How to Start an LLC in Massachusetts: Steps, Cost, Annual Report

What does a Massachusetts LLC cost, and what do I need to start one?

A Massachusetts LLC pays $500 to file its certificate of organization and $500 for every annual report after, due by each anniversary of the filing (G.L. c. 156C s. 12; 950 CMR 112.14). Filing online or by fax adds an expedited service fee of $20 to each (Corporations Division fees). Both fees are among the highest any state charges: compare LLC cost by state and LLC annual fees by state. The state then taxes the LLC the way the IRS classifies it (Massachusetts DOR).

A one-owner LLC with no tax election is the simple case: its profit goes on the owner's own returns, and the LLC files no Massachusetts income tax return of its own. A case is no longer simple when:

• Two or more people own it, even you and your spouse. The LLC files a partnership return, Form 3, every year it has income or expenses, even when no tax is due; see LLCs owned by spouses and family.
• It elects S corporation or corporate status. It pays the Massachusetts corporate excise (the state's tax on corporations), at least $456 a year, and files a corporate return.
• It was formed in another state while you work here. It usually still has to register in Massachusetts and pay the Massachusetts fees.
• Annual reports were missed. Two missed years can lead to dissolution, and closing the LLC requires catching up first.

Gather for the certificate: the LLC's name and a backup, a Massachusetts street address for its office, a resident agent who has agreed to serve, the names and addresses of any managers (or at least one person authorized to sign filings) and a line describing the business. For the tax choices, add each owner's share and your expected first-year profit.

How do I form an LLC in Massachusetts, step by step?

File one document, the certificate of organization, with the Corporations Division of the Secretary of the Commonwealth. The Division takes filings online, by mail, by fax or in person (950 CMR 112.04 and 112.09).

1. Choose a name. It must contain "limited liability company", "limited company", "L.L.C.", "L.C.", "LLC" or "LC", and it cannot be the same as or deceptively similar to a name already on the Massachusetts register, unless that company's written consent is filed with the state (G.L. c. 156C s. 3). Reserving a name is optional: it holds the name for 60 days for $30 (950 CMR 112.12).
2. Name a resident agent. The agent can be an individual who lives in Massachusetts, which can be you, or a qualifying business entity, and needs a street address, not a post office box (G.L. c. 156C s. 5; 950 CMR 112.13). For choosing one, see registered agents.
3. File the certificate and pay the fee. The LLC exists from the moment of filing, or from a later date the certificate names (G.L. c. 156C s. 12(b)). Note that filing date: it sets every annual report deadline.
4. Set up after approval. Get an EIN if the LLC needs one, make an operating agreement and open a separate business account: see how to form an LLC, EINs for a single-member LLC and who still files a BOI report. Massachusetts accepts a written or oral operating agreement (G.L. c. 156C s. 2).

What goes on the Massachusetts certificate of organization?

The certificate of organization lists who runs the LLC and where it can be reached, and costs $500 to file (G.L. c. 156C s. 12; 950 CMR 112.11).

Owners' names and ownership shares are not on the list. They are usually set out in the operating agreement.

When is the Massachusetts LLC annual report due, and what does it cost?

The annual report is due on or before the anniversary of the date the original certificate was filed, every year, and each report costs $500 (950 CMR 112.14; G.L. c. 156C s. 12(c)–(d)).

The deadline follows the formation date, not the calendar or the tax year, so it rarely lines up with a tax return. The report repeats the certificate's information and may update it. A change of resident agent or agent address is a separate filing (950 CMR 112.13).

Sole proprietor vs LLC in Massachusetts: what does an LLC really cost over the first two years?

A Massachusetts LLC pays the state twice within its first twelve months, the certificate fee and then the first annual report, and once a year after that. A sole proprietor pays neither.

A sole proprietor who trades under a name other than their own files a business certificate with the city or town clerk where the business has an office, and renews it every four years; the local fee is set by a separate statute (G.L. c. 110 s. 5).

For federal income tax, a one-owner LLC with no election, owned by an individual, is reported like a sole proprietorship: profit on Schedule C and self-employment tax on it (IRS). The yearly fee buys a separate legal entity, not a different tax bill. Whether that protection is worth the cost is weighed in LLC or sole proprietorship.

Will forming my LLC in another state avoid the Massachusetts fees?

Usually not. An out-of-state LLC doing business in Massachusetts must register as a foreign LLC within ten days after it starts, with a certificate of legal existence or good standing from its home state issued no more than 90 days before, pay $500, and file an annual report at the same fee by each anniversary of its registration (G.L. c. 156C s. 48; 950 CMR 112.22 and 112.27). The test is borrowed from the corporation law, which covers a company that transacts business or has a usual place of business in Massachusetts (G.L. c. 156D s. 15.01); whether a given activity meets it can depend on the facts. An LLC that should have registered can be fined up to $500 for each year and cannot bring a lawsuit in Massachusetts courts until it registers (G.L. c. 156C s. 54). The owner then pays both states' fees. See registering in another state and which state to form in.

How does Massachusetts tax an LLC?

For income tax, Massachusetts classifies an LLC the way the federal return does: disregarded, partnership or corporation (Massachusetts DOR; G.L. c. 62 s. 1; G.L. c. 63 s. 30). The default federal classification depends on the number of owners (IRS).

An LLC taxed as a partnership registers with the Department of Revenue for partnership tax, and one taxed as a corporation registers for corporate excise (Massachusetts DOR). Partners are taxed on their shares on their own returns (G.L. c. 62 s. 17). A partnership or S corporation may also elect, year by year, to pay a pass-through entity excise on its Massachusetts income, with a credit for its members (G.L. c. 63D s. 2; s. 6); whether it helps is weighed in the pass-through entity tax election. For the federal side in more depth, see how LLCs are taxed.

