Massachusetts is the heart of New England and home to some of the most prestigious universities in the world. It’s also a big economic hub, leading many people to form businesses here. One of the easiest ways to do that is by forming an LLC.
Starting an LLC isn’t hard, but it does require time and money to get started. We’re here to help you figure out where you need to spend your resources, as well as other purchases you’ll want to make that can make your life easier, both now and in the future.
This article will help you make a budget for starting an LLC in Massachusetts.
- The required costs for every LLC
- Extra costs we recommend you incur
- The different ways you can form your LLC, as well as the pros and cons of each
Total Massachusetts LLC Cost – $500
Forming an LLC is just a matter of filing a certificate of organization. It might be a simple filing, but it’s a pricey one at $500. Visit the Secretary of the Commonwealth’s website for the most current fee schedule on LLCs and other business forms.
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How Much it Costs to Start a Massachusetts LLC
Filling your certificate is the most important step in forming your LLC. But even after that, you’re just getting started. There are many things you need to think about before you open your doors to the public. The best way to solve problems that come up is to anticipate the biggest ones and make plans to avoid them.
Massachusetts Certificate of Organization Filing Fee – $500
This is a short but vital document, like a birth certificate for a person. Without it, your LLC doesn’t exist. Once it has been filed with the Secretary’s Corporation Division, your LLC can do business, pay taxes, and take any other legal action. Thus, you need to make sure the certificate is done first and done correctly.
The easiest way to file it is online, using the Corporations Online Filing System. You can also file by fax, mail, or in person at the Secretary of the Commonwealth’s office. You don’t need to draft a certificate from scratch as the Secretary provides a fill-in-the-blank form for this purpose.
Massachusetts LLCs – Optional Costs to Consider
$500 is a big chunk of money, so you might not want to spend even more. Planning ahead and paying some extra costs, though, can put your LLC in a better situation in the future. Use the list of costs below as a checklist, and think about whether any of them might be necessary for your LLC.
Expedited Filing Service – $20
Compared to some other states, Massachusetts has a fairly quick turnaround time for these filings. 24 to 36 hours after the document is received by the Secretary’s office, it should be processed, and your LLC should show up in the Business Entity Search.
When you file online or by fax, the state will charge you an extra $20 for an “expedite” fee. It’s not clear that this fee greatly shortens processing time, which is fairly brief anyway, but it does reduce the delay caused by using the mail, which can be 1-3 days.
So, filing online or by fax (and paying the $20 fee) will save you some time over filing by mail. (It also saves you the trip of filing in person.) The expedite fee applies to all documents you file, though the price changes based on the filing fee of your document – $20 is the expedite fee for a $500 document life the certificate. Check the fee schedule for more details.
Business License – Varies
The state does not require a business license, but the city or county where your LLC is located might. Thus, one of the first things you should do is check the local requirements for your LLC.
In Boston, for example, you need to get a business certificate and renew it every four years. It costs $65 for most people, and an even $100 if you are a non-Massachusetts resident.
Also, keep in mind that certain kinds of LLCs will need professional licenses and permits. Check with the Department of Revenue for more details. Make sure you do your research ahead of time once you have chosen where you want to set up shop.
Registered Agent Fee – about $100 per year
When you start your LLC, you’ll have to name a registered agent so that the state and the public can timely communicate with you. This is key if someone sues your LLC. A lawsuit may not sound like fun, but you must know when it happens, or your business will be at risk. (State law refers to the agent as a “resident agent,” though that term means the same things as “registered agent.”)
Because your agent’s details are included in your certificate, you don’t pay an extra fee to the state to name your Massachusetts registered agent. Still, you should think about hiring a company to serve as your LLC’s agent.
Many owners are tempted to serve as the agent themselves, thinking they can save a couple of bucks. This is not a good idea because it involves making your address public and always being available just in case someone wants to sue your company.
It’s simpler to hire a Massachusetts registered agent service for your LLC. These companies usually charge $100 per year and cover all your agent needs. It’s money well spent.
Check out our Best Registered Agent Services article for some of our recommendations.
Operating Agreement — Variable
An operating agreement is just a contract that sets down the rules of your LLC. It says how the people in charge should do their jobs, when meetings must be held, how members can enter and exit the LLC, and almost any other matter that affects your business.
Your LLC doesn’t need to have one, but we strongly urge you to think about it. Without a written contract, you have much less control over what happens to your LLC. If a member leaves, dies, or a new one joins the LLC, a contract is a way you can keep control of your business and know what should happen next. Don’t leave that to chance.
If you have an agreement, you don’t have to file it with the state. You can write it yourself, but unless you are a lawyer or know exactly what it’s supposed to look like, we don’t recommend that option.
Having a lawyer draft it is costly. They would likely charge you an hourly rate. While a lawyer’s agreement would be thorough, spending hundreds (or even thousands) on a contract for a small business is way too much. If you use an LLC formation service, you can have a good agreement drafted, though, for as little as $39.
DBA Filing Fee – $1
Once you’ve formed your LLC, you may not be happy with its name. Or maybe you want to add something to the name so that people don’t confuse your business with others. If so, you can get a “doing business as” (DBA) name, also known as a fictitious business name.
