Frequently Asked Questions
- What qualifies a business as a "small business"?
- Business Name, Name Registration, Trademarks, Copyright & Patents
- What are the laws regarding wages/hours/benefits for employees?
- Corporate Structures
- What taxes are required for my business?
- Where can I get Federal and State Tax Identification numbers?
- How often must I file tax returns?
- Lawyers & Accountants
- What insurance should I carry for my business?
- How do I obtain insurance?
- Will the MSBDC write my business plan for me?
- How much money will I need to start a business?
- I'm thinking of buying a business. How do I know if it's overpriced and if I can earn a living at this?
- Can you help me obtain small business grants?
- How do I become a government supplier?
- Where can I find assistance for a non-profit business?
What qualifies a business as a "small business"?
The Small Business Act states that a small business concern is "one that is independently owned and operated and which is not dominant in its field of operation." The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately.
In general, according the U.S. Small Business Administration, the following are considered small business:
- Wholesale Trade: 100 employees or less
- Manufacturing and Mining Industry: 500 employees or less
- Retail/Service Industry: $6 million or less in sales
- General and Heavy Duty Construction Industry: $28.5 million or less in sales
- Special Trade Contractors: $12 million or less in sales
- Agriculture Industry: $.75 million or less in sales
What's in a Name?
How do I find out if anyone else is using the name I chose for my business?
The Secretary of State's office will do a name search for Massachusetts only. For further information, visit http://www.sec.state.ma.us/cor/ or call 617-727-2850.
You can also contact Leonard Adams, Reference/Liaison Librarian for Federal and Massachusetts Government Publications and Patents at the University of Massachusetts, at 413-545-2765 or firstname.lastname@example.org.
How do I register my business name?
An individual or entity may register the business name, trademark or service mark with the Massachusetts Secretary of State's Office. A form may be obtained by calling (617) 727-2850. The completed form, along with the $50 filing fee, should be sent to the Secretary of State's Office in Boston. Trademarks and service marks are renewable every ten years.
True Name Registration
Massachusetts General Laws Chapter 110, §5 states that any person conducting business under any title or business name other than the real name of the person conducting the business must file a certificate. A person is defined as an individual, a partnership, or a corporation.
This identifies the individual or entity and discloses the fictitious name (d/b/a - doing business as) under which it is conducting its business and provides the location of the business. The Business Certificate is required to be filed with the clerk's office of the city or town where the individual or entity has an actual place of business. If your company is located in two or more cities or towns, you need register only where the headquarters is located. For example, if John Smith, Inc. does business as Smith's Restaurant, it must file a Business Certificate. Each city or town sets fees, which vary, but are usually about $40. Business Certificates expire after four years and must be filed again.
Many cities and towns require businesses to be located only in commercial or industrial zones. Specific information regarding regulations should be obtained from your city or town clerk's office. Always check to make sure your business may be lawfully carried on at the address you choose. If you have a home based business also check for any regulations regarding storage of materials, presence of business vehicles, etc.
Trademark or Service Mark and Copyrights
An individual or entity may register its trademark or service mark with the Massachusetts Secretary of State's Office, Trade Marks Division, One Ashburton Place, Room 1711, Boston, MA 02108. Trademarks can be for any word, logo, symbol or device used to identify and distinguish one product from another. A form may be obtained by calling 617-727-2850 or online at http://www.state.ma.us/sec.
The completed form, with the $50 filing fee, should be sent to the Secretary of State's Office in Boston. Trademarks and service marks are renewable every ten years.
For general information on trademarks, visit: http://www.inventors.about.com/science/inventors/library/howto/httrademark.htm Copyrights can be obtained for original works of authorship, including books, paintings, sculptures, computer software, plays and movies. Information on copyrights can be found at the Copyright Office, L.M. 455, Library of Congress, Washington, D.C. 20559, 1-800-688-9889 or 202-707-3000. Information can also be found at the U.S. Copyright Office's Web site at http://www.copyright.gov.
