In this week’s episode I share my experience incorporating business in Massachusetts: my story behind it, and a step by step guide on how I did it.
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I knew I was going to start my company Feisworld LLC in January 2016, so I began Googling legal advice and talking to friends, such as the one and only, Van Le, who was so kind to offer his time. As it turned out, the process is easy when you have an expert on your side. Why would I keep these 4 simple steps to myself? Here, I wrote this article so you can incorporate your company, too, in just a few days.
Incorporating Business in Massachusetts (Step-by-step)
Why Incorporate? The Top Six Reasons for Incorporating Your Business
- Personal asset protection
- Tax flexibility and incorporation tax benefits
- Enhanced credibility
- Brand protection
- Perpetual existence
- Deductible expenses
Try these steps first and then seek help if you get stuck. Going through these steps is a good learning opportunity for anyone, especially business owners. (Please note: I do not claim expertise in law or accounting.)
Here’s a general fee schedule for Massachusetts, it’s fairly standard and other states aren’t from this. If you are willing to follow these steps and assume you are starting an LLC, you are looking at about:
- Registration: $500 (one-time) – unless you change the nature of your business i.e. from S-Corp to LLC (which I did), this is a one-time fee. Otherwise you’ll have to repay registration.
- Annual Report: $500 (annual)
- Other small transaction fees, around $20 or 4.5% of the filing fee
If you hire an attorney for the incorporation process, it could cost you $500 or more (sometimes into the thousands if you have multiple shareholders, etc.). If you go for an online service such as Legalzoom, they often charge a flat fee around $100, which covers only the basic steps without one-on-one consultation. You’ll still have to fill out a bunch of forms before the steps are completed, hence I personally see the benefit of going through steps and understand the ins and outs of incorporating your company.
Step 1: Determine Your “Business Type” (C-Corp, S-Corp, LLC, Etc.)
There are infinite articles you can read about business types. In fact, I spent hours learning about the differences between C-Corp, S-Corp, LLC.
C-Corp is eliminated quickly because it is generally for very large and high revenue companies. But comparison between S-Corp and LLC, for example, can be subtle and challenging for a newbie.
I loved using this interactive wizard that asks me simple survey questions to determine the right business type. Better yet, there’s a meter-like widget that provides real-time updates which business type outweighs the others based on your answers. How clever!
Step 2: Filing for Business “Entity” With Your Secretary of State
This is an easy step. Simply by Googling “Secretary of State for [your_state_here]” will return you the information and website. For example, for Massachusetts, you are looking at a website like this. Alternatively you can Goole “[state] article of incorporation” or “[state] certificate of incorporation”. These are exchangeable terms which can sometimes be confusing.
I recommend filing online: http://www.sec.state.ma.us/cor/corfilingmethods.htm (start here for MA businesses)
For Massachusetts and most other states, the filing process has moved away from faxing/mailing to online. I always prefer online filing as I do not trust the postal service, or to have my piece of paper sitting on top of a huge pile.
The Corporate Online Filing System for MA: https://corp.sec.state.ma.us/corp/loginsystem/login_form.asp?FilingMethod=I
Only your name and your contact information are needed to fill out the online form. It took me a few minutes to complete the entire process. If there are any issues with your application / responses, a paralegal from the Secretary of State will contact you (usually via email) to request corrections.
“Feisworld Inc.” was born after just a few days. You do not typically get a confirmation via email or mail. Therefore to confirm that the business entity has been entered to the State’s database, you can go to a look-up page also under Secretary of State’s website such as this one for MA.
Note: This step is only for your business entity and not your EIN (Employer Identification Number). A very important next step to file with IRS after your business entity has been approved.
Also Note: You can actually incorporate your business in another state based on incentives and benefits. I don’t know enough and will not discuss details via this post. You should consult with a professional.
Step 3: Apply for EIN (Employer Identification Number)
This step is very important as it relates to tax return for your new company. Follow steps on the IRS: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online. It takes just a few minutes to complete and you will get an EIN instantly!
The IRS website is a little wonky at times and it has “business hours” (therefore not available 24/7).
Step 4: Form 2553 “Election by a Small Business Corporation”
This is the actual incorporation process – Fill out This Form, submit to IRS. It took me 5-10 mins to complete the form while following a pretty extensive Instructions Manual. 90% is trivial and 10% is a bit tricky.
All LLCs doing business in Massachusetts must file an Annual Report every year. I set a reminder and do it before end of the year. You need to file an Annual Report in order to keep your LLC in compliance and in good standing with the state. If you file your Annual Report by mail, the filing fee is $500.
Information for businesses in Massachusetts
File by Mail
Download the Annual Report (Form D), prepare a $500 check or money order payable to “Commonwealth of Massachusetts”, then mail to:
Secretary of the Commonwealth
One Ashburton Place, Room 1717
Boston, Massachusetts 02108-1512
Access the online filing and pay the $520 fee with credit card or eCheck. To login, enter the Customer ID Number and PIN that is included on the courtesy reminder the state mails you. If you don’t have a Customer ID Number and PIN, send an email to the state ([email protected]) with your LLC name and they will reply within 30 minutes (if you email them during business hours).
For businesses outside of Massachusetts, try Google “[State] corporate devision annual report”.
1099-Misc for Independent Contractors
“If you hire vendors, independent contractors, freelancers, or gig workers and paid them more than $600 in business-related payments, then you’ll need to prepare and issue an IRS Form 1099-MISC so they can file for an income tax return. While it may seem like a complicated procedure to issue these 1099s, it can be pretty straightforward with the right tools and processes in place.” Read the full article published by QuickBooks that contains all the details for how you can file 1099-MISC
Here are some key dates and links you should keep in mind
- You must file all 1099-MISCs by January 31st each year
- You must email or mail or hand each 1099 Copy B to the contractor no later than February 1st.
- Make sure you always ask your contractors to provide you with a filled-out Form W-9 for each vendor, which includes their name, address, and Social Security number (SSN) or Employer Identification Number (EIN).
- 1099-MISCs filing is required for independent contractors, but not those who have corporations (LLC, C-corp, etc.). The exception to this rule are the lawyers you hire, even if they are part of a corporation.
- If you miss the deadline, you could incur between $30-100 penalty per form
- You can get your 1099 forms from IRS, but I prefer filing all tax related documents online. In this case, I prefer QuickBooks to create, distribute, and file 1099s online.
Conclusion: Incorporating Business in Massachusetts
Overall, this process was not bad at all. I recommend all new business owners go through these steps themselves because they will learn a ton along the way. Make sure to read the fine print and don’t skip over content.
Last but not least, paying taxes for your businesses not only depends on your incorporation type but also the nature of your business (retail, transportation, consulting, etc.) and the State you are in. I’m currently learning about Corporate Excise Tax for Massachusetts.
That’s all for now, hope it helps!
Why We Moved Away From S Crop to Single-Person LLC After One Year
After consulting with an accountant referred by a close family friend, I decided to change Feisworld from Inc. (S Corp) to LLC. While the benefits and functions of the two (S Corp, LLC) appear similar, LLC incurs much less paperwork for tax purposes, especially if you are a single-member LLC. Instead of submitting two tax returns (one for the company, one for personal), I will need to submit one combined tax return – filed and managed by my account going forward for tax year 2017 and on.
Disclaimer: Author of this article is not experienced in business law or accounting. please consult with a professional when these questions arise.