How to Start a Business in Massachusetts
Massachusetts boasts prestigious universities like Harvard, MIT, and Northeastern University. It’s a vibrant state with a thriving economy, offering abundant entrepreneurial opportunities. The US Small Business Administration reports an impressive 71,468 new businesses started in Massachusetts in 2022 and over 718,000 active small businesses in the state. Starting your own business in Massachusetts has never been more accessible or rewarding. In this guide we’ll explore the steps involved in launching a business in Massachusetts so let’s get started!
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12 Steps to Starting a Business in Massachusetts:
- Research and Plan your Business
- Choose a Business Structure
- Choose your Business Name
- Register your Massachusetts Business
- Get an EIN
- Register for Massachusetts Sales and Use Tax
- Apply for Business Licenses and Permits
- Open a Business Bank Account
- Set Up Credit Card Processing
- Establish an Accounting System
- Get Business Insurance
- Hire Employees and Set Up Payroll
You have a compelling business idea, don’t you? That’s fantastic! However, before diving headfirst into it, it’s wise to take a step back and conduct thorough research. This involves delving into market analysis and meticulously outlining a business plan.
Market research entails identifying your target customers, evaluating your competition, and highlighting the unique aspects of your business. Next, transform all that valuable information into a comprehensive business plan. Now, don’t dismiss it as a tedious document. Think of it as your strategy, your roadmap, your secret weapon.
While you may be eager to get started, but trust me, this step is too crucial to overlook. In fact, according to Harvard Business Review, businesses with a well-defined, written plan are 16% more likely to achieve great success compared to those without one.
Now, don’t fret. Your plan doesn’t have to be a lengthy novel. Even a concise three-page plan can make a strong impact. Your plan will serve as the playbook that guides your business, addressing critical questions:
- What sets your business apart (your Unique Selling Point)?
- Who is your target market?
- What will drive your revenue?
- How will you execute your marketing strategy?
- What resources do you need to get started?
Now, you’re fully prepared to conquer the world. Best of luck!Looks like Jasper is overloaded at the moment, please bear with us and try again shortly.
Want More Info?:Proven Strategies for Writing an Effective Business
After creating your business plan you’ll want to determine the legal structure for your business. Consider your comfort with personal liability risk, desired tax status, and source of capital. There are four common types of business structures to evaluate:
An LLC or limited liability company is a business structure that provides limited liability and pass-through taxation benefits. Think of it like incorporating a business without the extra formalities.
An LLC can help protect business owners from legal liability for company debts and other liabilities, just like a corporation. Because an LLC is treated as separate from its owners, individual owners don’t typically bear legal responsibility for business debts.
Pass-through taxation means that LLC income isn’t taxed separately but instead passed through to the owner(s). If the LLC has more than one owner, a tax return for the company must still be filed. The income or loss is shown on this return and passed through to the members. Members must report the income or loss on their personal tax returns and pay any necessary taxes.
Additional Information:What is an LLC and is it the right fit for your business?
In short, LLCs bring the benefits of both corporations and partnerships, along with easy maintenance and flexibility innownership arrangements.
A C corp (corporation) is a separate legal entity that can earn profits, be taxed, and held legally liable. However, forming a C corp is more expensive and requires extensive record-keeping, operational processes, and reporting. Nevertheless, it provides robust protection from personal liability. C corps pay income tax on profits, not owners. In some cases, corporate profits may be subject to double taxation, both at the company level and on shareholder dividends. C corps have an independent life from shareholders. Even if a shareholder leaves or sells their shares, the business can continue with few interruptions. Raising capital is easier for C corps as they can sell stock, attracting top talent. It’s a good option for medium- to higher-risk businesses that need money, plan to go public, or aim to be sold eventually. Overall, C corps offer many benefits but require careful consideration for success.
Additional Information:Advantages and Disadvantages of a Corporation
A sole proprietorship is a business structure where the owner operates and manages the company independently. In a sole proprietorship, the owner is personally responsible for all aspects of the business, such as profits, losses, investments, and liabilities. The advantage of this type of structure is that it’s easy to set up and manage since everything goes through the owner. It also enables the owner to keep all the profits and ultimately control their business decisions.
However, there are some downsides to this structure as well. For example, sole proprietors are personally liable for any debts or obligations incurred by their business. This means that if a lawsuit is filed against them, they can be held responsible for any losses. Sole proprietorships tend to have difficulty raising money since banks hesitate to lend to them. Finally, tax regulations may be more complicated since all profits and losses are reported on the owner’s personal income tax return.
Additional Information:What is a Sole Proprietorships and How Does it Work?
A general partnership is a type of business where two or more people come together to make money. Unlike other types of businesses, like corporations, you don’t need to register a general partnership with the state. It’s a simple and easy way to start a business. When you’re in a general partnership, each person has unlimited liability for the business. If the company can’t pay its debts, you must pay them with your money. You also share the profits and losses of the business with the other partners.