There is a $30 filing fee with the U.S. Copyright office. For general information on the basics on copyrights, visit: http://inventors.about.com/library/howto/httrademark.htm?once=true&
The U.S. Office of Patents and Trademarks (www.uspto.gov/) grants patents which give the holder exclusive right to make, use or sell an invention. Patents are valid for 14 years for a design patent and 20 years for a use patent. U.S. patent rights are good only in this country. Separate filings are required for other countries.
General information on patents can be found at the following web sites: http://inventors.about.com/od/patents/Patents.htm
What are the laws regarding wages/hours/benefits for employees?
Contact the Massachusetts Department of Occupational Safety at http://www.mass.gov/?pageID=mg2constituent&L=2&L0=Home&L1=Business&sid=massgov2
Most Massachusetts employers are subject to both the federal and state minimum wage and overtime laws. For information about federal minimum wage and overtime laws, visit the Department of Labor's Web site at http://www.dol.gov/
In an effort to ensure fair competition and to ensure workers' rights are protected, the Attorney General both enforces the law and works to help Massachusetts employers understand their rights and responsibilities. Visit http://www.ago.state.ma.us for further information or contact the AGO Fair Labor and Business Practices Hotline Phone Numbers 617-727-3465.
Business Legal Obligations
The following should be used as a guide since laws, regulations, rulings and rates change continually and require expert interpretation. Your lawyer and accountant should be consulted for specific answers. All filing fees and rates are subject to change at any time.
Secretary of State's Office
McCormack Bldg, 17th Floor
One Ashburton Place
Boston, MA 02108
Massachusetts Department of Revenue
100 Cambridge Street
Boston, MA 02204
Internal Revenue Service
JFK Federal Building
15 New Sudbury Street
Boston, MA 02203
A sole proprietorship is the simplest form of business. To form a proprietorship, you just have to let people know that you are in business and file a true name registration. You do not need a tax ID number; you may use your social security number. You are personally libel for all debts and other legal liabilities of your business. The income from your business is reported to the IRS as part of your personal income and is taxed accordingly.
A partnership is formed when two or more people decide to go into business together. It is called a conduit because, although persons have banded together for a profit producing motive, it is generally not considered a legal entity separate from the partners. Thus, a partnership may not be sued in its firm name, but only the partners can be sued, as each partner shares a potential joint and several liabilities.
A corporation is a separate legal entity that exists under the authority granted by state law. A corporation has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file income tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a corporation are protected from the liabilities of the business. However, when a corporation is small, creditors often require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a corporation.
A corporation must obtain permission from the Secretary of State to use or do business under a fictitious name.
An annual report must be submitted to the Secretary of State listing officers, directors and other information. (A corporation may have the same person named as various officers and director of the corporation.)
Corporations must file annual income tax returns with the IRS and with the state in which it was incorporated and possibly other states in which it does business.
Incorporating a business allows a number of other advantages such as the ease of bringing in additional capital through the sale of equity, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their interest. Should you decide to incorporate your business venture, you should seek the advice of competent legal counsel and business-oriented accountants.
The owners and employees also pay taxes separately from the corporation. For more information, visit: http://www.sec.state.ma.us/cor/
Limited Liability Company and Partnership
A limited liability company (LLC) is an unincorporated association that combines the advantage of limited liability for participants with the favorable tax treatment of a partnership. The participants, referred to as members, can participate in management control and the business without increasing their personal exposure beyond their contribution in the business. An LLC can have just one member. Like corporations, LLCs must file with the Secretary of State. The fee is $500 - subject to change. (See Corporations for filing info.) LLCs must also file an annual report with the Secretary of State which also has a $500 filing fee.
A limited liability partnership (LLP) is a partnership which by registering with the Secretary of State, limits the personal liability of a partner for debts, obligations and liabilities of the partnership, whether in tort contract or otherwise from negligence, wrongful acts, errors or omissions, except that a partner cannot eliminate liability for his own negligence. Like corporations, LLPs must file with the Secretary of State. The fee is over $500.00 - subject to change. (See corporations for filing info). LLPs must also file an annual report with the Secretary of State.
