Looking to form an LLC in Maryland but confused about where to start? Well, you’re at the right place! Every State has its unique procedure for forming an LLC, including Maryland. We would not want you to repeat the procedure or make repeat payments in non-refundable fees because you did not fully know the process.
This article will be your go-to guide for forming an LLC in the State. Stick with us, and we’ll take you through not just formation but everything between and beyond.
Name Your Maryland LLC
Naming your LLC is the first and foremost step in forming your company. It is essential to be creative while naming your business because the name appears everywhere, whether it be your legal documents, products, or advertisements. It is also the identity of your LLC, as everyone in the market, including the customers and competitors, will recognize your business by this name.
Though you’re free to choose any name you like, there are a few things that you’ll have to keep in mind. Let’s look into the naming guidelines of Maryland and see what these are.
The name you choose should not be confused with a State agency. Accordingly, you cannot name your paint shop “the White House” or your accounting firm “Finance Department.”
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
Certain restricted words (Bank, Revenue Department, etc.) or professional designators (Doctor, Attorney, etc.) cannot be part of the name unless prior permits are obtained, and such a professional is a part of the LLC.
Finally, your name must be distinguishable from the names of all other entities present in Maryland. It is advisable not to use designators such as plurals, prepositions, or verbs to distinguish your LLC’s name from an existing entity.
For example, if you name your company “Starbuck LLC,” it will not get approved. Same thing with “Starbucks” or “Starrbuckss.”
Does Your Business Require a DBA?
Your LLC’s registered name is its legal name. However, you can obtain a “Doing Business As Certificate (DBA)” if your LLC wants to conduct its business under a different name.
DBA acts as an alternate name for your business. This is an optional step for situations where you wish to operate under a different name because of a new product you wish to sell or a new market your business is entering. In Maryland, a DBA is called a “Trade Name.”
Doing a Name Search and Name Reservation
Once you’ve finalized a name for your LLC, you should do a Business Name Search. This will ensure that the name you’ve chosen is, in fact, different from existing ones. You’re good to go if you see ‘No matches found’ upon searching! To be more thorough, it is also advisable to do a Maryland Trademark Search, Registered Electronic Record Search, and Social Media Search.
A chosen name can be reserved in Maryland for 30 days. You have to file your application with the Secretary of State of Maryland.
Registering Your Business Domain
The internet is becoming increasingly popular every day. Most people read internet reviews and look for an online presence before purchasing a product or service. A well-designed website may aid in acquiring new customers.
The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Registered Agent in Maryland
A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC. They essentially act as a point of contact between your LLC and the authorities.
The role played by a registered agent is extremely important. You must select a registered agent before your company can start functioning. It is mandated by Section 2-108 of the Maryland Code of Corporations and Associations.
Who Can be a Resident Agent?
The State of Maryland provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual or another entity
- Over the age of 18 (in case of an individual) and must have obtained authorization to conduct business in the State (in case of an entity).
- Have a physical address in North Carolina
- Be available during regular business hours.
Individual v. Registered Agent Service
Though all the options above are feasible and accepted as per the law, appointing a professional as the registered agent for your business comes with its benefits. You can make the most of their expertise and knowledge in this field.
A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
Another significant benefit is that you can maintain your privacy with a professional as your registered agent. Your personal information will remain private, and the professional’s address will be used in the public incorporation documents.
Additionally, if you are your own agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients. Having a professional registered agent service helps you handle the situation discreetly. They receive such sensitive documents at their address and deliver them separately.
Filing the Articles of Organization with Maryland
Articles of Organization is a legal document to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
Some of the details that you will be required to furnish in the Articles of Organization include:
- Entity Name.
- Street Address.
- Name and Address of the Registered Agent.
- Information of at least one member.
- Management of the LLC.
- Purpose of the LLC etc.
If you want to expedite the processing of your application, you can pay an additional $50 as an expedited services fee.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create the Operating Agreement for your Maryland LLC
An Operating Agreement is a document that acts as a contract between you and the other members of the LLC. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
It is not mandated by law to form an Operating Agreement, but it is highly advisable to do so. This document acts as your guide to conducting business. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it. Thus, it is recommended that even a single-member LLC have a well-drafted operating agreement.
As for the clauses to be included in this document, the sky’s the limit – you get to lay down your own rules and regulations (as long as it is not illegal). Irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Name of the entity.
- Domicile/Location of the business.
- Details (name and address) of the members of the LLC.
- Capital contributions.
- Profit-Sharing Ratios.
- Power transferring clauses.
- Withdrawal of partnership clauses.
- Terms of business.
- Dissolution clauses.
- Miscellaneous terms.
Writing the Operating Agreement Yourself v. Hiring a Service
While it is true that you, as the owner, will know the most about your business, opting for a professional to draft an Operating Agreement has some benefits. Being a layman, you might not know all the legal requirements and obstacles.
A professional with expertise and experience in the field can resolve all issues more efficiently. Their knowledge of business operations will help you draft an agreement best suited for the growth and survival of your company.
