Forming an LLC in Maryland
Limited liability companies (LLCs) are a type of legal structure for businesses. Small business owners often choose this structure because of the limited personal liability protection, simplicity, and tax advantages they provide.
If you would like to enjoy the flexibility, liability limitations, and tax treatment of the LLC structure, you can start an LLC yourself. Just follow along with the six simple steps below.
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Step One: Choose a Unique Maryland LLC Name
Choosing a memorable and unique name would be best to help your business stand out from the competition. To comply with Maryland law, your LLC name must:
- Be original: According to Title One of Maryland's statutes, your name must be distinguishable from any other registered Maryland business name.
- Make it clear that your business is an LLC: Your LLC name must contain language that identifies it as an LLC. You can use the full words “limited liability company" if you like. Or you can use the abbreviations “L.L.C.," “LLC," “L.C.," or “LC."
To find out if your LLC name is available, you should conduct a business entity name search at the Maryland Business Express website, Maryland.gov.
If your name is available in Maryland, you should next conduct an internet screening search. This will help you find out if anybody outside of Maryland uses your LLC name. To do this, type your desired name into your favorite search engine.
If there are no results from your internet screening search, you should determine whether another company has trademarked your name. This is easy to find out by searching the United States Patent and Trademark Office (USPTO) trademark database. Doing this will help you to avoid getting into trouble over trademark infringement.
Finally, you should find out whether your domain name is available. Even if you do not launch a website immediately, it's wise to reserve your domain name. This will make it a lot easier for you to start your website when the time comes.
Step Two: Name a Maryland Resident Agent
Your LLC needs to have a resident agent to operate in the state of Maryland. A resident agent is an individual or entity that agrees to accept legal papers for your business. This includes service of process if someone sues your LLC. In many states, this person or entity is called a registered agent.
Your resident agent has to be:
- An individual who is over 18 years old and a resident of Maryland
- A Maryland LLC; or
- A Maryland corporation
The resident agent should sign your articles of organization in the next step. Many LLCs choose one of their members to act as the LLC's own resident agent. If none of your LLC members are willing and able to take on this task, you should consider a Maryland registered agent service. With this type of service, you pay a fee to another business to act as your resident agent. You can find many options for Maryland registered agent services by doing a quick search online.
Step Three: Submit Your LLC Articles of Organization
To officially start your Maryland LLC, you need to submit articles of organization to the state of Maryland. Articles of organization form a legal document containing basic identifying information about your LLC. This document should be easy to complete. In Maryland, there is even a fill-in-the-blank form you can use to create your articles of organization. When you file this document with the state, you formally create your LLC as a legal entity.
In your Maryland articles of organization, you will need to provide:
- Your LLC's name
- Your LLC's physical street address (not a P.O. Box)
- The purpose of your LLC
- The resident agent's name, signature, and address (also not a P.O. Box)
Step Four: Create Your LLC Operating Agreement
Although you are not required by law to have one, you should create an LLC operating agreement to organize your LLC adequately.
An operating agreement is a crucial document for LLCs. You can use it to form rules and contracts among LLC members on issues such as:
- Member rights and responsibilities
- Voting procedures
- Percentage ownership
- Management style
- Other important LLC issues
Even single-member LLCs should form an operating agreement. You will probably need to show this document if you want to hire an attorney, accountant, or open a business bank account. An operating agreement also demonstrates that you treat your LLC as a separate legal entity. This helps maintain the limited liability protection that the LLC structure offers.
Step Five: Follow Tax Rules and Obtain Business Licenses
Your tax and licensing obligations will vary based on the type of business you operate and your location.
State Taxes and Licensing
If you plan on selling goods or hiring employees, you will need to register your LLC with the comptroller of Maryland. There, you can register for sales taxes, employer withholding taxes, and learn about any other state tax obligations. For certain taxes, such as tobacco and alcohol tax, you will need to file your registrations by mail on Maryland's Combined Registration Application (CRA).
To learn more about your state and local licensing requirements, you should visit the Maryland Onestop Portal.