When is Massachusetts Form 3 due for a multi-member LLC?

Form 3 is due by the 15th day of the third month after the LLC's tax year ends: March 15 for a calendar year (G.L. c. 62C s. 7; Massachusetts DOR). It must be e-filed whatever the partnership's income or number of partners, and a return not filed electronically may be treated as not filed (TIR 21-9).

• Who files: a partnership with a usual place of business in Massachusetts, or one with more than $100 of federal gross income subject to Massachusetts tax (Massachusetts DOR).
• No tax is paid with it, but a late or missing Form 3 costs $5 for every day it is late, unless the Department waives it for good cause (G.L. c. 62C s. 34).
• No activity, no Form 3: an LLC with no business or income-producing activity, which for that reason files no federal Form 1065, files no Form 3 for that year (Massachusetts DOR).
• Schedules 3K-1 go to each partner, with copies to the Department of Revenue.

The federal Form 1065 is due the same day for a calendar-year partnership (IRS). Each partner then reports its share, including a resident partner on Form 1.

What if my Massachusetts LLC elects S corporation or corporate status?

An LLC that elects to be taxed as a corporation becomes a business corporation for Massachusetts and pays the corporate excise every year, never less than $456, even in a year with a loss (G.L. c. 63 s. 30; G.L. c. 63 s. 39). An S corporation files Form 355S by the 15th day of the third month after its year ends; a C corporation files Form 355 by the 15th day of the fourth month (G.L. c. 62C s. 11), both electronically (TIR 21-9). An S corporation's profit is generally taxed to its owners, while the company still pays the corporate excise (G.L. c. 63 s. 32D). The S election is federal: the LLC files Form 2553, with every member's consent, no later than 2 months and 15 days after the start of the tax year it is to take effect, and needs no Form 8832 (IRS); Massachusetts follows it, because section 32D defines an S corporation by the federal Code. Whether the election pays off is covered in should you elect S corporation status; state election rules are in state S corporation elections.

What happens if a Massachusetts LLC misses its annual report?

Once an LLC has missed its annual reports for two consecutive years, the Secretary of the Commonwealth may start to dissolve it. The LLC gets written notice and 90 days to file or show the grounds do not exist; after that it is administratively dissolved and may only wind up its affairs (G.L. c. 156C s. 70; 950 CMR 112.20). The same can happen, with every report filed, when the LLC has no resident agent 60 days after the Division's notice (950 CMR 112.20).

Two traps follow from the rules:

• No good standing while behind. The Division issues a certificate of good standing only when every annual report due has been filed and paid (950 CMR 112.28). See certificates of good standing.
• No clean exit while behind. To file a certificate of cancellation, the LLC must first file every annual report due and pay its fees; the certificate itself costs $100 (950 CMR 112.19). An unused LLC keeps adding $500 a year until it is cancelled.

A dissolved LLC may apply for reinstatement at any time, for $100, once the grounds for dissolution are cured, such as the missed reports filed and paid (950 CMR 112.21; Corporations Division fees). The steps are in reinstating your company.

Example

These examples are illustrative, use US dollars and assume filings by mail; filing online adds US$20 to each US$500 filing.

A Boston consultant forms a one-owner LLC

She files her certificate of organization on March 10 and pays US$500. Her first annual report, US$500, is due by March 10 of the next year, and another by every March 10 after.

Her first-year profit of US$90,000 goes on Schedule C of her federal return and on her Massachusetts Form 1. The LLC files no Form 3 and no Massachusetts return of its own. As a sole proprietor she would have paid none of the US$1,000 in state LLC fees for her first twelve months, and her income tax would have been figured the same way.

Two Worcester partners

Two partners, both full-year Massachusetts residents, own a Worcester LLC equally and have not made a tax election, so it is a partnership. It earns US$100,000 in a calendar year. By March 15, it files federal Form 1065 and e-files Massachusetts Form 3, issuing each partner a Schedule 3K-1. No tax is paid with Form 3. Each partner reports a US$50,000 share on their own Form 1. The LLC also pays its US$500 annual report by the anniversary of its formation.

A Cambridge founder who formed in another state

A founder forms her LLC in Wyoming but runs it from her home in Cambridge. Because she runs the business from Massachusetts, she registers the LLC here as a foreign LLC within ten days of starting, pays US$500, and files a US$500 Massachusetts report by each anniversary of the registration. She also pays Wyoming's own yearly charges. The LLC is disregarded, so its profit still goes on her Massachusetts resident return. Forming elsewhere added a second state's bills without removing any Massachusetts one.

Different for you?

• You are still deciding whether you need an LLC at all: weigh it in LLC or sole proprietorship and get business formation help before paying the first fee.
• The LLC has two or more owners: it files federal Form 1065 and Massachusetts Form 3 every year it has income or expenses, even with no tax due; see a CPA for a multi-member LLC, and get business formation help for the operating agreement and business tax return help for the yearly returns.
• You are considering an S election: compare payroll and the corporate excise minimum in should you elect S corporation status and get corporate tax help.
• You formed in another state but work in Massachusetts: see registering in another state, and get business formation help with the Massachusetts filing.
• Annual reports were missed or the LLC was dissolved: see reinstating your company, or keeping or closing an unused LLC if it never did business; if the books fell behind too, get catch-up bookkeeping.
• You are in the US on a visa, or a co-owner is not a US person: your own return and the LLC's filings can change; see starting an LLC on a visa and foreign partners and withholding, and get cross-border tax help.
• You are a licensed professional: see professional LLC or professional corporation.