Massachusetts is unique with its corporate excise tax, which is a combination of both a tax on income as well as net worth. The information in this section will provide these specifics for the Massachusetts LLC and the Massachusetts corporation. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. Keep in mind the LLC has surpassed corporations in popularity in most states, and the prestige of an LLC is continuing to grow.Īfter discussing the general characteristics true of all LLCs and corporations, next is to cover more specific characteristics of what makes a Massachusetts LLC or Massachusetts corporation unique from other states, which will bring us to the final answer on which entity will be best for your business. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. These endings show permanence and encourage trust from potential investors or clients, and show that you are serious about your business. The “LLC” or “Inc” ending on your business name will give it a level of prestige. Consider a corporation if you are serious about gaining investors. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Conversely, investors can still invest in an LLC by owning a percentage of that LLC. Having a corporate structure will profoundly impact the ability to raise investment money. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors are more comfortable investing their time and money in a traditional and reputable business structure like a corporation.

When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.Ī corporation has the biggest advantage for gaining investors. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. A corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). Corporations are more advanced for a business owner to take care of come tax season. For higher income LLCs, the tax rate is usually lower than a corporation. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return.

LLCs will need less time and paperwork for business owners during tax season, since an LLC is not a separate taxable entity from its owners and members. An LLC is the best choice if you have a small to medium-sized business and can only handle a low amount of maintenance. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. Otherwise, LLCs only require a minimal amount of maintenance. There are main characteristics true of all LLCs and corporations, and they will help you begin making your decision:Ĭorporations demand a high level of maintenance since they have more formalities than just annual compliance and taxes, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.

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