Forming a Massachusetts Corporation
Best Practice Summary

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Massachusetts Law Chapter 156D et seq. govern the incorporation and operation of Massachusetts corporations.

LeapLaw's 50 state pages summarizes incorporation and qualification requirements in 50 states.

A Massachusetts corporation is a legal entity created through and subject to Chapter 156D of the General Laws of the Commonwealth of Massachusetts. The separate legal existence of a corporation begins when the Articles of Organization are filed with the Massachusetts Secretary of State.

Checklist

Completing a checklist at the onset of the incorporation process may make completion of incorporation documents move faster. LeapLaw's Incorporation Checklist represents the basic information typically required for incorporation.

Incorporation Steps

Name Requirements
A Massachusetts corporation's corporate name must contain the word the word "corporation, "incorporated," "company," or "limited" or the abbreviation "corp.," "inc., or ltd.," or words or abbreviations of like import in another language. Generally, the corporate name may not contain the word “bank”, or any variation thereof, without the consent of the State Bank Commissioner. The word "insurance" requires the consent of the Insurance Commissioner. If consent of the Banking or Insurance Commissioner is required, completed articles are submitted to the appropriate commissioner prior to filing with the Secretary of State.

Name Availability
It is strongly recommended to check name availability of a desired business name as soon as possible in all of the states where the company plans to be incorporated and qualified. Name availability may be preliminarily determined online at the secretary of state's web site. If the name you search comes up with no results, it's probably safe. If you want to check the name in other jurisdictions, you may check online using LeapLaw's Corporate Connection. When the name will be registered in several jurisdictions, using a service company is likely the most time-efficient solution.

If the name is available, reserving it may be wise if the filing will be made at some later date. You may reserve the name using your preferred service company.

Note: A secretary of state's acceptance of a business name does not mean the name is an available trademark or service mark. Other searches may be required if the company plans to determine any potential trademark or service mark issues. It is good practice to verify with the responsible attorney if the company will require a trademark search and/or domain name registration prior to reserving the name in any states.

If the secretary of state deems the proposed name to be unavailable due to a name conflict with a currently registered business name, you should see LeapLaw's Name Reservation Best Practice Summary.

Preliminary Trademark Searches
Trademark searches may be performed to assure that a proposed corporate name is not deceptively similar to an existing mark. Preliminary searches for registered trademarks may be performed for free on the LeapLaw's Intellectual Property Connection.

The popular "full" trademark search provides a comprehensive search of a proposed trademark against current federal, state and common law trademarks and domain names. Full searches may be ordered from a trademark search company. The report provides extensive information regarding trademark availability. For more information on trademarks and service marks, see LeapLaw's Trademark Best Practice Summary.

Domain Names
Domain names are registered web site addresses or "URLs". When registering domain names it is best practice to reserve all possible applicable name indicators if the name will serve as the main business name. Domain names may be checked for availability and obtained at Network Solutions. Network Solutions WhoIs can assist in determining current owners of a domain name. Checking the availability of the domain name simultaneous with checking the corporate name availability and trade name status is good practice if the company name is to be a trade name for the business.

Articles of Organization

A corporation does not exist until the initial Articles of Organization have been filed with the Massachusetts Secretary of State.

Standard Massachusetts Articles of Organization provisions under Chapter 156D:

• Exact corporate name. The corporate name "shall contain the word "corporation, "incorporated,'' "company,'' or "limited'' or the abbreviation "corp.,'' "inc., or ltd.,'' or words or abbreviations of like import in another language" (§ 4.01)
  
  
• Purpose. A statement of purpose is no longer required to be stated in the Articles of Organization. If no purpose is stated, the corporation is assumed to be authorized to conduct any business permitted under Chapter 156D. (§ 3.01)
  
  
• Authorized Stock. The number of authorized stock with any classes, series and/or designations. The maximum stock for the minimum filing fee is 275,000 shares for $275.00. (§ 6.01)
  
  
• Par Value. Par value is no longer required. If it is desired, par value must be stated in the Articles of Organization.
  
