Business formation in Massachusetts: The Basics

Entrepreneurs in Massachusetts should have a basic understanding of business structures and other formation needs before beginning their venture.

The United States Department of Labor’s Bureau of Labor Statistics recently reported that gross job gains in the private sector from March 2014 to June of 2014 increased by 7.4 million. That translates to 582,000 over the previous quarter and over 916,000 new jobs when gross job losses are taken into account. 35 percent of these jobs are reportedly developed by businesses with 1 to 49 employees.

Small businesses are doing well, and entrepreneurs may see this as a time to begin a business. Those who are considering starting their own businesses can benefit from a basic understanding of how state and federal law will impact their venture.

Forming a business in Massachusetts

Like most states, entrepreneurs that are looking to start a business in Massachusetts are wise to put together a business plan and carefully research available locations before moving forward with their business enterprise. Those that are in the initial stages can benefit from some basic information put together by the Massachusetts Small Business Development Center Network & U.S. Small Business Administration. It outlines most of the relevant issues to address before moving forward with a business plan, including financing and business structures as well as tax ids.

Business structures

Entrepreneurs can choose from a variety of business structures. Each structure offers certain benefits and risks. Here is a basic breakdown:

Sole Proprietorship:

  • This is the simplest form of business structure. Essentially, an entrepreneur starts a sole proprietorship simply by beginning a business. Although this business structure is easy to start since there is generally no formal paperwork, it is also important to note that there is no distinction between the business and the owner. This means the owner not only benefits from all the profits of the business but also is at risk for any potential loss or liabilities.

Limited Liability Company:

  • A limited liability company, or LLC, offers owners limited liability. This provides a certain amount of protection against personal liability in the event of a lawsuit.

C Corporation:

  • This structure transforms the business into a separate legal entity owned by shareholders. This translates to a greater level of liability protection, but also requires more paperwork and can have an increased tax burden.

Even a sole proprietor needs to have all required licenses and permits and follow all applicable federal, state, and local regulations. Businesses also need to carefully craft business plans, employment contracts, and succession plans. As a result, entrepreneurs are wise to seek the counsel of an experienced business lawyer. This legal professional can guide you through the initial stages of the business formation, working to better ensure long-term success.