Are you looking to form a business entity in Massachusetts for people who are licensed to provide professional services? If so, you may be interested in starting a professional limited liability company (PLLC).
The PLLC is a popular choice for licensed entrepreneurs looking to start businesses with fellow doctors, attorneys, accountants, engineers, or other professionals, thanks to its ability to reduce each professional’s personal liability while also providing a host of other benefits.
In this article, we’ll walk you through the steps required to form a professional LLC in Massachusetts in compliance with state and federal laws. Let’s get started!
What Is a Professional Limited Liability Company?
For the most part, professional limited liability companies are quite similar to standard LLCs, and they share many of the same benefits.
In general, an LLC is a business entity type that brings together some of the most popular attributes of casual entities, like sole proprietorships and general partnerships, with the formality of corporations. The resulting entity is one that is highly flexible and customizable, while also providing some great benefits to its owners.
The factor that differentiates a PLLC from a standard LLC is that the PLLC is strictly for licensed professionals to operate their businesses with other licensed professionals. In Massachusetts, the types of professionals who form PLLCs include acupuncturists, attorneys, certified public accountants (CPA), chiropractors, dentists, electrologists, engineers, physical therapists, physicians, podiatrists, psychologists, registered nurses, surgeons, and veterinarians.
The state of Massachusetts is pretty strict when it comes to PLLC membership, as only individuals who are licensed in the same profession the business was formed to provide are allowed to serve as members. Some states only require that half of members are certified.
Let’s discuss a couple of the attributes that make the PLLC such a popular option for these professionals.
A big benefit of a professional limited liability company is its ability to provide personal asset protection to its owners/members. Let’s say you operate a general partnership instead of a PLLC. If your business is sued, your creditors can pursue your personal assets to satisfy the lawsuit. This means your house, car, personal bank accounts, and personal possessions are all fair game.
However, for PLLC owners, this isn’t the case. Instead, creditors can only pursue the assets of your actual business. It’s important to note that this doesn’t defend your PLLC from malpractice suits. For example, if you are a member of a PLLC for doctors and you botch a surgery, the PLLC will not protect you from the patient filing a malpractice suit.
One of the main benefits of the PLLC is the fact that it gives its owners some options regarding how they want to be taxed. While a professional corporation also gives you choices regarding taxation, to an extent, the PLLC is much more flexible in this regard.
You can choose to have your PLLC taxed as a pass-through entity (similar to sole proprietorships or general partnerships), which means that your PLLC itself will not owe taxes. Instead, your profits and/or losses will “pass through” your PLLC to your owners, who will then pay taxes on that money on their own personal returns.
Another option is to be taxed like a C corporation or an S corporation. C corporation taxation is the most common form of taxation for corporations, but as this tax structure leaves its owners subject to double taxation (wherein the same money is taxed both at the corporate level and the individual level), it’s not a popular option for PLLCs.
The S corporation is a similar form of taxation to the pass-through method but avoids the self-employment taxes that come with partnership or sole proprietorship-style taxes. While this can save you some money because you won’t have to pay both the employer and employee portions of Medicare and Social Security, people who choose this form of taxation should be careful to ensure they’re still paying enough into Social Security to be able to draw from this entitlement when they retire.
How to Form a Massachusetts Professional Limited Liability Company
Each state has its own method for forming PLLCs, as there is no uniform nationwide formation process. In Massachusetts, the formation process for a PLLC is similar to the process for a standard LLC, but there are some crucial differences.
Step 1 – Name Your PLLC
The first step is to choose a business name. Most states that allow for the formation of PLLCs have specific naming laws for those businesses, but Massachusetts does not. Instead, this state has PLLCs follow the same rules as standard LLCs: the PLLC’s name must contain the words “limited liability company” or “limited company,” or the abbreviations L.L.C., L.C., LLC, or LC.
In addition to the legal requirements, there are also some practical applications to discuss. Generally speaking, your business name should indicate what your PLLC does. For instance, if you operate a PLLC for attorneys, you should probably have either the words “attorneys” or “lawyers,” or the phrase “law office” in your business name.
When you’ve come up with a name you like (we suggest making a list of 3-4 name ideas, in case your first choice is already taken), you should perform a business name search on the Secretary of the Commonwealth’s website, and also search the state’s reserved names database. If you’d like more information about business name searches in this state, check out our guide.