  
• Undesignated Stock. The Articles of Organization may simply authorize a maximum number of shares of all classes and series of stock that may be issued and authorize directors to designate the terms of any shares as necessary. (§ 6.02)

  NOTE: The maximum number of shares of stock that may be issued for the minimum fee of $275 is 275,000 shares total. Number of shares of stock does not affect corporate excise tax, but may significantly increase the filing fee. Generally, for every 100,000 shares over the initial 275,000 the filing fee is increased by $100.

• Name and address of incorporator. The incorporator may be any person over 18 years of age and does not have to be a resident of Massachusetts (§ 2.01)
  
  
• Other Lawful Provisions (Note: LeapLaw's Continuation Sheet is drafted to include the following):

  Annual Meetings. The Articles of Organization may specify that the purpose of annual meetings be unlimited. Unless provided in the Articles of Organization, the purpose of the annual meeting is limited to those purposes specified in the notice. (§ 7.01)
  
  Stockholder Consents. Written consent of stockholders may be by majority consent provided that the Articles of Organization expressly allow consent by the percentage of outstanding shares that would be required to approve the action at a meeting held therefor. (§ 7.04)

Practice Note: Each signature must bear a date beside it; all consents must be delivered to the minute book within 60 days of the first signature; and at least 7 days prior notice of the consent must be given to non-consenting stockholders.

• Stockholder Quorum and Voting Requirements. The Articles may increase or decrease stockholder voting requirements specified in the Act (i.e. two-thirds vs. majority votes) to permit all actions to be approved by a majority vote. (§ 7.27)
  
  
• Cumulative Voting. Cumulative voting may be permitted if stated in the Articles of Organization. (§ 7.28)
  
  
• Preemptive Rights. Preemptive rights may be permitted if stated in the Articles of Organization. (§ 6.30)
  
  
• Number of Directors. The number of directors may be set at one, regardless of the number of stockholders, so long as it is stated in the Articles of Organization. (§ 8.03)
  
  
• Resident Agent. The Resident Agent is no longer defaulted to the Clerk (designated as the Secretary under the Act) of the corporation. The resident agent may still be an officer of the corporation but must be specifically stated in the Articles of Organization. (§ 5.01)
  
  
• Amendment to Bylaws. The Articles of Organization may provide for directors to amend the bylaws. (§ 10.20)

Practice Note: If directors may amend bylaws, directors must report any amendments to the stockholders no later than the date of the notice of the next meeting of stockholders (§ 16.21)

Unlikely provisions that may be inserted in the Articles of Organization are:

• Imposing personal liability on stockholders (§ 2.02)
• Limited the powers or life of the corporation (§ 3.02)
• Limiting the consideration for which directors may issue stock (§ 6.21)
• Requiring consideration for stock dividends (§ 6.23)
• Limiting the ability of the directors to act by unanimous written consent (§ 8.21)

Certain provisions customarily included in Article 6 under Chapter 156B that are no longer necessary to be inserted in the Articles of Organization under the Act are:

• Place of Stockholder Meetings. Stockholder meetings may now be held outside Massachusetts eliminating the need to provide this statement in the Articles of Organization. (§§ 7.01 and 7.02)
• Conflicts Provisions. Customary Articles provisions concerning conflicts of interest are no longer necessary (§ 8.31).
• General Partner. The power to be General Partner is no longer required to be stated. (§ 3.02(a)(9))

Following the filing of the Articles of Organization, information contained in the Articles of Organization may be amended and/or restated by a resolution of directors and stockholders. More information regarding charters, amendments, changes and corrections may be found at LeapLaw's Corporate Charter Best Practice Summary.

Filing the Articles of Organization

Once the Articles of Organization is completed and signed, a copy must be filed with the Massachusetts Secretary of State. You may file via regular mail, in person or facsimile. The filing fee is $275.00 which may be paid by credit card if you are fax filing. Using a service company provides guidance through the process and service companies will often advance the filing fee alleviating the need to use a credit card or obtain a check.