Additional Information:Advantages and Disadvantages of General Partnerships
Need More Info to Choose a Structure?
If you’re having trouble deciding on the best business structure for your needs, our handy guide can provide valuable assistance. In this guide, we dive into the details of four different business structures, offering a thorough comparison to help you make an informed decision.
Recommended: What Type of Business Structure Should I Use
Now that you’re up to speed on legal structures, it’s time to focus on the next step. Choosing a great business name is crucial to the success of your business. You might feel tempted to pick the first name that comes to mind, thinking the product or service matters more than anything else. But in reality, the name is what opens the door for you. Your choice of name can make or break your business, as it’s a crucial part of your marketing efforts once your business is established. Therefore, it’s best to take your time and develop a robust and memorable name. After all, it’s not just about getting started but about making your business thrive in the long run. If you feel like you’re lacking in the creativity department and can’t seem to come up with any good names, it might help to remember the three crucial ingredients of a great business name:
- Creates an Identity
- Memorable and Easy to Recall
- Easy to Search and Find
For a detailed deep dive into creating a great business name, check out our guide, Tips for creating a business name.
Once you have finalized the business structure and chosen a name for your venture, it is crucial to take the necessary steps to officially register your business in Massachusetts. The process of registering a business name in Massachusetts varies depending on the specific structure of your business.
- Register a Massachusetts LLC
- Register a Massachusetts Corporation
- Register a Massachusetts Sole Proprietorship
- Register a Massachusetts Partnership
To establish an LLC in Massachusetts, you’ll need to submit a document known as Certificate of Organization (Form D) to the Massachusetts Secretary of State. The filing fee for Certificate of Organization (Form D) in Massachusetts amounts to 500. Before finalizing your LLC filing, it’s important to ensure that your desired business name is available by conducting a thorough search. Once you confirm its availability, you can proceed with filing the Certificate of Organization (Form D). This filing should include the LLC’s legal name, address, contact information of the owner(s), and the designation of a registered agent in Massachusetts. Although not legally required, it is advisable to create an operating agreement to establish essential guidelines for your LLC, including ownership percentages and voting rights.
Learn How to Start an LLC
If you’re interested in starting a Limited Liability Company (LLC), check out our comprehensive guide, Steps to Starting an LLC in Massachusetts. This detailed guide walks you through each step, providing valuable insights and expert advice for a smooth and successful LLC formation process.
Corporations are formed in Massachusetts by filing Articles of Organization with Massachusetts Secretary of State. Massachusetts charges 265 to file Articles of Organization. You will also need to appoint a registered agent to receive service of process documents. You will also want to create a corporate bylaws document to establish its internal operational rules.
If you’ve made the decision to start a sole proprietorship in Massachusetts, you won’t need to file any formal documents at the state level. However, if you plan to operate under a name that is different from your own or doesn’t include your name, you’ll need to obtain a a Massachusetts DBA (also known as a Business Certificate Name). Massachusetts DBAs are registered with the city/town. Additionally, make sure to acquire all necessary federal, state, and local permits and business licenses, which we will cover in step 7 of this guide below.
When starting a general partnership in Massachusetts, there is no requirement to file official documents. However, it is highly recommended to create a partnership agreement. This agreement helps establish decision-making rules and can be beneficial in resolving disputes between partners. If the partnership operates under a name that does not include the partners’ last names, a a Massachusetts a Business Certificate Name filing must be completed with the city/town.
An EIN is an Employer ID Number. This is used to identify your business to the IRS when you file your taxes, as well as for employment purposes. It’s a unique identification number given to each business, much like a social security number is given to each individual. You must acquire an EIN if you form your business as a Corporation, Partnership, or LLC. Other business owners should still strongly consider getting one. An EIN is necessary for many types of business filings and you can use it instead of your social security number.
How to Apply for an EIN
As long as you have an SSN you can use the IRS Online EIN Assistant to obtain an EIN for free. If you are having trouble or don’t have an SSN you can use Northwest Registered Agent’s EIN service to obtain your EIN.
The Massachusetts sales and use tax rate is 6.25% of the price or charge for tangible personal property, including certain telecommunication services. Use tax applies to property purchased without sales tax or at a lower rate
If your business has a Massachusetts sales tax nexus or sells taxable goods/services to Massachusetts residents, you’ll need to collect and remit sales tax. Complying with state and local laws is crucial to avoid penalties and interest charges.
How to Know if you need to collect Sales Tax in Massachusetts?
According to the Massachusetts Department of Revenue, a business establishes sales tax nexus in Massachusetts when it has a physical presence in the state. This physical presence can include, but is not limited to:
- Office or Space: Obtaining and maintaining a suitable location for your operations.
- Sales Representatives and Employees: Aging independent sales reps, employees, or agents to conduct business activities within the state. This includes soliciting sales, collecting on accounts, delivering goods, or taking orders for taxable items.