This issue is common, and the process for getting a DBA is a fairly simple one. DBAs are governed by Massachusetts General Laws Chapter 110, section 5. This statute requires you to file a certificate with the clerk of every city or town where your business has an office.
The certificate you file should include:
- The full name and address of your LLC
- The names and addresses of the people doing business within the LLC
Note that because these forms are filed with different local offices, the forms may be different depending on your city or town. State law does provide that the filing fees charged by clerks for filing the certificate are limited to $1.
Name Reservation Fee – $30
Maybe you have a good plan and the perfect LLC name, but you’re not ready to start just yet. If you want to make sure that you can use a certain name when you are ready, you can file an Application of Reservation of Name with the Secretary’s office for $30.
You may not file a name reservation application online or by fax. You must either do it in person or by mail. Thus, there is no expedited service option for this document.
Once you have successfully applied, you have the right to the reserved name for 60 days.
Domain Name – about $20 per year
In this day and age, small businesses need to be on the Internet. The first step in creating a good website is to get your domain name. While this might have been pricey in the past, it is now quite affordable.
You should lock down your domain name as soon as possible, even if you don’t have plans for a website right now. If you don’t, a competitor could buy your ideal domain and similar-sounding domains to block you from using them. Domain squatters also sift through newly registered LLC names and will buy their domains only to relist them with huge markups.
In general, a domain ending in .com will be more expensive than a .net or .info domain, and some names will likely be taken, meaning you will have to do some searching (and maybe compromising).
A domain name from GoDaddy.com or a similar registrar may cost you between $20 and $50 per year, with regular specials and sales where you can get substantial discounts.
Register With the State Tax Office – Free
Though Massachusetts typically taxes LLCs as pass-through entities, you will still have to pay some taxes. These can include:
- payroll taxes
- unemployment insurance tax
- sales and use tax
The best way to make sure you don’t miss anything is to register with the Department of Revenue online. There’s not a separate fee for this, and it helps you to make sure nothing falls through the cracks. Note that, to complete your LLC’s registration, you will need a federal employer identification number. See below for how to get one of these.
Getting a Federal Employer Identification Number (“EIN”) – Free
An EIN is a number created and assigned by the Internal Revenue Service to a business for paying taxes. (Think of an EIN as a social security number for a business.) Some LLCs need them, and some don’t, but having one can make your life easier.
Regardless of whether the IRS says you need one, the state requires one so you can register to pay state taxes. Even if that weren’t the case, many banks won’t allow your company to have its own business bank account without an EIN. Having an EIN can also simplify the process of getting credit.
You can apply online and get an EIN for free in minutes, or you can apply for one through the mail or fax. Whatever you do, don’t pay someone else to get an EIN for you. It’s too easy to pay someone else to do it unless it is part of a broader service package.
Foreign LLC Qualification Fees – about $100 per extra state
If your business becomes a success, you may want to expand to new locations. If one of those places is in another state, you’ll have to pay to do business there. You won’t have to re-form your company, but you will have to register as a foreign LLC with the Secretary of State there and pay extra fees.
The exact fees will depend on the state in which you are registering. As a rule of thumb, expect to pay about $100 in filing fees to register your Massachusetts limited liability company in another state.
Writing Formation Costs Off
Because it takes money to start your business, you can write off many, if not all, of your costs on your federal taxes for a deduction. The IRS has a lot of guidance on this matter, and you should compare your specific costs to the materials on the IRS website.
Keep in mind that, in most cases, a limited liability company is taxed by the IRS as a pass-through entity. Generally speaking, LLC owners can deduct up to $5,000 of their business startup expenses in the first year.
According to a 2014 directive from the Massachusetts Department of Revenue, the state generally follows IRS policy when it comes to business deductions.
Oscar wants to start a hardware store in Boston. He forms an LLC online called Beantown Tools and Renovation. He plans to run the entire shop by himself for at least three years. He already has a location that he inherited from his father, so he’s going to be able to run the business without paying rent, further reducing his overhead.
After his certificate is on file, Oscar notices a lot of businesses in Boston with the word “Beantown” the name. Therefore, when he makes the signs and advertising for his business, he wants to use the name “Oscar’s Tools” to help make it clear his business is separate from those other shops.
Because Oscar may want to hire people or get partners in the future, he hires a formation service to help him draft an operating agreement for his LLC.
Oscar’s LLC formation costs are as follows:
- Massachusetts Certificate of Organization filing fee: $500
- Online Expedite Fee $20
- Boston Business Certificate fee: $65
- Operating Agreement: $39
- Resident agent fees: $100
- DBA fee: $1
- Web domain costs: $50
Oscar has elected to have his LLC taxed as a pass-through entity by the IRS and the state. This means that he will claim both his business income and deductions on his personal federal and state tax returns.
Oscar’s startup costs, which will form the deduction, total $775. His taxable income before the deduction was $35,000, which puts him in the 12% federal income tax bracket. With the deduction, Oscar’s taxable income will be reduced to $34,225. That saves him $93 in federal taxes.