Incorporator Consent

The incorporator takes the following actions at by consent in lieu of an organizational meeting:

• Fix the number of and elect the initial directors
• Adopt the initial bylaws
• Appoint resident agent

Bylaws

Bylaws prescribe provisions that govern a corporation's internal affairs in a manner that is not otherwise inconsistent with Chapter 156D or the Articles of Organization. Initial bylaws are adopted by the incorporator. Typical provisions contained in the bylaws are:

• Fixing the date of the annual meeting
  
• Fixing the record date
  
• Required quorum for voting purposes
  
• Voting rights of stockholders and directors
  
• Directors' authority
  
• Titles and responsibilities of officers'
  
• Fiscal year end and
  
• Power to amend.

For more information about Bylaws see LeapLaw's Bylaws Best Practice Summary.

Massachusetts Bylaws

Directors Organizational Consent

Following the organizational meeting of the incorporator(s), the initial board of directors holds an organizational meeting to further set up fundamental business matters. The organizational consent of the initial board of directors will:

• Ratify incorporator’s actions
• Elect the remaining officers (in addition to incorporator’s elections, if any)
• Adopt bylaws (if not otherwise adopted by incorporator)
• Authorize the opening of a bank account
• Authorize issuance of stock (including stock subscription agreements, if any)
• Adopt a stock certificate
• Authorize a lease
• Authorize the qualification of the company in any foreign states
• Authorize the election of an S Corporation (see below), if applicable
• Any other general business items.

These actions may be taken at a meeting or by written consent.

Organizational Consent of Directors

Federal Identification Number

The Internal Revenue Service issues federal identification numbers (FIN) (a/k/a an Employer Identification Number (EIN)) to new corporations. To apply for an FIN, an IRS Form SS-4 (pdf) must be filed with the IRS. Since January 2002, Form 2848, Power of Attorney is no longer necessary for third-party designees. Completing the the new "Third Party Designee" section on the Form SS-4 will suffice. Tax identification numbers may be obtained:

• Online in just a few minutes.
  
  
• Via telephone to a third party by calling (866) 816-2065 Monday through Friday, 7:30 a.m. to 5:30 p.m. so long as the Third Party Designee section has been completed.
  
  
• Via fax to certain IRS Service Center. The number will be supplied within a few days via telephone.
  
  
• Via mailing Form SS-4 to the designated IRS Service Center.

LeapLaw's Federal Identification Number Checklist provides a list of information for completing the Form SS-4. LeapLaw's Federal Identification Number Best Practice Summary provides more information regarding federal identification numbers.

S Corporation Election

The federal government and nearly all states impose double taxation on corporations by taxing the corporation's income and then stockholders' profits/dividends. Double taxation may be avoided if a corporation qualifies for and elects to become an S Corporation under the Internal Revenue Code ("IRC") Section 1361.

To qualify, the corporation must:

(a) have no more than 100 stockholders (members of the same family - up to 6 generations, their spouses and former spouses may be treated as one stockholder. Each person who may receive a distribution from an ESBT "Electing Small Business Trust" is counted as one stockholder) (first effective for taxable years after December 31, 2004);
(b) have as its only shareholders individuals, estates, exempt organizations described in section 401(a) or 501(c)(3), or certain trusts described in section 1361(c)(2)(A);
(c) have only one class of stock meaning that all outstanding stock has identical rights to distributions and liquidation proceeds;
(d) be a U.S. corporation;
(e) have no non-resident alien stockholders;
(f) not be a bank, insurance company, domestic international sales corporation ("DISC") or a corporation that has elected to be treated as a corporation under IRC Section 936;
(g) obtain the consent of all stockholders on Form 2553.

Organizational consent of directors authorizes the corporation to become an S Corporation. The Form 2553 (Election of Small Business Corporation) (PDF) must be filed with the IRS via certified mail, return receipt requested within 2 1/2 months of incorporation or the first issuance of stock (with some other exceptions) at the IRS Service Center where the taxpayer will file tax returns.

Stock

Stock Issuance
A corporation authorizes stock in its charter. In order to provide statutory minimum paid-in capital (or to commence business if no statutory minimum paid-in capital is provided in applicable state laws), a corporation issues stock as soon as practicable following incorporation. All authorized stock may but need not be, issued. The total authorized stock, however, must always be equal to or greater than the amount of issued stock.

