Starting a Massachusetts S Corporation

Some small business owners and entrepreneurs don't understand how easy it is to create a Subchapter S corporation in Masschusetts. And that's a shame because the incorporation process is embarassingly easy. Why? Well, mostly because both the IRS and the state of Massachusetts give away the free forms and website tools you need to do the set up. In fact, you only need to take three quick small steps:

Step #1: Create the Eligible Entity

Your first step in setting up a Massachusetts S corporation is to create either a Massachusetts limited liability company or a Massachusetts corporation by filing articles of formation or articles of incorporation with the Secretary of State.

Filing these articles may sound intimidating, but the process is surprisingly easy because the Secretary of State's website provides free, fill-in-the-blank pdf forms you can use for your articles.

The precise Internet address for the forms change, but if you want to create a Massachusetts corporation, search on the document name "Articles of Organization (General Laws Chapter 156D, Section 2.02; 950 CMR 113.16)" to get to the free form for a corporation.

And if you want to create a Massachusetts limited liability company, search on the document name "Limited Liability Company Certificate of Organization (General Laws Chapter 156C, Section 12)" for the free pdf form that the Massachusetts Secretary of State provides.

Using the full name of the Massachusetts forms (including the reference to the actual Massachusetts state law chapter and section that creates the rules for the entity) lets you quickly find what you're looking for using a search engine such as Google.

Can I say one other thing about these free downloadable forms? There are terribly easy, in most situations, to fill out. Seriously. You are going to be doing things like entering your business's address into a box labeled "address."

Step #2: Get an EIN (aka "Employer Identification Number")

After the Massachusetts Secretary of State processes your articles of incorporation or organization, your corporation or LLC exists. At this stage, you need to obtain a taxpayer identification number from the Internal Revenue Service. If you were getting an identification number for a human being, you might get a Social Security Number. A business, though, uses a different sort of number: An employer identification number, or EIN.

You apply and get an employer identification number either using a paper form or through an online application form. To use the paper form method, download an SS-4 form from the www dot irs dot gov website, fill out the form (following the instructions if you have questions) and then either mail or fax the form to the Internal Revenue Service.

To use the online application, you also visit the Internal Revenue Servce's website, irs dot gov, but you click the link labeled "Apply for an Employer Identification Number (EIN) Online." After you step through the online EIN application process, you'll get your EIN.

Tip: Be sure to print the page that gives you EIN.

Step #3: Elect Subchapter S Status

After you set up your Massachusetts corporation or limited liability company and obtain your EIN, you have only one step left to turn your business into an S corporation: Electing to use the Subchapter S accounting rules for your limited liability company or corporation.

To make this election, you file a 2553 form with the Internal Revenue Service. Note that Massachusetts recognizes the federal S election—the state doesn't require a separate, state-level election. (Some other states do or have in past required their own state-specific election.)

The 2553 form, which is also available from the irs dot gov website is not difficult to complete, but you do need to be careful. To complete the form, you clearly identify the LLC or corporation by giving its name and EIN, you indicate what date you want the S election effective, and you document the business owners' decision to make the S election by getting every owners signature. Then you mail or fax the 2553 to the IRS.

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Tax accountant and former tax professor Steve Nelson is the author of two ebooks for business owners setting up S Corporations in Massachusetts. Visit http://www.scorporationsexplained.com/doityourself_MassachusettsSCorp.htm and http://www.fasteasyincorporationkits.com/MassachusettsCorporationKit.htm for more information.

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