How to Form a Professional LLC in Massachusetts

Last updated on: August 1, 2021

Quite often, licensed professionals in Massachusetts find it more legally and financially viable to form a professional limited liability company, or PLLC for short, in order to provide services related to their area of expertise skills.

What makes this model so attractive to so many specialists from various professional fields is the insulated nature of its limited liability structure reinforced by certain operational advantages that a typical PLLC brings to the table.

If you are looking into ways to create a Professional LLC in Massachusetts with other colleagues in your specific field, this article will be a good starting point for getting relevant information that may prove to be vital for the establishment of an entity that is lawful on local and federal levels.

What Constitutes a Professional Limited Liability Company?

At its core, a PLLC is not too dissimilar to a standard LLCs in terms of legal mechanisms behind its formation and potential independence of operation that come with it.

A regular LLC is, above all, valued for the relative independence of its business operations seen in other entities while functioning within the framework of a corporate entity without actually being incorporated. Broadly speaking, an LLC allows for greater adaptability and personalization in line with its respective ownership or partnership model and can be run by one owner or a group of partners with shared interests and responsibilities. 

What separates a PLLC as an entity from a regular LLC is the restricted nature of its ownership, meaning that only people whose occupational titles have undergone licensure are authorized to form and run such an entity.

Certain professionals with valid certifications can work within a PLLC in this state, viz. physicians, surgeons, registered nurses, physical therapists, podiatrists, psychologists, chiropractors, acupuncturists, dentists, electrologists, veterinarians, attorneys, certified public accountants (CPA), and engineers.

Formation guidelines in Massachusetts are firmly outlined and require all members of a PLLC to be licensed for operation in a single occupational field, unlike certain states that permit the formation with only half of the members working in the same field.

There are more elements intrinsic to the PLLC and just as many options for the entrepreneurs interested in creating one, so let’s take a closer look at the key aspects of this business model.

How does Limited Liability Work?

Similar to a traditional limited liability company, a PLLC is explicitly designed to protect the personal assets of the partnership group. And unlike the general partnership model that obligates each member to claim the transactions conducted by the business on their personal tax returns, a PLLC separates the two and prevents the targeting of personal assets in a suit brought against the partnership as a business entity. 

Naturally, it’s preferable to never get tangled in a costly lawsuit, but in the event of it happening, PLLC members will only face the legal actions relating to the business assets of the company. Debt collection and civil lawsuits are one thing though, but malpractice is a bit more serious and can involve personal assets when an owner/member is sued for misconduct/negligence/malpractice by a client.

What are the Types of PLLC Taxation?

The taxation process involved in operating a PLLC is inherently more fluid to accommodate the owner’s needs. Even though some corporate entities can give you more taxation options to operate with as well, PLLCs are a bit more accommodating. 

Most notably, it is possible to submit the mandatory business tax in several ways in line with the company’s goals and partnership’s modus operandi.

Pass-throughs

One of the most common PLLC taxation practices is filing it as a flow-through or pass-through business tax which is often the case with LLCs, S-corporations, partnerships, and sole proprietorships.

True to its name, this type of tax avoids the typical steps involved with CIT and instead flows through to the personal income tax of each of the LLC members. All profit shares fall within the margins of taxable income as filed in individual tax returns of the company’s owners, meaning that the PLLC itself is exempt from tax, as it were.

There is another step to this process, though: when a PLLC member files their return as a “disregarded entity,” they are also required to pay the Self-Employment Contributions Act tax deducted from the total revenue. As such, the SECA tax rate is set at 15.3% calculated from individual net earnings.

S-corporations

An entity with the S-corporation designation is eligible for taxation similar to that of a flow-through business. Due to the nature of its IRS election (Form 2553), an S-corporation is still exempt from CIT much like a general partnership. Net earnings are filed using the Supplemental Earnings and Loss IRS form, also called Schedule E form used by business owners as a part of their individual tax filing.

Unlike what we see with pass-throughs, owners of an S-corporation entity are exempt from the SECA tax. Instead, their taxation process includes the FICA tax that supports the Social Security program.

C-corporations

This business model is what most people think of when referring to a corporation as an entity and it’s also the most widespread form of corporation in the US. One of the major differences between C-corps and flow-throughs or S-corporations is the taxation process. All members/owners/shareholders of a C-corp are subject to individual taxation in addition to the CIT placed on the entity as a whole. This so-called double taxation is often what makes it less attractive to PLLC owners who avoid choosing it as their corporate structure.

Establishing a Massachusetts Professional Limited Liability Company

As the PLLC creation process is not standardized on the national level, the intricacies of formation vary from state to state. The formation of Massachusetts PLLCs is not too dissimilar from that of regular LLCs with a few key distinctions in the process.

Step 1 – Deciding on a Name

Finding an appropriate business name for your entity is always a good place to start. Legally, the name of a Massachusetts PLLC should include

There is also the question of clarity i.e. selecting a name that would describe the purpose of your entity and the type of services it offers. As such, a healthcare-related PLLC may include certain words associated with such services like “medical,” “primary care,” “family medical care” etc.

