Types of Massachusetts Entities
A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management and fewer legal controls. However, the business owner is personally liable for all debts incurred by the business.
INDIVIDUALS (U.S. persons)
1. Driver’s License with photograph
2. US Passport or similar federal or state issued identification card
INDIVIDUALS (non-U.S. persons)
1. Passport
2. Alien registration card or a similar country issued identification with a picture or identification number that document nationality or residence
The Limited Liability Company (LLC) and the Limited Liability Partnership (LLP) are the newest forms of business structure in Massachusetts. An LLC or LLP is formed by one or more individuals or entities through a special written agreement. The agreement details the organization of the LLC or LLP, including: provisions for management, assignability of interests, and distribution of profits or losses. Limited liability companies and limited liability partnerships are permitted to engage in any lawful, for profit business or activity other than banking or insurance. As of March 2003, Massachusetts became the fiftieth state to allow single member LLC's.
A Limited Liability Partnership is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partner. This business structure is used most commonly by professionals such as accountants and lawyers.
LIMITED LIABILITY COMPANY / LIMITED LIABILITY PARTNERSHIP
1. Limited Liability Company’s Certificate of Good Standing
2. Copy of the Operating Agreement – For Limited Liability Company
3. Authorization of Members/Manager (this must be deal specific)
4. Certificate of Legal Existence – Long form from the Secretary of the Commonwealth – For a Limited Liability Company
5. Last Annual Report
A Corporation (C Corp or Subchapter S) is a more complex business structure. As a chartered legal entity, a corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as increased licensing fees or decreased personal control. Corporations may be formed for profit or nonprofit purposes.
C Corporation
A “C” corporation is a separate legal entity once it is formed, so it must file its own taxes and be responsible for its dealings. A “C” corporation can have unlimited numbers of shareholders, and those shareholders can be any kind of legal entity.
Corporations offer considerable personal asset protection potential but require annual maintenance to preserve the asset protection benefits. They require annual filings that the directors must maintain. A board of directors must be elected, annual meetings must be held, minutes of corporate meetings must be kept, stock must be issued.
Additionally, since corporations are taxed on their income and shareholders have to claim dividends as taxable income themselves, shareholders of a “C” corporation are “double taxed” on their dividend income. One way to avoid this is to not issue dividends and simply re-invest your income back in the company. Spending your income on items that are tax-deductible is another effective way. You could also look into forming an “S” corporation.
S Corporation
An “S” corporation is much like a “C” corporation in that it is also its own legal entity, protects its shareholders from legal liability, and requires a certain amount of yearly maintenance. However, an “S” corporation allows shareholders to claim their share of the corporation’s income directly on their personal tax return. This gets around the “double taxation” problem of a “C” corporation. The only drawback of an “S” corporation is that they are generally limited in the amount of shareholders. This makes going public with an “S” corporation practically impossible. However, if your intention is to keep your business relatively small, this is an excellent option.
CORPORATION
1. Certificate of Good Standing – Long form from the Secretary of the Commonwealth–For a Corporation
2. Copy of Articles of Incorporation, with a Clerk’s Certificate –For a Corporation.
3. Vote from a Corporation that authorizes a particular officer (typically the president or treasurer or both to bind the corporation)
4. Last Annual Report
5. Corporations By-Laws
TRUST
1. Copy of Trust Agreement “Declaration of Trust”
2. Copy of executed Certificate of Beneficial Interest – “Schedule of Beneficiaries”. In the case of a real estate trust these are typically not recorded instruments.
3. Trustee Certificate that certifies that trustee has the power to enter into the transaction. This must be deal specific.
5. Authorization of Beneficiaries. This document must authorize the trustee to enter into the transaction. Often and in most cases trusts are controlled by the beneficiaries not by the trustee. The trust must be read to determine the powers of the trustee.
6. EVERY trust is different and needs to be reviewed. If beneficiaries are minors then be very careful as there are times when a trustee cannot act except with permission of the court.
A Limited Partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share full in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business.
LIMITED PARTNERSHIP
1. The use of limited partnerships is unusual. Limited partnerships are controlled by General Partners. Typically a general partner does not need permission of the limited partners. Again, organizational documents should be reviewed by counsel.
A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, an/or skill to a business. Each partner shares the profits, losses, and management of the business, and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.
GENERAL PARTNERSHIP
1. Certificate of General Partners
2. Borrowing Authority – consent of the partners
Disclaimer: The content of this post is intended to provide general information only. It should not be used as advice for a specific matter, nor does its publication create an attorney-client relationship. For legal advise on a specific matter, consult an attorney.
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