What taxes are required for my business?
Once you start your business, you will have to start paying certain taxes to both the federal government and the Commonwealth of Massachusetts. The specific taxes you are required to pay or remit depend on your type of business. The Massachusetts Department of Revenue provides a comprehensive online guide, Guide to Massachusetts Tax and Employer Obligations, and also offers small business workshops.
Where can I get Federal and State Tax Identification numbers?
State and Federal Identification Number
Sole proprietorships without employees can use the proprietor's social security number as a business identification number. It may, however, be advantageous for a sole proprietorship to have an EIN number.
Partnerships and corporations with or without employees, and sole proprietors with employees, must obtain an Employer Identification Number (EIN) (Form SS-4) from the IRS. The form can be obtained from the IRS at www.irs.gov or 800-392-6089.
Partnerships and corporations with or without employees, and sole proprietors with employees, must register their business with the Department of Revenue. This can only be done online by going to www.mass.gov and registering as a new business. Further information can be obtained at Massachusetts Department of Revenue's Web site at www.mass.gov/dor.
Massachusetts Sales and Use Tax and Meals Tax Law
Information on Massachusetts sales tax can be found in "A Guide to Sales and Use Tax" which can be downloaded at www.dor.state.ma.us/publ/pdfs/sls_use.pdf. Information on meals tax can be found at www.dor.state.ma.us/publ/pdfs/meals_gd.pdf.
If you plan to sell tangible personal property items at retail in Massachusetts, you must collect a Massachusetts Sales Tax. (Exempt items - which include food products and clothing up to $175 - should be determined by the Sales and Use Tax unit of the Taxpayer Assistance Bureau). You will need a Sales Tax Registration Certificate (Form ST-1) which can be obtained from Mass. Department of Revenue, 100 Cambridge Street, Boston, MA 02204, 1-800-392-6089, www.mass.gov/dor.
You must obtain a Sales Tax Vendor's Identification Number (form TA-1) before you sell taxable items in Massachusetts. The tax for meals and regular sales is 5%. You can obtain the form at Massachusetts Department of Revenue's Web site at www.mass.gov/dor. The filing fee is $10.
In order to avoid paying sales tax on materials you purchase and then resell, you will need a Sales Tax Resale Certificate (Form ST-4). You can obtain the ST-4 at Massachusetts Department of Revenue's Web site at http://www.mass.gov/dor.
How often must I file tax returns?
Sole Proprietors must file their tax returns annually and must file a declaration of estimated tax (federal form 1040-ES) quarterly.
- Federal Income Tax - Form 1040
- Federal Schedule 1040-C (profit & Loss) and Schedule 1040-SE
- State Income Tax - Form 1
- State schedule C (Profit & Loss)
Partnerships must file their tax returns annually and must file a declaration of estimated tax (federal form 1040-ES and state form ES) quarterly.
- Federal Form 1065 (Profit & Loss)
- Federal Form K-1 to partners
- State Form 3 (Profit & Loss)
- State Form SK-1 to partners
- Federal Income Tax - Form 1040 with Schedule E
- State Income Tax - Form 1 with Schedule E
Corporations must file their tax returns annually and must also file quarterly using federal form 1120-ES and State Form 355-ES.
State Unemployment Insurance Tax
If you employ one or more persons for 13 weeks or more within one calendar year (need not be consecutively) or have a payroll of $1,500 or more within one calendar quarter, you must pay state unemployment insurance tax. Employers may qualify for a reduced benefit based on "experience" employment record of the business.
Quarterly contributions must be made to the Massachusetts Division of Employment Security 30 days after the end of the months of March, June, September and December.
A subject employer has the responsibility of completing the Employer's Status Report Form 1110A and sending it to: Massachusetts Division of Employment and Training, Contributions Department, Hurley Building, Cambridge Street, 5th Floor, Boston, MA 02133, 617.727-6560 or www.detma.org.