Step 2 – Designate a Resident Agent
Every PLLC operating in the state of Massachusetts is required to have a resident agent (referred to in most states as a registered agent) who acts as a middleman between your business and the state. The resident agent’s role is to accept important document deliveries from the state — especially service of process — inform you of the delivery, and then forward the materials on to your business.
There are quite a few options when it comes to who can serve as your resident agent in this state. You can hire a resident agent service, designate a trusted friend or family member, or even serve as your PLLC’s own resident agent yourself. However, we typically advise against serving as your own resident agent because you would need to be available during all standard business hours in case the state needs to make a delivery.
If you choose to use an online formation service to create your PLLC, you may be able to get a full year of resident agent service for free. If you’re interested in this option, we recommend Northwest Registered Agent or IncFile, our two favorite services for PLLC formations.
Step 3 – File Your Certificate of Organization
Next, you’ll need to fill out a formation document known as the Professional Limited Liability Company Certificate of Organization.
Among the information you’ll need to complete this form is your PLLC’s federal ID number, the name of your PLLC, the address of your principal place of business, the profession in which your PLLC’s members are certified, the names and addresses of your PLLC’s members, proof of each member’s professional certification, the future date of dissolution (if applicable), the name and address of your PLLC’s resident agent, the name and address of each manager of the PLLC (if applicable), the name and address of each additional person who is authorized to execute documents related to the PLLC (if applicable), the name and address of “each person authorized to execute, acknowledge, deliver, and record any recordable instrument purporting to affect an interest in real property recorded with a registry of deeds or district office of the land court,” the effective date of your filing, the signature of your PLLC’s organizer, and the signature of your resident agent.
When you’re ready to file this form, you can submit it to the Secretary of the Commonwealth by mail, by fax, or in person, along with your $500 filing fee, plus an additional $20 if you choose to file by fax. Faxed filings are processed the same day you submit them, while mailed or hand-delivered documents typically take 1-2 business days to process. Massachusetts accepts online filings for most business documents, but not for PLLC Certificates of Organization.
Step 4 – Create an Operating Agreement
An operating agreement is a crucial part of any PLLC, as this internal document outlines your company’s financial structure, as well as how the business will be managed. You don’t actually need to submit this document to the state, but it is still strongly recommended that you have one because it can help you avoid conflicts between your member/owners down the line.
What information should be included in your Massachusetts operating agreement? It’s up to you to determine what you want in your company’s agreement, but we recommend the following sections:
- Ownership interests
- The rights and responsibilities of the members
- Voting rights
- Profit/loss allocation
- Management by a manager or by members
- Guidelines for voting and holding meetings
- Plans for replacing a member, if necessary
Step 5 – Obtain an EIN
A federal tax ID number — also known as an Employer Identification Number (EIN) — is essentially the business equivalent of a Social Security number. It’s a nine-digit number that serves as an identifier for your specific business entity.
If you operate a PLLC, you should absolutely get an EIN for your business, as this will help you pay taxes, hire employees, open business bank accounts, and more.
Thankfully, acquiring an EIN is a painless process, and it’s also entirely free of charge. All you need to do is head over to the EIN Assistant on the IRS website and fill out the form. It’s just that easy — once you finish the form, the IRS will provide your EIN immediately.
Step 6 – Apply for Licenses, Taxes, and Income Reports
At this point, your PLLC has been successfully created, but that doesn’t mean the process of getting your business off the ground is complete. You still need to acquire any applicable business licenses that may apply to your PLLC.
Depending on the nature of your business, your professional licenses will vary, so you should check out the state’s professional licenses and permits website to figure out which licenses you’ll need.
Your PLLC will also most likely need to register for withholding, unemployment, and sales and use taxes, which you can do on the MassTaxConnect website. This state also requires PLLCs to file an annual report, but you won’t need to worry about that until your PLLC has already been open for a year.
Forming a professional limited liability company in the state of Massachusetts requires quite a bit of information, and there can be a significant amount of legwork involved in forming one as well. Still, the process is certainly simpler than the process of forming a professional corporation, which is the other popular option for certified professionals in Massachusetts.
As long as you follow the steps in this guide — and seek advice from a reputable attorney if you run into any questions or concerns — you should be able to form your new PLLC in a compliant fashion that allows your business to thrive for many years to come.