On his state taxes, Oscar pays a 5% personal income tax rate on his earnings. There, his deductions will save him $38.75.
Keep in mind that if Oscar had more than $5,000 in startup expenses, he would likely be able to claim those starting in the second year of his business.
Cheapest Way to Start an LLC in Massachusetts
Now that you know the kinds of costs that you might incur, it’s time to start shopping around for the best deal that will serve your LLC’s needs. Sometimes, this might mean you need to spend a bit more. Pay attention to your needs and budget accordingly.
Formation Service – $39 + state fees
A business formation service is a popular and inexpensive way for new LLC owners to get started.
These companies are dedicated to helping entrepreneurs bring their visions to life. They have not only the knowledge of all the state laws you need to know, but also forms, documents, and procedures to make your life as easy as possible.
Formation services are a quick and complete way to handle the formation needs of most LLCs.
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
While formation services can be great for most people, they are not always the best choice. Some cons for these services are:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry (e.g., recreational cannabis), you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
Attorneys are licensed, reliable, and a powerful resource for business formations. They are also quite expensive, especially in big cities like Boston. A new business owner like Oscar often operates on very thin margins and likely won’t be able to afford to pay a good business lawyer by the hour.
Wealthier or more experienced business owners may have more options. If you are starting a complicated business or one that involves several people, it can also make sense to get an attorney to make sure everything is done fairly and is tailored to your LLC’s needs. For that reason, some owners choose to go this route.
Despite the expense, sometimes hiring a lawyer is the best choice.
- Lawyers help you manage risk. An LLC with complicated legal issues needs a lawyer. If you run a cannabis dispensary, for example, there are a lot of laws you’ll need to comply with. In that case, getting a lawyer is not just worth the money, it’s the smartest move.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
For most people, getting an attorney comes with considerable downsides that outweigh any benefits.
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very caring people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Many people, after searching the Internet for the information they need, decide to try forming their new LLCs themselves. This process can give you a lot of personal expertise, but remember that time is money. If you are spending hours on your business formation, that’s time you’re not spending on the substance of your business.
In most instances, then, it is more cost-effective to just pay an LLC formation service, with confidence that everything has been done correctly, rather than try to reinvent the wheel yourself.
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own LLC, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t figure out the value of your time, a DIY solution is the cheapest option.
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation. And that’s not money you will be able to write off.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that then costs them more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even more challenging for you.
Annual Massachusetts LLC Fees: How Much Will it Cost to Maintain your LLC?
Even after you’ve formed the LLC, there are annual costs for which you will have to budget. These include both government fees and amounts paid to third parties, like:
- Local Business License, depending on exact location: This varies depending on where your LLC is. Oscar, for example, will have to pay $65 every four years.
- Annual report fee: $500 (plus $20 if you file online or by fax for the expedite fee)
- Registered agent service fee: $100
- Domain name renewal: $20
Remember that your LLC’s annual report is due on or before your anniversary date; that is, the day that your certificate of organization was filed and your LLC formed.
How Much are LLC Taxes in Massachusetts
First, you’ll be happy to know that Massachusetts does not currently charge LLCs a franchise tax, and its corporate excise tax does not apply to LLCs. Like the IRS, Massachusetts usually treats LLCs as pass-through entities and taxes income to members at the flat rate of 5%.
You will, however, have to pay other taxes associated with your business. For example, if your LLC hires workers, you will have to pay employment taxes. If it sells goods and services (and it almost certainly will), you'll also have to collect sales and use tax.
Those taxes and more can all be calculated and handled through the Massachusetts Department of Revenue.
Massachusetts LLC Formation Costs Quick Links
- City of Boston — How to Apply for a Business Certificate
- Department of Revenue — Business Licenses and Permits
- Department of Revenue — Business Taxes
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
- Massachusetts General Laws Chapter 110, Section 5 — DBAs
- Secretary of the Commonwealth — Application of Reservation of Name
- Secretary of the Commonwealth — Business Entity Search
- Secretary of the Commonwealth — Corporation Division Fee Schedule
- Secretary of the Commonwealth — Form Annual Report
- Secretary of the Commonwealth — Form Certificate of Organization
- Secretary of the Commonwealth — General Listing of State Licenses
- Secretary of the Commonwealth — Online Filing
Massachusetts LLC Formation Costs FAQs
How much does it cost to start an LLC in Massachusetts?
The minimum cost is $500. You must pay at least this amount to file your LLC’s certificate of organization with the state.
What is the cheapest way to start an LLC in Massachusetts?
A do-it-yourself approach will have the lowest price tag, but it isn’t the cheapest in terms of your time. The best balance of price and time, for most people, is to use a formation service.
Do I need to hire an attorney to form an LLC in Massachusetts?
No. Most people will not need to invest the considerable expense and time of hiring a lawyer. A formation service or a DIY approach will work for most business owners.
Can I pay to form an LLC more quickly in Massachusetts?
Yes. Formation services will generally complete formation tasks faster than business owners acting on their own. Also, if you file your certificate of organization online or by fax, you will have to pay a $20 expedite fee.