Massachusetts governs the rights and responsibilities of limited liability companies (“LLC”) under the Massachusetts Limited Liability Company Act. An LLC is a cross between the legal entity of a corporation with the legal entity of a partnership. LLCs are designed to give members (those who created and contributed to the LLC) limited personal liability exposure with the ease of individual taxation.
There are several requirements for the proper creation and management of a LLC. For example, under Massachusetts law an entity that holds itself out as a LLC must name itself to end with ”limited liability company”, ”limited company”, or the abbreviation “L.L.C.”, “L.C.”, “LLC” or “LC”. This is because the law wants customers and those interacting with the LLC to understand that it is the business entity (the LLC) and not the individuals running the LLC who are responsible for the debts and obligations of the LLC.
Massachusetts law also requires that a LLC’s name cannot by misleading. For example, and LLC cannot be named after a branch of the government. A LLC that called itself the “Mississippi Tax Collector, LLC” would likely cause serious confusion.
The LLC must also identify its principal place of business and a registered agent. The registered agent is required so there is someone to perform service of process on (in other words, someone to hand the lawsuit papers to). As such, the registered agent must reside in Massachusetts and be available for service.
Each LLC must keep at its principal office the following:
- a current list of the full name and last known address of each member and manager;
- a copy of the certificate of organization;
- copies of the LLC’s income tax returns and reports (for the three most recent years, if applicable);
- copies of any written operating agreements and of any financial statements of the LLC (for the three most recent years, if applicable); and
- a written agreement that sets out the rights and obligations of the LLC’s members and managers.
The first major advantage of an LLC is that a LLC can elect to be taxed as a “pass-through” entity. This means that income is passed through the entity and to the LLC’s members. This prevents double taxation or the income at both the business and manager levels.
The second major advantage of an LLC is that members are generally not liable for the debts of the LLC. Those doing business with the LLC are generally only able to pursue the assets of the LLC in the event of a lawsuit. For example, if an LLC were to break its contractual obligations with a customer that customer could only successfully sue the LLC for compensation.
A major disadvantage to an LLC – over a partnership business model – is that there are formal paperwork and recordkeeping requirements. This is especially true where there are multiple members and managers of the LLC. Typically, each LLC will have an operating agreement that details the rights and responsibilities of the members and managers. Each member, and each manager, has obligations towards the other members and managers. Keeping track of these obligations can be time consuming and failing to comply with these requirements can result in lawsuits.
If you have questions about the formation or operation of an LLC, then contact a local Massachusetts business lawyer today. The hiring an experienced lawyer can prevent lawsuits in the future.