NOTE: New businesses will be given an initial rate of 3% for two years of experience; after that time, the rate will change according to the employment record of the business.
Federal Unemployment Tax Act (FUTA)
The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee's wages. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds.
There are three tests (general test, household employees test, and farm workers test) to determine whether you must pay FUTA tax. Each test applies to a different category of employee and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year. For deposit purposes, figure FUTA tax quarterly.
Use Form 940 or 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, to report this tax. You can get this form by calling 800.829.3676 or through their Web site at www.irs.gov/formspubs.
When hiring employees, have them fill out IRS Form I-9 and Form W-4. If your employees qualify for advance payments of the earned income credit, they must give you a Form W-5.
An employer must withhold income tax from an employee's wages. The number of exemptions are claimed by the employee on IRS Form W-4 (Employee's Withholding Allowance Certificate) and the Commonwealth's Form M-4. Sole proprietors are not subject to withholding taxes, but they must file self employment taxes.
Massachusetts minimum wage is currently $7.50 per hour (as of 1/1/2007. Federal guidelines can be found at www.irs.ustreas.gov and Massachusetts guidelines can be found at www.mass.gov/dor
Federal Insurance Contribution Act (FICA)
Sole proprietors and individual partners pay self-employment tax. Corporate shareholders employed by corporations must also pay and the corporation must match their contribution with Medicare (see www.irs.gov).
Corporations must pay a total FICA made up of employer and employee withholding on employee earnings. This is a match contribution. Special depository requirements - see IRS rules. Quarterly filings are due in March, June, September and December.
Lawyers, & Accountants
Laws and legal requirements center into most aspects of business and can vary greatly from state to state. An attorney should be consulted to help you meet many of the legal requirements facing you and your business including:
- Your choice of business type
- Employee relations
- Partnership agreements
- Obtaining licenses
- Reviewing and negotiating contracts, various laws and regulations
- Antitrust, product liability and environmental concerns
- Protection of your idea or product
WHERE CAN I FIND...
The Massachusetts Bar Association Lawyer Referral Service (LRS) is one of the largest referral services of its kind in the nation. Since its inception in 1974, the LRS has helped thousands of people find the resources they need to solve their legal problems. Unlike for-profit referral agencies, the LRS is a public service program dedicated to directing callers to the most appropriate resources. Visit their Web site at www.massbar.org/lawhelp/need_lawyer.
Your accountant should be a practical business advisor who can set up a total financial control system for your business and render sound business advice. Your MSBDC Business Advisor will have a referral list of accountants. At the outset, your accountant should work with you to establish accounting and reporting systems, cash projections, financing strategies and tax planning. In addition, as the company matures, the following services can be provided:
- Strategic planning
- Cash-management advice
- Merger, acquisition and appraisal assistance
- Compensation strategies
- Cost-reduction planning
- Management information systems
What insurance should I carry for my business?
Most businesses require insurance in one form or another. Some forms, such as worker's compensation, may be required by law. Others, such as liability insurance, may not be required by law but should be purchased by most businesses.
The entrepreneur should shop around to find the insurer who offers the best combination of coverage, service and price. Trade associations often offer special rates and policies to their members.
Below is a list of insurance coverage you should consider:
- Workers' Compensation (Mandatory)
- Automobile Insurance (Mandatory)
- Liability Insurance - Protecting the business from claims of bodily injury, property damage and malpractice.
- Fire Insurance
- Business Interruption Insurance - Compensating the business for revenue lost during a temporary halt of business caused by fire, theft or illness
- Crime Coverage - Reimbursing the employer for robbery, burglary and vandalism losses
- Group Life Insurance (for employer and employees)
- Group Health Insurance (for employer and employees)
- Disability Insurance (for employer and employees)
- Key-Person Insurance - Compensating business for the death or disability of a key partner or manager
- Fidelity Bonds - Insuring the employer from employee theft
- Product Liability Insurance
How do I obtain insurance?