Best Practice Tip: Until stock is issued to a stockholder, the incorporator holds the role of stockholders and will vote to amend the Charter or in any other matters that would otherwise be reserved for stockholders.

Consent of Directors
Stock issuance is authorized in the organizational consent of directors (or at a special or annual meeting following incorporation) and is issued in exchange for some consideration, which may be cash, property, debt or service rendered. Stock issuance may also be conditional upon the stockholder entering a stockholders’ agreement, stock subscription agreement, a stock transfer restriction agreement or some other restrictive agreement. Once stock is issued pursuant to the conditions listed above, it is said to be "issued and outstanding" stock. The stockholder then holds “authorized, issued and outstanding" stock.

Stock Certificates
State laws provide that stock must be represented by a certificate unless the the bylaws or the directors consent to provide for uncertificated stock. If stock is uncertificated, ownership is tracked and recorded in the stock ledger but shares are not evidenced by a stock certificate. Stockholder rights are not impacted whether or not shares are represented by a certificate.

Stock certificates may be produced manually by using MS Word or using a software program designed for stock certificates.

Forms of stock certificate for each class and series of stock are authorized by a vote of directors and a specimen stock certificate is attached as an exhibit to the consent or minutes. If forms become obsolete or for some other reason a new form of certificate is being used, it needs to be authorized by a vote of directors.

Best Practice Tip: Stock certificates have an inventory control number at the bottom left hand corner, such as GOES 352. This number identifies the certificate so that ordering the certificates using this number will render the exact type and color certificate needed.

Legends
Section 8-204 of the Uniform Commercial Code states, in part, that "unless there is a conspicuous notation of the restriction application to the stock transfer or unless the transferee has actual knowledge of the restriction, the purchase of stock will be free from restrictions."

State laws reflect the same standard. Therefore, in order to insure that stockholders will not violate an agreement and provide stock free from restrictions on transfer, legends must be conspicuously placed on each certificate.

Browse legends

Stock Receipt
A company may maintain the original stock certificate or a stockholder may choose to possess the stock certificate. If the stockholder opts for possession, a copy should be made of both sides of the certificate and kept with the stock records of the company together with a receipt evidencing the stockholder has received the stock certificate. The receipt may be the stub of the certificate or a separate stock receipt.

Stock Ledger
All issued stock is tracked manually on a stock ledger or electronically using software programs that manages all company records including stock, options and warrants tracking.

Additional information on stock issuance may be found at LeapLaw's Stock Issuance Best Practice Summary.

Qualifications

A corporation is initially recognized as a legal entity only in its state of incorporation or formation. State laws provide that business entities "doing business” in each state and are not incorporated in that state must "qualify" by filing a foreign corporation certificate or the equivalent thereof with the secretary of state.

For additional information and steps in the qualification process, see LeapLaw's Qualification Best Practice Summary. Qualification forms may be found at LeapLaw's Corporate Connection or via your preferred service company.

Minute Books

A corporate minute book is the record book of corporations required by law and will contain:

• Articles of Organization and any amendments, changes or corrections thereto (the "Articles")
  
  
• Bylaws and any amendments or restatements thereto
  
  
• Incorporator consent
  
  
• All of the directors and stockholders consents or minutes to organizational, annual and special meetings
  
  
• Stock certificates and stock ledgers (if not maintained in a separate binder and/or location such as a transfer agent)
  
  
• IRS filings such as the SS-4 or 2553
  
  
• State qualification documents
  
  
• Copies of annual report filings

More information on creating and maintaining minute books may be found at LeapLaw's Minute Book Best Practice Summary.

Annual Reports; Tax

Massachusetts corporations are assessed a minimum $456 tax each year to be paid to the Massachusetts Department of Revenue.

Annual reports in Massachusetts are filed to be filed two and a half months after the end of the fiscal year. LeapLaw's 50 state pages provides a quick reference to laws, as well as limited partnership name requirements, initial form requirements and the secretary of state link.

LeapLaw's
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