Apart from this, a professional such as an attorney will have expert knowledge of Maryland’s laws. So they will help you draft an operating agreement that suits the needs specific to your business model.
Limits of Operating Agreement
There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. However, the terms are limited to the law. You cannot include something prohibited by the laws of Maryland.
In short, the provisions of your operating agreement cannot be unconscionable or against the law.
Obtaining an EIN for your Maryland LLC
An Employer Identification Number (EIN) is a number used for tax administration purposes. It is issued by the IRS.
It is needed to open a business bank account, obtain credit cards, apply for business loans, obtain licenses and recruit employees.
The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports in Maryland
An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. Failure to submit it on time can have severe repercussions for your LLC.
Annual Reports are filed with the Department of Assessment and Taxation of Maryland. It can be filed either online or through the mail.
To file the Annual Report through the mail, download the form and submit a dully-filled copy to this address: The Department of Assessments and Taxation Taxpayer Services Division P.O. Box 17052 Baltimore, MD 21297.
The filing fee is $300 (non-refundable). The due date for filing the Annual report is the 15th of April. For example, if your LLC was formed on the 10th of March 2020, your first due date to file the Annual Report will be the 15th of April 2021.
Maryland is extremely strict with its Annual Report filing requirements. This means that failing to file on time has consequences. If you miss the deadline, 1/10th of your property value will be charged as a late fee.
An additional 2% interest is levied for every 30 days delay in filing. Prolonged delay might result in your business being assessed twice its original value, resulting in double filing fees. You may also risk getting your business shut down by the State.
Tax liability for your Maryland LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
An LLC will be treated differently for tax purposes depending on the members’ chosen taxation structure.
A single-member LLC is treated as a sole proprietorship, and a multi-member LLC is treated as a partnership by default. For the former, you’ll have to report the activities of your LLC under Schedule C, Schedule E and/or Schedule F of Form 1040.
For a multi-member LLC that chooses to be treated as a partnership for taxation purposes, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information about each partner in the K-1 form.
Also, the members must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions like business expenses. Additionally, you are also liable to pay Federal Income Tax.
The income tax you have to pay will vary depending on your income, filing status, deductions, etc. However, federal corporate taxes must be paid if you treat your LLC as a corporation for tax purposes.
State Tax Liability
If your LLC opts to be taxed as a ‘pass-through entity,’ then the taxes are paid by the members of the LLC and not by the LLC itself. Though, if you’ve non-resident members, the taxes must be filed with the Comptroller of Maryland.
If your LLC opts to be taxed as a corporation, you’ll have to pay corporate tax @8.25% of net income allocable to the State. The rates keep changing, and to have a regular update on the same, visit the Comptroller of Maryland’s website.
Additionally, if your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax.
You have first to obtain a seller’s permit for this purpose. You can apply for a seller’s permit with the office of the Comptroller of Maryland. You may read the Maryland Department of Revenue’s guide to sales tax exemptions and exclusions to understand if sales tax applies to your LLC.
Permits and Licenses
Determining if your LLC requires any prior licenses or permits is essential. Your business may be subject to three leading licensing jurisdictions: Federal, State, and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and lo
At the State level, you are required to obtain a seller’s permit if, through your LLC, you plan to sell specified goods or services that are subject to sales tax. You may refer to the Maryland Department of Revenue’s sales tax exemptions and exclusions guide to understand if your LLC needs to obtain a seller’s permit.
Additionally, businesses engaged in certain professions must obtain specific State permits and licenses. To better understand the licensing needs for your LLC, you may visit the Maryland OneStop Portal and the Department of Labor website.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Anne Arundel County, certain companies must obtain a trader’s license. To know more about local licensing requirements, get in touch with your local government’s office.
For more information regarding;
- Federal Permits and License
- Maryland OneStop Portal
- Department of Labor website
- Department of Commerce website.
Business Bank Account & Phone Number
The LLC must have a separate bank account. It ensures that your personal assets do not get mixed up with your business assets. It also ensures that your personal assets are not affected in case of insolvency or lawsuits.
Some of the details and documents needed to open a business bank account in Maryland include:
- Employer Identification Number (EIN).
- Business licenses and permits.
- Legal business name.
- Doing as Business name (if opted for the same).
- A copy of Articles of Organization.
Privacy has become increasingly important in today’s world. As a result, it’s a good idea to have a separate phone number for your business. Furthermore, a business phone number may provide customer support, increasing customer satisfaction and benefitting your business.
You can obtain a phone number using any network carrier’s services (such as AT&T). Typically, some documents are required to prove the existence of a business entity. Depending on the service provider, the documents required may differ.
Maryland’s robust economy provides easy access to capital and a business-friendly regulatory set-up. The State has several incentive programs such as the Maryland Enterprise Zones, Job Creation Tax Credit (JCTC), and Regional Institution Strategic Enterprise (RISE) Zone Program aimed at helping small and medium enterprises. Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
In Maryland, failure to file annual reports could result in heavy penalties. Make sure you meet filing deadlines in a timely fashion.
On completing the above steps, your LLC is legally incorporated and ready to do business. We wish you and your new business the very best!