In Massachusetts, you may incorporate a S corporation (S corp) by founding a limited liability company (LLC) or a corporation and then choosing S corp status from the IRS when you file for your EIN.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
In our How to Start a S Corp in Massachusetts tutorial, we’ll walk you through the steps.
Table of Contents
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S corporation limitations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a S Corporation the Best Business Structure for You?
Restrictions on S Corporations
S corporations are restricted to one class of stock and 100 stockholders, among other things. For more information, see our What Is a S Corporation? guide.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
How to Form a S Corporation
There are two major methods to form a S corporation:
When requesting your employee identification number, organize an LLC and obtain S corp tax status from the IRS (EIN)
By creating a company and applying to the IRS for S corp status
We do not advocate forming a company with the S corp tax status since it undermines all of the advantages of forming a corporation.
Forming an LLC and Choosing S Corp Status in Massachusetts
To form an LLC and elect S corp status, follow these five simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit the Organizational Certificate.
Create an Operating Agreement in Step 4
Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in Massachusetts is deciding on a name.
Make sure your name conforms with Massachusetts naming regulations and is readily searched by prospective customers.
1. Follow the Massachusetts LLC naming guidelines:
Your firm’s name must contain the words “limited liability company” or “limited company” or one of its acronyms (LLC, L.L.C., LC, or L.C.).
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
Restricted terms (for example, bank, attorney, university) may need extra documentation and the participation of a licensed professional in your LLC.
Your company name cannot be the same as or misleadingly similar to any other existing business in Massachusetts. Reserved names are included.
2. Does the name exist in Massachusetts? To determine whether your selected LLC name is available, utilize the Massachusetts Secretary of the Commonwealth website’s business entity search and name reservation search.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select a Registered Agent in Massachusetts
For your Massachusetts LLC, you must choose a resident agent, also known as a registered agent.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Certificate of Organization, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Consent to Appointment of a Massachusetts Registered Agent
In Massachusetts, registered agents must agree to their appointment. They may do so by signing the Certificate of Organization of the LLC or a separate declaration that is then attached to the Certificate of Organization.
If you file the Certificate of Organization electronically rather than on paper, you must sign electronically saying that the registered agent has agreed to the appointment.
Step 3: Submit the Massachusetts Limited Liability Company Certificate of Organization.
The Massachusetts Certificate of Organization is needed to properly establish a limited liability company (LLC).
Step 4: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.