- Services: Performing services such as assembly, installation, servicing, or repair of products. Additionally, providing maintenance or repair services to property.
- Technical Assistance: Offering customers technical assistance or services such as engineering support, design services, quality control, product inspections, or similar services.
- Real Property and Tangible Personal Property: Owning, renting, or leasing real property or tangible personal property in Massachusetts. This includes assets like computer servers or software used for soliciting orders of taxable items.
- Delivery: Utilizing company-owned or leased trucks to deliver goods to customers within Massachusetts.
- Inventory Management: Maintaining inventory in Massachusetts using third-party fulfillment services, such as Fulfilled by Amazon (FBA).
If you are an out-of-state businesses (remote sellers) you are also required to register with the Massachusetts Department of Revenue if your total sales revenue in the state exceeds $100,000 in the past twelve months. Once this sales threshold is reached, the seller must obtain a permit and start collecting Massachusetts sales and use tax by the first day of the fourth month after surpassing the threshold.
For more detailed information visit the Massachusetts Department of Revenue: Sales and Use Tax page or contact a qualified Massachusetts tax professional.
Get Help Registering for Massachusetts Sales and Use Tax
If you’d like assistance registering for Massachusetts Sales and Use Tax you can use Swyftfilings Seller’s Permit service to complete your registration.
To ensure legal compliance with federal, state, and local laws, it is important for your business to obtain one or more business licenses and/or permits. The specific licenses and permits required will vary depending on various factors, such as the nature of your business, the products and services you offer, the data you collect, and your location. It is crucial to understand and adhere to these requirements to operate your business smoothly and within the bounds of the law.
Federal Licenses and Permits
Your business may need a license or permit to operate legally if your business is involved in an activity that is regulated at the federal level, such as:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
For more detailed information on federal business licenses and permits visit the Small Business Administration: Federal Licenses and Permits page.
State and Local Licenses and Permits
Massachusetts does not have a general business license at the state level, but local licenses are often required.For more detailed information visit the Mass.Gov Business License page.
Massachusetts Business License Research
Figuring out what business licenses you’ll need can be pretty complicated. You can use MyCorporation’s Business License Compliance service for expert help to determine which licenses you’ll need.
Separating your personal finances from your business finances helps to protect you and keeps all of your money organized. Mixing them together, known as “co-mingling funds”, can lead to big issues, so it’s best to have a separate business bank account. If you don’t you could make bookkeeping and accounting more difficult and even lose your limited liability status (if your business is an LLC or Corporation). If your business is sued, it could be argued that your personal money and assets are fair game.
We have an in-depth guide to opening a business bank account to give you all of the details you need to get it done. It will help you to choose a bank and get all of your documents in order.
Accepting payments via card is essential for most modern businesses. Most transactions over $10, around 60%, are now processed by card. This makes processing card payments essential if you want to compete in today’s market.
To get a more detailed breakdown on this topic you can check out our guide: a href=”https://stepstostartingabusiness.com/how-to-accept-credit-card-payments/” target=”blank”>How to Accept Credit Card Payments
Setting up an accounting system allows a business to track business expenditures and create reports to gain insight into your business’ performance. By establishing an accounting system, you can quickly and easily create budgets, manage cash flow and generate the required financial reports to know how your business is doing.
For a more in-depth breakdown, visit our Small Business Accounting 101 guide. Covered in the guide are the steps to do small business accounting, including how to choose between cash basis and accrual basis accounting methods.
Recommended Accounting Software
We recommend using Freshbooks for your accounting needs. Freshbooks allows you send professional invoices, take online payments, timetrack and more.
One of the most overlooked aspects of starting a new business in Massachusetts is obtaining business insurance. Having the proper business insurance coverage helps to mitigate your risk so that you’re covered in the event of an accident, natural disaster, or lawsuit.
In our Small Business Insurance Guide, we go over the six types of business insurance so that you can make sure you’re covered.
If you want help running your business, you’ll want to consider hiring employees and setting up a payroll. Employers are responsible for reporting new hires and verifying their employment status.
There are two items that employers must complete to be federally compliant when hiring new employees. You must verify that any employee is eligible for employment in the US and obtain a signed IRS Form W-4 to ensure you are withholding the correct amount for federal taxes. For more detailed information, visit the IRS page for Businesses with Employees.
Since Massachusetts has a state level income tax, you’ll need to withhold taxes from your employees and remit them to the state. In addition to this you’ll also need to register for unemployment insurance. Luckily in Massachusetts both of these registrations are done with the Massachusetts Department of Revenue. For more specific information about your requirements as an employer in Massachusetts visit the Mass.gov: Massachusetts law about hiring employees page for more info.
Recommended Hiring Software
If you’re hiring employees we recommend using Gusto. Gusto can not only automate your payroll but also help with hiring & onboarding, file employment taxes, aid with compliance and even identify hidden tax credits for your business.