How To Form A Corporation In Massachusetts

A corporation is a business structure that provides personal liability protection by separating the owner’s personal assets from the business’s assets. Thus, a corporation is liable for the business’s actions and finances, while the owners (known as shareholders) are not.

Corporation Pros

• Corporations provide liability protection for the shareholders
• A corporation can raise non-debt financing by selling shares of the business
• Taxation may be lower than a sole proprietorship or partnership

Corporation Cons

• Corporations are more complex and expensive to set up than sole proprietorships, partnerships, and Limited Liability Companies (LLCs)
• At a minimum, corporations are required to hold an annual board of directors meeting and shareholders meeting, take minutes at the meetings, issue shares, etc., to maintain the entity’s liability protection.

Generally, Corporations are chosen over a Limited Liability Company when a significant amount of funding is being raised from investors.  However, due to the cost and complexity of the Corporation, most small businesses are better off forming an LLC.

Related: How To Form An LLC In Massachusetts

The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Massachusetts include a foreign Corporation (an out-of-state Corporation wanting approval to physically operate in the state), a professional Corporation (designated for Corporations offering professional services), or a non-profit Corporation.

Related: Massachusetts Business Checklist

Steps to Forming a Corporation in Massachusetts

Step 1: Choose a Name

The first step in forming a Corporation in Massachusetts is selecting a name.

The name of the Corporation has to be different from other entity names in the state of Massachusetts.  Check available Corporation names in Massachusetts.

The name of the Corporation must include one of the following designators at the end of the business name:

• Corporation
• Incorporated
• Limited
• Company
• Or an abbreviation of one of those words – Corp., Inc., Ltd., or Co.

A comma may be used after the business name and before the designator.  For example, “Common Grounds Coffee Inc.” and “Common Grounds Coffee, Inc.” are both acceptable.

If you want a name but are not ready to register the Corporation, you can file the Application of Reservation of Name with the Massachusetts Secretary of the Commonwealth. The name reservation will hold a name for up to 120 days.

While a Corporation has to select a unique name that another Massachusetts Corporation isn’t using, that doesn’t guarantee the name isn’t currently in use by someone else.  Before registering a Corporation name, be sure to do a trademark search to verify it is available for you to use.

Step 2: Choose a Resident Agent

To have a Corporation in Massachusetts, a Massachusetts Resident Agent (called a Registered Agent in many states) must be identified to act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the Corporation.  This can either be a resident of Massachusetts or a commercial registered agent service.

You can act as the Corporation’s Resident Agent in Massachusetts, and you are not required to pay for a registered agent. To be a Resident Agent, you must be generally available during normal business hours and have a physical street address in the state. A PO Box is not allowed.

Related: Do I Need To Hire A Resident Agent In Massachusetts?

Step 3: File the Massachusetts Articles of Incorporation

Next, you can start filing the Articles of Incorporation with the Secretary of the Commonwealth. The Articles of Incorporation can be filed on the Secretary of the Commonwealth’s website or in paper form.

The information requested includes:

• The name of the Corporation must contain the words “Corporation,” “Incorporated,” “Limited,” “Company,” or an abbreviation.
• The purpose of why the Corporation is being organized. In most cases, a Corporation will use the general business purpose statement of “engaging in any lawful business.” If a more specific purpose is desired (limiting what the Corporation can legally perform), enter the additional details.
• Information regarding the shares of the Corporation.   This section includes the series of shares (common stock is most common), the number of shares authorized, and the par value of those shares.
• Effective date. If you want to finalize the paperwork of the Corporation but not have it start for up to 90 days in the future, enter the future date. Otherwise, choose upon filing.
• Street address of the initial registered office.
• Name of the initial registered agent.
• The number, names, and addresses of the initial directors (President, Treasurer, Secretary, Director(s)).
• Fiscal year-end of the Corporation. Many will choose to use a calendar year as their fiscal year and would enter December.
• Brief description of the Corporation’s business activities.
• Street address of the principal office of the Corporation.
• Street address where the records of the Corporation are stored.

The Massachusetts Articles of Incorporation can be filed online or submitted by mail.  The mailing address is:

Massachusetts Secretary of the Commonwealth
Corporations Division
One Ashburton Place
Boston, Massachusetts 02108-1512 

Step 4: Create Corporate Bylaws

Bylaws are the general guiding principles and procedures for a business’s operations. For example, the bylaws may include the name of the corporation’s officers, the responsibilities of the board members, procedures for removing or adding a new director or shareholder, restrictions on the transfers of shares, when shareholder and director meetings will be held, and more.

Step 5: Hold the Initial Board of Directors Meeting

During the first board meeting, the board of directors will, at minimum, elect the corporation’s officers (the President, Vice President, Treasurer, and Secretary). They will also typically review and approve corporate bylaws, choose a bank, issue shares of stock, and decide whether the Corporation will be taxed as a C corporation or S corporation.

It’s critical to remember that taking meeting minutes at all meetings is necessary to protect the shareholders from lawsuits and court actions. The minutes provide a written record of all decisions and actions taken during the meeting. Minutes aren’t filed with the state but should be stored along with other corporate documents.

Step 6: Issue Shares of Stock

The corporation can exchange shares of stock in exchange for money or services. The number of shares of stock issued cannot be more than the number of authorized shares listed in the Articles of Incorporation.

Step 7: Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Like an individual’s social security number, the EIN identifies the Corporation for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Step 8: Elect the Corporation’s Form of Federal Income Taxation

By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation.  C-Corporations pay corporate taxes on their profits, and the owners pay personal income taxes on their dividends.

A Corporation can elect to be taxed as an S-Corporation. S-Corporations are taxed as “pass-through entities,” meaning the Corporation does not file corporate taxes. Instead, the profits (or losses) “pass through” to the shareholders, who then report this income on their individual taxes.

For most small businesses, the S-Corporation tax election is the most beneficial because it eliminates the double taxation of the C-Corporation. This tax election can be changed; however, it is highly recommended to talk with an accountant before making this decision.

Step 9: Open a Bank Account

Opening a bank account for your Corporation is important for liability protection as the bank account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:

• A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
• Copies of the original Articles of Incorporation showing the creation of the Corporation in addition to the bylaws.
• Driver’s licenses of the members.
• Depending on the age of the Corporation, a Massachusetts Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.

Step 10: Apply for Business Licenses and Permits

Depending on what your business does and where it is located, various business licenses and permits will likely be needed before starting your business in the Commonwealth of Massachusetts. Some common registrations include:

• Business License – The state of Massachusetts doesn’t have a general business license; however, many cities require a business license to operate.
• Professional License – Certain services, such as barbershops, accountants, salons, and others, must be licensed.
• Sales Tax Permit A Massachusetts Sales Tax Permit from the Massachusetts Department of Revenue is necessary to sell products and certain services.

Related: How To Register A Business In Massachusetts

Step 11: File Annual Reports

Corporations are required to submit an annual report to the Massachusetts Secretary of the Commonwealth.  The annual report is due 2.5 months after the end of your fiscal year. For example, if the Corporation’s fiscal year-end is December, the Annual Report would be due February 15^th.