Corporation or LLC for the Small Consulting Firm

Over the last several years the use of limited liability companies (LLC's) has increased exponentially in popularity. Massachusetts business and corporate lawyers have been helping clients to create LLC's at a record pace.  

When the Massachusetts Limited Liability Act became effective in 1996, there was wholesale reluctance on the part of Boston business lawyers to buy into this "new" form of business entity, despite some clear advantages. Most practitioners were more comfortable creating subchapter S corporations for their clients, and it took some time for the LLC to catch on. In the past half dozen or so years, however, the LLC has become the entity of choice for many businesses.

Two years ago, Massachusetts amended the law to allow for single person LLC's, which had already been available in Delaware and a number of other states. Since Massachusetts had long permitted corporations to have a single person be the sole director, sole shareholder, and sole officer, the change only made sense.

In our practice, Parker Scheer business lawyers represent a number of consulting firms from one to twenty, and we often recommend the LLC form. The LLC is particularly advantageous when the business consists of principals only and no non-principal employees. The advantage is in tax filings. Because we typically have our LLC's elect to be taxed as a partnership, the LLC income will then pass through to the LLC members and the LLC may forego payroll tax filings, with the members only filing quarterly estimated filings instead. For the small start-up consulting firm this offers unmistakable benefits in both time and money.  

Another LLC advantage includes the ability to allocate tax gains and losses in a manner separate from ownership interests. For instance, if in a given year, one member can better absorb gains because of losses in other businesses, the Massachusetts LLC may be able to allocate the gains of the business so that the Member with the larger outside loss can be apportioned more of the Massachusetts LLC gain. There are standards governing tax allocations which differ from ownership however and you should contact your lawyer or tax professional before making such allocations. The tax allocation rules governing Massachusetts LLC's are also applicable to Delaware LLC's and LLC's elsewhere.

An additional benefit of the LLC is the relaxed requirements for membership. If, like many Boston area consulting firms, you have one or more consultants who are not permanent U.S. residents or citizens, they can be LLC members but cannot be shareholders in a Subchapter S corporation. (While they can be shareholders in a C corporation, this structure is often unattractive to the smaller consulting firm).

Contact Parker|Scheer Business Lawyers

For more information on LLC in Massachusetts or if you are seeking a Boston business lawyer for any other needs, please contact Barry Scheer. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.

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