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're an aspiring entrepreneur and think an LLC is the perfect fit for your new business, check out the step-by-step process below to get your LLC up and running.
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Steps to Forming an LLC in Maryland
Name Your LLC
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 Maryland law, your name must be distinguishable from any other registered Maryland business name. Your LLC name should also make it clear that your business is an LLC. It 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 you have a name in mind but aren't quite ready to form your LLC, you can reserve your LLC name. Maryland law allows you 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.
You might also want to find out whether your domain name is available. Even if you do not launch a website immediately, it can be wise to reserve your domain name. This will make it a lot easier for you to start your website when the time comes.
Get a 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. Your resident agent must be:
- An individual who is over 18 years old and a resident of Maryland
- A Maryland LLC
- 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 using 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.
File Your Articles of Organization
To officially start your Maryland LLC, you need to file originally executed articles of organization to the state of Maryland's Department of Assessments and Taxation (Maryland SDAT). 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)
You can file your articles of organization online, by mail, or in person. You will submit this document to the Maryland SDAT. The filing fee is $100. Once your articles of organization are filed and approved, Maryland SDAT will assign an identification number to your LLC.
Draft an Operating Agreement
Although you are not required by law to have one, you can 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 can benefit from 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.
Get an EIN
Unless you have a single-member LLC with no employees, you will need to apply for an Federal 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.
Set Up Business and Tax Accounts
Your tax and licensing obligations will vary based on the type of business you operate and its location.
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.
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. You should also check with the city or county where your LLC is located to confirm whether you need to apply for local licenses or permits.
Business and Tax Requirements in Maryland
Your LLC will likely be subject to certain state business taxes and licenses depending on the type of business it is.
State Business Tax
An LLC is required to file a pass-through entity income tax return (Maryland Form 510), if the entity is formed or incorporated in Maryland, does business in Maryland, or has Maryland income (or losses). The LLC's income, adjustments, gains, losses, and other required information are taxed to the members who are required to file the applicable Maryland income tax return and pay any tax due on the member's distributable or pro-rata share of the LLC for the tax year.
State Employer Tax
If your LLC has employees, you'll pay Maryland's employer withholding tax. It's structured as a "pay-as-you-go" plan that resembles the federal withholding tax. As an employer, you must withhold the appropriate amount of state taxes from employee wages and submit to the state when due.
Sales and Use Taxes
If your LLC provides tangible goods or services, it is subject to Maryland's sales and use tax. The sales tax applies to purchases made within the state while the use tax applies to purchases made outside of Maryland. Purchases made outside of Maryland are subject to the state's 6% use tax (9% for alcoholic beverages if used in Maryland).
Business Licenses and Permits
The state of Maryland and local city or county governments may require your LLC to obtain certain permits or licenses to operate. For example, if your LLC is a retailer or wholesaler, it needs a license to conduct business. If your LLC buys and resells goods, a trader's license is required. If your LLC offers a professional service, you may need individual occupational and professional licenses. It is important to check at the state and local level to determine what licenses and permits you may need.
Maryland's licensing OneStop portal allows you to register for licenses and permits issued by state agencies. You can also contact the local Clerk of the Court where your LLC is located to find out any local licensing requirements and the local county's office to inquire about inspections, licenses, or permits.
Annual Filing Requirements in Maryland
Registration in Other States
If you want to do business in another state, you will likely have to apply to do business as a foreign LLC. You may need to prove your LLC's good standing in your home state.
File Annual Reports in Maryland
To remain in good standing in Maryland, your LLC must submit an annual report and personal property tax return to the Maryland SDAT. You can file it either online or by mail.
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 15.
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FAQs About Maryland LLC Formation
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