A Massachusetts Limited Liability Company (LLC) combines the benefits of a partnership & a corporation, in that the “members” (a term ascribed to the owners of the LLC) can actively participate in the management of the business yet enjoy limited liability. Other benefits include centralization of management & control (which can be vested in members or non member managers) & transferability of interest. The Massachusetts LLC is formed by filing the Articles of Organization with the Massachusetts Secretary of State & paying the appropriate annual filing fee ($500). An Operating Agreement (a document which governs the rights & duties of the members of the LLC) among the members is advisable but not required. In its absence, the default provisions of the Massachusetts Limited Liability Act would apply. Another benefit enjoyed by the members of a Massachusetts LLC is the flexibility of ownership, in that the specific ownership rules applicable to S-Corporations do not apply to the LLC (limitation on number of owners, exclusion of certain entities from ownership etc). In addition, there is flexibility with respect to the division of profits. Given this flexibilty and other advantages, the LLC is an excellent device for asset protection planning (see charging order protection);
The Federal Income Taxation of an LLC is treated in two ways; 1) If it is a Single Member LLC (SMLLC), the sole member/owner reports his/her income on a Schedule C, with all the appropriate & allowable deductions & credits; 2) If it is a Multi Member LLC (MMLLC), it is treated as a partnership (a pass through conduit) and each member is taxed at his/her individual rate. The exception to these general rules is if the LLC makes an election to be taxed as a Corporation or if it is a publicly traded partnership.
Sole Proprietorships
October 20, 2023