Federal Taxes and Licensing
If you think you need to get a federal license, you should visit the Small Business Administration (the SBA) website. There, you can find a list of business activities that require a federal license.
Unless you have a single-member LLC with no employees, you will need to apply for an Employer Identification Number (EIN). An EIN is a unique number that the Internal Revenue Service (IRS) issues to businesses. They use the EIN to identify companies for tax purposes. In this sense, it's like a Social Security Number for businesses. You will use your EIN to open a business bank account, pay employees, or apply for a business credit card. An EIN is free and easy to get by fax, mail, or online at the IRS website.
For more information about your federal tax obligations, you should visit the IRS's Tax Information For Businesses page. If you need more assistance understanding your tax obligations, you should contact a business attorney.
Step Six: File an Annual Report and Personal Property Tax Return
In addition to a $300 filing fee, you will provide basic LLC information in your annual report. This includes details like the name, address, EIN, and nature of your business. Most of these details will serve to confirm the information you submitted in your articles of organization. Finally, you will need to report information on your company's property and purchases and pay applicable taxes. This report is due every year before April 15th.
Maryland LLC FAQs
Why should I form a Maryland LLC?
LLCs provide the advantages of limited personal liability and pass-through taxation. This makes them a good choice for many small business owners.
With personal liability limitation, your personal assets are protected from your company's liabilities. In other words, if someone sues your LLC or collects on LLC debts, they cannot seize your car, personal bank accounts, home, or other possessions. This is not the case with all business structures. For example, if you have a sole proprietorship, your personal property could be at risk for your business's debts and lawsuits.
With pass-through taxation, LLCs file taxes on their profits through their members' individual income tax returns. This is similar to partnership taxation. It can be preferable to corporate taxation, resulting in so-called double taxation. Double taxation occurs when a corporation pays taxes on its profits, and the individual stockholders pay taxes on their dividends.
However, business taxes can be complicated and require a professional's expertise. If you have any questions or concerns about your LLC's taxes, you should talk to an experienced Maryland business organizations attorney.
Is an operating agreement the same as articles of organization?
No, an operating agreement shouldn't be confused with articles of organization. Articles of organization make up a legal document you submit to the state to create your LLC. An operating agreement is an internal company document that forms essential agreements among members.
After you have completed your operating agreement, you should store it in a safe place with other company records. You will want to have convenient access to this document. Professionals might ask to see a copy before doing business with your LLC. You may also need to show your operating agreement for banking and other financial services.
Can I register my foreign LLC in Maryland?
Yes. Even if you created your LLC in another state or country, it could still operate in Maryland. You need to find a Maryland resident agent and file a Limited Liability Company Registration. When submitting this form, you need to include a $100 state filing fee and a certificate of good standing from the state or country where you organized your LLC. You will submit your form, certificate of good standing, and fee to the Maryland Department of Assessments and Taxation at the address on the form. If you prefer, you can file online.
What does it cost to start my Maryland LLC?
There are various state fees associated with LLC formation. It costs $100 to file your articles of organization and an additional service fee of $50 if you would like expedited processing. To change the contact information of your registered agent or principal office, it will cost $25 for standard processing. You can view a complete list of LLC fees at the Department of Assessments and Taxation's Fee Schedule.
With expedited processing, you will receive a response to filings within seven business days. Standard processing could take between four to six weeks to receive your confirmation.
Can I reserve my LLC name?
Yes, under Maryland law, you can reserve your LLC name ahead of forming your LLC. You will need to fill out a Name Reservation Application and submit it to the Department of Assessments and Taxation. There is a $25 fee for this service. This will reserve your name for 30 days.
Want Help Forming a Maryland LLC?
Fortunately, forming an LLC in Maryland can be a straightforward process with FindLaw's Business Formation Service. But you might want some additional assistance on issues like licenses and taxes. Or you might have questions about drafting your operating agreement. If you have any legal questions or would like guidance on starting your LLC, you should consult with a local business organizations attorney.
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