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University of Massachusetts Amherst

Family Business Center

KEEPING IT SIMPLE

By Ronald P. Weiss, Esq.

This article is for small business owners who hate legal fees.

If you haven’t organized an entity to protect you from personal liability arising from your business, you probably should. Massachusetts has finally made it as simple and inexpensive as can be to comply with the formalities of operating it.

Most owners don’t understand that the failure to observe required formalities can result in loss of protection from personal liability. To save annually recurring expenses and legal fees, folks often don’t bother to observe them. Years go by with no shareholders or directors meetings, or no annual reports are filed with the state.

Massachusetts now has two kinds of limited liability entities that can operate with minimum formalities: the limited liability company (“LLC”) and a corporation that takes advantage of a new law that became effective just last July. Existing corporations can adopt the new corporation provisions.

LLCs made simple: If you are the sole or majority owner (owners are called “members”), you can act without any votes or further formalities if you properly fill out the certificate of organization. That is called a “member-managed” LLC. Instead, you could designate yourself as “manager” of the LLC, which is also a matter of public record. A manager can be authorized to act without any votes or further formalities. As managing member or as manager, you may act for and bind the LLC, but in either case your powers must be described in an amendable “operating agreement”.

Corporations made simple: Under the new Massachusetts Business Corporation Act, shareholders unanimously may adopt an agreement, charter or bylaw provision (your choice) eliminating the board of directors and putting all of the powers of the board in the hands of one or more of the shareholders. If you are the sole shareholder, that means that you would simply sign a statement as to the election of officers, the adoption of bank resolutions or authorization to enter into a contract, and no other action would be needed—no separate directors votes, no meetings…nothing. If there are other shareholders, the arrangement can provide that you may act alone without seeking the assent of any other shareholder. Any corporation that is not publicly owned can operate under this provision. The arrangement is good for 10 years, and can be renewed or terminated by all of the shareholders at any time.

Depending on the circumstances and what you want, an LLC can be taxed as a proprietorship, partnership, S-corporation or C-corporation and a corporation can choose between S-corporation or C-corporation status. The choice of entity, and associated tax elections, should be made only after discussions with your lawyer or accountant.

Ron Weiss is a partner at Bulkley, Richardson and Gelinas, LLP in Springfield, MA. He represents businesses and individuals, concentrating on mergers and acquisitions, general business matters, and tax and estate planning for business owners. He can be reached at (413) 272-6259 or by e-mail at rweiss@bulkley.com.

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