Starting a business can be both invigorating and exhausting all at the same time. To work for yourself offers great freedom, and of course great responsibility. The following is a continuation of a 2 part article on factors you should consider when starting a business in Massachusetts. These are simply suggestions you may not yet have considered, and should be treated as suggestions rather than a comprehensive guidebook. For the first part click here.
Do not take general advice as a substitute for legal advice to be used in your specific situation. The reason that the State of Massachusetts allows for such a variety of business entities is so that businesses can pick and choose an entity that best serves their type of operation. The only way you will make an informed choice is by consulting a qualified Cape Cod business lawyer.
1) What should my business name be?
Although the name of a company may very well be decided upon before the business even begins, there are reasons to consider or reconsider a change. This is because the business name sets the stage for all of your future competition in your given market. A unique name is not only required for filing with the Massachusetts Secretary of State and Federal Trademark Office (if expansion is a goal), but desirable for brand awareness and search engine optimization as the internet plays an ever increasing part in marketing.
2) Do I need the business to exist beyond the lives of its initial owners?
In a proprietorship or partnership, the death of a partner will result in the end of the business entity. For various reasons, however, the operations of a business may necessitate “continuity of life” beyond the death of an owner. There may, for example, be many investors who place money in a company based on reliance that it will continue through multiple management and ownership regimes. A company like Apple demonstrates these competing interests, where it is a very successful public company, but its founder Steve Jobs is often seen as its key asset.
3) How easily do I want ownership to be transferable?
Many businesses, especially those seeking to grow at a rapid pace, will want some or all of the ownership to be available to as many people as possible. A corporation is the best entity to form in this case. In other situations, however, the member owners will not want any part of the company if the other members are not also in the business. LLCs, LLPs and partnerships, by contrast, will often require in their operating agreements that unanimous consent of all members shall be satisfied before any interest is transferred.
4) What are the tax implications of my entity choice?
Generally, the corporation is less desirable than the LLC because profits are taxed at the corporate level, and then again personally to shareholders when dividends are distributed. An “S” Corporation or LLC ,however, offers pass-through taxation where each member is taxed only once on their share of profits from the business. Moreover, capital gains and losses on the business will stop at the corporate entity, but pass through in an LLC that elects to be taxed accordingly. Check out our article on the subject for more information on whether to become an Inc or LLC.
5) Where should I register the business?
The short and easy answer to this question is, where do you primarily conduct your business? It is important, for example, to register your business in the State of Massachusetts if you are conducting most of your business here for risk of personal liability. If your business is national, however, you may want to form the business in another state with lower tax burdens, etc. If you elect to choose this multi-jurisdictional approach, you will definitely need to make sure you have local counsel familiar with the business laws of that foreign state.
Back to part one of How Do I Start a Business in Massachusetts?
