Business Law 10120EAB11
Business Law FAQs
What Types of Business Entities are Available in Massachusetts?
- WHY INCORPORATE IN SOME FORM? – To protect your personal assets from the impacts of any liability problems that arise from your business. LLCs have gained immense popularity because of the ease in using the form and the avoidance of possible double taxation. But there is no cookie-cutter approach. Which form is best for you is an individual choice for individual situations, taking into account who and how many people are involved, planned operations and long-term goals, and is a decision that should be made in consultation with both your attorney and your accountant.
- First line of defense, incorporated or not – INSURANCE!
- Sole Proprietorship – Single owner with no incorporation; provides no protection to your personal assets.
- d/b/a Certificates – Often a requirement to do business in a town. By itself, creates no differing legal status or protections than for sole proprietors.
- Partnership – Multiple owners with no incorporation; provides no protection to your personal assets.
- General Partnership – All partners share in management, profit, loss, liability.
- Limited Partnership – Some partners are deemed “limited” (do not participate in management and are more passive investors); shares of profit, loss and liability for limited partners are usually limited to the extent of their investment.
- Corporations – A formal entity that becomes a separate person under the law (to sue and be sued). It shields the owners from personal liability for the business’ ills as long as the corporate formalities are kept up. Massachusetts – 3 types, general business corporation, professional corporation, non-profit corporation. Federal Involvement – Federal law does not create corporations but makes distinctions on tax treatment: C Corp. – Corp. is taxed for profit or loss, shareholders then taxed again on personal returns for any profit/income. S Corp. – No taxes at corp. level, all profit or loss passes thru directly to shareholders (for a long time, the preferred tool for small businesses if losses anticipated in early years).
- Limited Liability Company – A formal entity that provides the legal shield of a corporation, with the pass-thru tax treatment of a partnership. LLCs file information returns and IRS Form K-1 is delivered to each member to reflect profit or loss.
- Limited Liability Partnership – A general partnership that also has the liability protection of a corporation. Usually limited in use to professionals like attorneys and doctors, but doesn’t need to be.
- Real Estate Trusts – An entity unique to Massachusetts. Not a true trust like an estate planning trust; instead, it is a “nominee trust”, and the trustee has no power to act independently. A common means by which an owner or multiple owners of real estate wish to hold title for hiding the identity of the owners and/or convenience. The beneficiaries of the trust are the true owners, and those beneficiaries may be individuals or other entities. Only provides fleeting protection to the extent the identity of the true owners is not a public record. It ultimately provides no liability protection unless the underlying ownership interest itself is protected.
- Joint Ventures – Two or more parties (individuals or entities) who pool resources to accomplish a specific task or project, and where the participants maintain their distinct identities. Protection of the participants depends on insurance and their own underlying legal status.
- Unincorporated Associations – Common examples: homeowners’ associations and condo associations that are not trusts or corporations. An entity for convenience only, provides no legal protections for its members and is not recognized as a separate legal entity.