June 2, 2023, 11:49 a.m.
Here are the basics of forming an LLC in Massachusetts vs Delaware:
For those in Massachusetts looking to form an LLC, the Commonwealth is often the first choice due to its ease and affordability. However, it's important to know that Massachusetts and Delaware LLC laws are not the same. Understanding these differences can be essential for real estate owners and operators who want to make sure their investments are properly protected. To get a better sense of how Massachusetts' LLC regulations compare to those in Delaware read on for more information. Visit How to Register Foreign LLCs in Massachusetts?
Under the Massachusetts LLC Act (M.G.L. c. 156C), various regulations apply to Massachusetts LLCs which do not exist in other states' legislation, such as Delaware's (6 Del. Chapter 18). However, many of these provisions only affect a Massachusetts LLC if they are not addressed in an Operating Agreement. These provisions can influence members' abilities to borrow and lend money from the LLC, get indemnified by the LLC, be released from personal liability, partake in management decisions, acquire member distributions, accept new members into the LLC, bring litigation on behalf of the LLC or make certain changes to it. Please visit, How to Change Your Registered Agent in Massachusetts
If the LLC operating agreement is crafted with care and due consideration of Massachusetts statutory provisions, the state's LLC Act should not cause any issues. However, without proper attention, it could lead to unexpected difficulties down the line. Therefore, all relevant provisions must be properly addressed to ensure a smooth-running business. VisitHow Long Does It Take To Get an LLC?
In Delaware, fiduciary duties between or among LLC managers and members may be removed through the inclusion of specific language in a written operating agreement. Absent such language, it is possible that these fiduciary obligations will not apply. This is the standard view under Delaware law. Thus, if an LLC wishes to exempt itself from these duties, it should take steps to ensure that its operating agreement contains adequate provisions regarding this matter. How To Start Your Own Roofing Business.
In Massachusetts, managers and members of LLCs are bound by the same fiduciary obligations as shareholders and officers of corporations - to act in utmost good faith and loyalty. There is no definitive answer from the state on whether these duties can be or not in an Operating Agreement, so it is uncertain how a court would rule if this issue were tested. If you wish to avoid having such obligations imposed upon your managers or members, you may want to consider incorporating your business in Delaware instead. Also, check the LLC Registration Form.
In Delaware, LLCs can protect any person from claims through indemnification as long as it does not conflict with public policy. Conversely, Massachusetts law does not allow for such protection if the individual holding responsibility for a claim is found to have acted without good faith or belief that their actions were in the interest of the LLC. If you’re looking for absolute legal cover from liability, incorporating an LLC in Delaware may be a suitable option. How to Avoid Using Your Home Address for Your LLC
In Massachusetts, a member of an LLC may resign after providing six months' notice and receive fair value for their interest - regardless of any contrary terms in the operating agreement. Conversely, Delaware law prohibits members from resigning if it is prohibited in the LLC's operating agreement. How to Start a Successful Mechanic Shop: A Comprehensive Guide.
Members of LLCs under Delaware law may be held liable to the LLC if they received a distribution from it knowing that the LLC was either insolvent or would become so as a result. This can occur even if the member was unaware their actions were illegal. Therefore, LLC members need to be aware of their company’s financial standing before distributing any profits. How To Start A Background Check Company.
In Massachusetts, members can be held liable to the LLC and other members if they vote for or agree to distributions that go against the operating agreement. In contrast, Delaware law allows a clawback provision in cases where there was a knowing violation of the relevant part of the Delaware LLC Act. So if you're aiming to limit clawbacks, Delaware law might be the better option. LLC or Corporation: Which Business Entity is Right for You?
In Delaware and Massachusetts, a court may grant an LLC the right to charge interest on judgments entered against its members. This is known as a "charging order". If granted, such an order helps ensure that the LLC can adequately cover any costs associated with satisfying monetary judgments. How Do Corporations Raise Money And Resources To Expand?
When it comes to Delaware, a charging order is a sole method for a judgment creditor of an LLC member or their assignee to fulfill their judgment. In contrast, Massachusetts does not explicitly state that a charging order is the only way for such creditors to collect on their judgment. Therefore, those seeking to limit the rights of other members creditors may prefer Delaware law. Free Professional Organizer Training.
If your LLC is planning to get a serviced securitized loan or bring in an institutional investor, Delaware LLC formation might be the right option. This is because many servicers of securitized loans and venture capital firms require borrowers to be a Delaware LLC, as do other large institutional investors. To ensure a smooth process when considering these options, it makes sense to pursue forming an LLC in Delaware. Visit Underground Storage Tank Business License.
Forming a Limited Liability Company in Massachusetts can come with some extra costs. If the business of the LLC is conducted solely in Massachusetts, the filing fee alone for forming and maintaining it stands at $500.00 plus an additional $500.00 each year thereafter. Forming an LLC in Delaware would result in higher annual fees and therefore isn't recommended unless certain benefits outweigh those associated with setting up and maintaining an LLC in your home state of Massachusetts. Starting a Crystal Business: 13 Simple Steps.
Establishing a Delaware LLC can be an affordable option, with an initial filing fee of $90 and annual fees of $250. However, if you intend to do business in Massachusetts with your LLC, it will need to qualify (register) as a foreign LLC in the state - which may double the filing fees. Any potential benefits offered under Delaware LLC law must be weighed against this increase in compliance costs. How to Draft a Series LLC Operating Agreement: Here’s What You Need to Know.
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