of State along with payment of the applicable fee.  LLCs are governed by the Massachusetts Limited Liability Company Act established by Chapter 156C of the Massachusetts General Laws.

An operating agreement is the contract that governs the relationship shared by LLC members and is crucial to establishing the roles of the members and outlines how the LLC will operate including the handling of meetings, reporting requirements, the sharing of profits and losses, how profits will be distributed and, of course, liability. Crafting an operating agreement that complies with the Massachusetts Limited Liability Company Act and also provides for efficient and predictable operation of the newly formed business is a critical business planning step. 

LLCs provide a number of options for taxation purposes.  This is one of the reasons they are extremely popular.  Single member LLCs are often disregarded for tax purposes meaning that there is not an entity level tax imposed as is the case with C-Corporations.  The threat of double taxation is avoided with income of the LLC being reported on the sole member's tax return.  LLCs can also elect to be taxed as a S-Corporation.  This election allows the entity's revenue to be split between distributions and salary possibly resulting in tax savings.  Corporate treatment of an LLC requires an election otherwise the default in Massachusetts is to be treated as a partnership. Consultation with a qualified accountant provides for seamless integration of legal services. 

LLCs and corporations are just two types of business entities recognized in Massachusetts.  There are also sole proprietorships and partnerships - general and limited.  Determination of which type of business entity should be selected requires a business owner to assess the complexity of the business, risk of liability, management activities, role of outside investment and tax ramifications.  Often legal professionals work alongside tax professionals to bring to life the client's business plan.