Chambers of Commerce may provide group health insurance for members Associated Industries of Massachusetts (800) 470-6277 Commonwealth of Massachusetts - The Insurance Partnership (800) 399-8285 Smaller Business Association of New England (781) 890-9070
Workers' Compensation Insurance
All employers in Massachusetts are required by state law to carry workers' compensation insurance covering their employees, including themselves if they are an employee of their company. This requirement applies regardless of the number of hours worked in any given week. This insurance can be purchased from any insurance agent or broker who handles business insurance, or through a direct writer of insurance (call 617-439-9030 for more information). A sole proprietor is not required to have worker's compensation insurance on him/herself.
Employment of Contractors
If your company pays more than $600 within a year to an independent contractor you must report the payment on Form 1099. Also contractors must carry their own workers' compensation insurance or your company may be liable for it.
Will the MSBDC write my business plan for me?
While the MSBDC will not write your business plan for you, we will provide the guidance needed to write the plan and can help fine-tune your plan.
How much money will I need to start a business?
Writing the business plan is a good way to determine the answer to this question. The detailed analysis of expenses and income will enable you to test the feasibility of the business, the breakeven point, and the potential profitability of the business before making a financial commitment.
I'm thinking of buying a business. How do I know if it's overpriced and if I can earn a living at this?
Get copies of the seller's tax records for the last three years, details of the sale and meet with an MSBDC advisor as soon as possible. The advisor can help you value the business and look at how the expenses may change under your management.
Can you help me obtain small business grants?
Unfortunately, for most companies in Massachusetts, there are no small business grants. That is, there are no grants available for start up costs, operating or other typical small business expenses for companies which are not "non-profit" or charitable organizations. Most grants are given by foundations or government agencies to provide money for charitable or social purposes and they are typically only given to organizations which have specific "non-profit" status [typically 501(c)(3)]. This automatically excludes the majority of businesses which are operated for a profit, regardless of race or gender.
However, there are two exceptions for specific grants for which a small business could be eligible. The first is called an SBIR or Small Business Innovative Research grant. To qualify for this type of grant a small business needs to have a unique technology which an agency of the government has an interest in developing through advanced research. This program requires a company to have qualified academic researchers and industry experts on its staff. Additional information on SBIR can be found at www.sba.gov/sbir.
The second type of grant is a Workforce Training Grant. This grant is available to existing small businesses that need to train their workforce to better perform their jobs. It is a fifty-fifty match between funds that the company puts up and funds that are available from the Commonwealth of Massachusetts. Additional information on Workforce Training grants can be found at www.detma.org/WorkforceHome.htm.
There are other agencies that also offer grants. For Massachusetts grants, go to www.mass.gov and type 'grants' in the search field, then select the quick link for grants and funding. For non-profit organizations, grant information is available in the library section of the Associated Grant Makers' Web site at http://www.agmconnect.org/
Financing for a small business can often be a confusing and difficult process. The MSBDC can provide valuable information that will dispel many of the myths about free money and grants, and help individuals position themselves to start or grow a successful small business in Massachusetts. For additional information on the process of financing, contact the nearest MSBDC office to schedule an appointment.
How do I become a government supplier?
Through the MSBDC Procurement Technical Assistance Center (PTAC), clients subscribe to a free bid-matching service, which informs them daily of federal, state and municipal bidding opportunities matching their specific product and service profiles. After identifying a specific bid, clients may draw on a wealth of technical assistance to prepare their proposals. If successful, PTAC provides assistance in post-award contract administration. Visit PTAC's Web site at http://www.msbdc.org/ptac.
Where can I find assistance for a non-profit business?
The MSBDC does not provide services to nonprofit organizations, but the following resources can provide assistance.
The Executive Service Corp of New England (ESC) works with nonprofit organizations to improve their effectiveness by providing affordable management consulting and related services. ESC works with the nonprofit community on a variety of issues ranging from board development to strategic planning. Visit their Web site at http://www.escne.org or call 617-357-5550.