Guide to Starting an LLC in Maryland
Are you in the process of starting a business and looking to form a Limited Liability Company (LLC)? If so, you’ve come to the right place. In this article, we’ll walk you through the process of forming an LLC in Maryland. We’ll cover everything from what an LLC is to the paperwork and fees involved. So whether you’re just starting out or are thinking of making a switch, read on for all the info you need!
What is an LLC?
The Limited Liability Company (LLC) is a popular business structure for businesses starting in Maryland. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Maryland without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form a Maryland LLC
Let’s break down the steps to complete the Maryland LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming a Maryland Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state. Fortunately, the Maryland Department of Assessments and Taxation makes it easy to search and verify if your LLC name is available. Here is more information on how to do a Maryland LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– L C
Once a great name has been secured, you may also want to see if a domain name (also called a URL) is also available to have a matching website address.
Step 2: Appoint a Maryland Resident Agent
Every LLC in Maryland is required to have a Resident Agent (referred to as a Registered Agent in many states). A Resident Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Resident Agent in Maryland include:
– The agent must be a Maryland resident at least 18 years of age or a commercial Resident Agent service
– The agent must have a physical address in the state (PO Boxes aren’t allowed)
– The agent must generally be available during normal business hours at the address provided to receive service of process
Learn more about the requirements for a Resident Agent in Maryland
The Resident Agent will have to agree in writing to serve as the LLC’s Resident Agent.
Any individual meeting the requirements can be the agent; however, the agent’s name and address becomes public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Resident Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the Maryland LLC Articles of Organization
Under the Limited Liability Company Act, Title 4A, LLCs may conduct activities related to any lawful business (with the exception of acting as an insurer), purpose, investment, or activity, whether as a for-profit business or a not-for-profit entity.
The paperwork to officially create an LLC in Maryland is called the Articles of Organization. To submit the paperwork, either file online through the Maryland Secretary of State’s Maryland Business Express website. Alternatively, you can download the Articles of Organization and file them by mail.
At the time of filing, you will need to indicate if you are “opting out” of having the original filed documents returned (certified Articles of Organization and Certificate of Status). To get the original documents returned, there is an additional $20 filing fee.
If you have questions, contact the Maryland Secretary of State by phone at 410-767-1340 or email firstname.lastname@example.org.
Estimated Cost: 150 USD
When filling out the Articles of Organization, there are a few sections to discuss as they may be challenging to answer, when seeing them for the first time. Let’s go over a few of those sections to help you get your LLC started right.
In this section, enter the street address, city, state, county, and zip code of the initial principal office. This address can be the LLC’s physical address, or it can be the address where the business records are stored. This may not be a PO Box. If there is a mailing address that is different from the Maryland business address, click on the box and enter that address.
Enter the email address and phone number of the main contact should the Secretary of State have questions about filing the LLC.
Description of Business
This is an optional section but is asking for a brief description of what the business does. One to two sentences will be sufficient.
Authorized Persons – The signature of an authorized person, such as an LLC member, attorney, etc., will be needed on the Articles of Organization. At least one person must sign.
You have a Maryland LLC! Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Maryland LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- In some circumstances, a Maryland Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start. Licensing is often done through the Circuit Court in the county where the business is located.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax License – To sell products and certain services, registration with the Comptroller of Maryland will be necessary.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
- General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
- Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
- Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
- Workers Compensation Insurance – covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
File the Maryland Annual Report
LLCs are required to file an annual report with the Maryland State Department of Assessments and Taxation. The annual report is due by April 15th each year.
Additionally, if your LLC will own, use, or lease personal property in Maryland, the Personal Property Tax Return will need to be filed along with the annual report. Personal property can include equipment, tools, inventory, computers, supplies, and more. The amount of personal property taxes will vary depending on the type of property being used in the state.
Common Questions To Starting An LLC In Maryland
How much does it cost to start an LLC in Maryland?
The cost to form an LLC in Maryland includes a Maryland Secretary of State filing fee of $100.
Is there a yearly fee for an LLC in Maryland?
Each year, an annual report and a $300 state filing fee will be due for Maryland LLCs.
How long does it take to start an LLC in Maryland?
It normally takes seven business days for the Maryland Secretary of State to process the Articles of Organization when filing online or four to six weeks when filing by mail.
Do I have to pay to hire a registered agent?
Anyone can act as a registered agent, provided they are at least 18 years old, reside in Maryland, and are generally available to receive documents during normal business hours.
Does an LLC need a business license in Maryland?
It’s sometimes thought that the LLC and business license are the same in Maryland, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee. The LLC will need to register as a foreign LLC in each state where it plans to operate.
Related: What is a foreign LLC?
What is a Professional Limited Liability Company?
Businesses in Maryland that require licensing from the state of Maryland, such as accountants, attorneys, psychologists, real estate brokers, veterinarians, and more., etc., can but are not required to file as a Professional Limited Liability Company (PLLC).
The filing process is very similar to that of the LLC.