The list of potential names should always be referenced against the existing entities in Massachusetts. This can be done with the help of the business name search tool on the Secretary of the Commonwealth’s website and the state’s reserved names database. If you need more help for finding a good LLC name, feel free to check out our guide.

Step 2 – Finding a Registered Agent

Every Massachusetts limited liability entity, professional types included, is obligated to hire the services of a resident agent—known as a registered agent in most jurisdictions—to facilitate the legal correspondence and communication between state authorities and the company. As a third-party mediator, the registered agent will be handling important paperwork from the state, including documents involved in potential legal action against the company.

It is possible to designate yourself or any other natural person (like a friend or family member) to operate as a resident agent as opposed to a legal person/entity, though it is generally not recommended doing so yourself as a private individual due to availability requirements placed upon a registered agent by the state i.e. be available during required business hours to handle documentation.

Another option is to seek the help of a resident agent service or register with a formation agency some of which provide free resident agent services up to a year. Among the best formation agencies offering registered agent services in the state are  Northwest Registered Agent or IncFile that come highly recommended by industry specialists.

Step 3 – Drafting the Articles of Organization

The mandatory documentation necessary for the legitimate formation of a PLLC in Massachusetts is known as the Professional Limited Liability Company Certificate of Organization.

The state’s form has to be filled out according to a set of pretty detailed guidelines and should contain the following information:

  • Entity’s legal name
  • Entity’s EIN
  • Entity’s legal address (place of the company’s business operations)
  • Primary occupations in which PLLC owners are licensed to practice
  • Pertinent information on participating members (names, addresses, document authenticating their professional licensing)
  • Resident agent information (name and legal address in Massachusetts)
  • Names and addresses of managers if the company is operated this way
  • Names and addresses of anyone permitted to administrate official and legal documents 
  • Guidelines and assigned date for potential company dissolution 
  • Submission date
  • PLLC organizer’s and resident agent’s info (names and signatures)

Once filled out as per legal requirements, the document should be submitted to the Secretary of the Commonwealth in person, by post, or via fax. Unfortunately, the state does not accept online submissions related to PLLCs. The application fee is a standard $500 with an extra $20 fee for fax applications.

The processing of In-person applications and those sent by post takes between one and two business days while fax submissions are reviewed on the day of the filing

Step 4 – Submitting an Operating Agreement

Even though Massachusetts does not obligate the PLLC organizers to provide an operating agreement, it is still recommended you draft one for internal purposes.

At its core, the document is designed to establish ground rules of internal operations, managerial structure, financial details such as allocated profit shares among members et al.

A Massachusetts operating agreement could be as detailed as your LLC partnership wants it to be, though it’s best to cover at least several of the following areas:

  • Individual liability of the members and their legal and voting rights
  • Detailing the ownership interest allocation
  • Operational obligations e.g. conducting a vote or meeting
  • Assigned profits and losses
  • Manager-operated/owner-operated classification
  • Guidelines for possible restructuring, dismissing/replacing a partnership member, company dissolution etc

Step 5 – Getting an EIN

An Employer Identification Number functions similarly to a personal SSN except this nine-digit code is assigned to a legal entity conducting any form of business.

Acquiring an EIN for a PLLC should not be omitted if you want to be able to open a business bank account, provide services, issue payments (salaries or one-time compensation), or file tax returns.

It might sound intimidating, but receiving an EIN is fairly simple. The IRS website supports online applications that can be submitted via EIN Assistant. There is no need to pay any filing fee when you submit the application and all there is left to do is wait for the IRS to issue your EIN which is almost immediate.

Step 6 – Securing Licenses and Overseeing Further Maintenance 

Completing the entity organization documentation doesn’t mean your work here is done. The next step in establishing a PLLC involves relevant licensing provided it’s required by the state for your PLLC to legally operate in the chosen professional field.

Certain professional areas require special licenses that allow you to provide goods and services legally. To see if your entity is subject to licensing, be sure to visit the Business Licenses & Permits page on the state’s website.

Most MA entities of this type are likely to be subject to sales and use tax, retention tax, and unemployment tax. Registering for taxation can be done via the MassTaxConnect website

Massachusetts also expects you to submit an annual report after a year since the company has started its official operation.

Final Thoughts

The process of creating a Massachusetts PLLC involves quite a lot of paperwork and a certain degree of legal knowledge, but overall it’s considerably less messy than dealing with PSCs.

If you prefer to rely on your own abilities, it is entirely permissible to handle the formation by yourself, though seeking qualified help to assist you with this endeavour is bound to be more reliable.

Even so, you can most likely handle it on your own with the help of a reliable corporate attorney who can oversee that each step of the process complies with state law, allowing your PLLC to operate legally and securely.

Senior Business Tax Writer, etc
Jean Wilson Murray
https://bestllcservices.co/
(323) 789-5289
Senior Business Tax Writer, etc
Jean Wilson Murray

In this IncFile vs ZenBusiness review, we're going to compare two of the most popular LLC formation services based on pricing, features, and drawing out differences and similarities to let you see which is most suitable for you and your business.

You can learn more about @Mike here.

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