How to start an LLC in Maryland – Complete in 5 Easy Steps

If you’re thinking about starting a business in this state, there are numerous factors that go into making this decision.

That’s why it makes sense to consult with an established business tax law firm when deciding whether or not to form your own LLC in Maryland before you begin any significant work or investment within the state.

We will also try to guide you through this process.

Starting an LLC in Maryland is easy

It is easy to start an LLC in Maryland.

You can form an LLC in Maryland by filing a “Certificate of Organization” with the Division of Corporations.

Once you file your LLC Certificate of Organization, the State will officially recognize you as a limited liability company (LLC) and issue you an official Certificate of Organization within 20 business days.

Maryland business express registration is required in order to register for the state taxes.

The process of forming an LLC in Maryland includes the following steps:

STEP 1: Name your LLC

Always consider a few important things when naming your LLC.

  1. It is important that your LLC business name doesn’t violate the laws of the state in which you intend to operate. This means that you should not register your LLC name with the Maryland Secretary of State if that name would conflict with other companies in the state or other states.
  2. You can determine whether a potential name would violate this law by consulting with an experienced LLC formation lawyer.
  3. You should also be aware of the fact that your LLC name may appear in advertisements, contracts, certificates, and other business structure documents.
  4. You should avoid using names that are too long or difficult to remember.
  5. The LLC name you choose should accurately reflect the nature of your business.
  6. It is also important that you keep your LLC name simple and easy to remember so that it will be an asset to your LLC.

STEP 2: Choose a Registered Agent service in Maryland

To avoid LLC cancellation in Maryland, you have to maintain a registered agent and conduct organizational business in the state.

In order for your LLC to be successful, it is important that you choose a Resident Agent in Maryland or Manager from the get-go.

This person is responsible for filling out and filing all of the required paperwork with the state, including filing annual reports on behalf of your LLC.

Your LLC does not have to have a Resident Agent; however, you may choose to hire one if you require additional liability protection for your LLC business interests.

STEP 3: File the LLC Articles of Organization

In order to form a Maryland LLC, you must file the necessary Articles of Organization with the Division of Corporations.

Maryland LLCs are formed pursuant to Maryland’s Limited Liability Company (LLC) Act.

To begin, you will need to consult with an experienced business law attorney that can assist you in creating your LLC article and filing them with the Division of Corporations.

I. The Articles of Organization will contain all of the necessary information about your LLC, such as its name and street address, an LLC operating agreement, the names, and mailing addresses of its members/managers, and other pertinent information.

a) This is typically the most time-consuming part of forming an LLC. You can file your Articles of Organization by mail or online using the state’s website. Do not forget about the mail fee.

b) You will have to pay a $200 base filing fee for this document. Once you file your Articles of Organization, the state will recognize your LLC and issue its Certificate of Organization.

The State of Maryland has a webpage that allows you to see which Maryland companies are in various stages of formation with the Division of Corporations.

This includes companies that have applied for certificates of limited liability but have not yet become registered with the Division, as well as those that have already received their certificates.

STEP 4: Create a Maryland LLC Operating Agreement

Every LLC is required to have an operating agreement on file with the State of Maryland. This document, which will be in your LLC name, will outline how the business is run and what its legal rights are.

For instance, if one of your Maryland LLC members purchases property then that member must provide their share of the property to the Maryland LLC.

If one of your members has suffered a disability then you can decide how this is handled in the operating agreement.

It is important to consult with an attorney when you create your LLC’s operating agreement since it does affect the rights of the members.

Make sure that all of the information in your operating agreement is accurate.

Your operating agreement should be written so that it can be held up in court and does not conflict with state law.

STEP 5: Get a Maryland LLC EIN

Your LLC will need an Employer Identification Number (EIN) if it is to open a business bank account, hire employees or accept payments, or anything of the sort.

Your LLC’s EIN should match the Federal employer identification number that you have selected for your LLC. This number can be obtained online through the internal revenue service (IRS).

You will need to file Form SS-4 in order to get an EIN and this form must be filed by mail since there is no online process available for obtaining this number.

Pros and cons of starting an LLC in Maryland

There are several benefits of forming a limited liability company (LLC) in Maryland.

Pros

  • Aside from the fact that Maryland is a well-known business-friendly state and because it has relatively few restrictions on LLCs (compared to neighboring states), the state’s statutes have been amended so that LLCs can operate without having meetings. This means that LLCs can be more efficient and productive (and generate income) even if they choose to forgo meetings since the members themselves are in charge of making business decisions.
  • Another benefit of forming your Maryland LLC in Maryland is that the State of Maryland has a very friendly registration process. Within a few days, you can obtain your Washington D.C. Certificate of Formation, which will allow you to incorporate in the District of Columbia and establish an active business there (as long as it does not conflict with federal law).
  • Tax Flexibility. Maryland does not have an inheritance tax, which can be advantageous for certain business activities.

As with any other business entity, there are some disadvantages to forming an LLC in Maryland.

Cons

  • Maryland does not have a lot of resources online for those who are trying to find information about forming or operating an LLC. This makes it more difficult for people to learn about farming and operating an LLC.
  • There are also some disadvantages with operating a business under the laws of the State of Maryland when compared to other states. For example, it is important that you keep in mind that there are special restrictions on what your LLC can do under state law; this includes such things as lending money and taking part in real estate transactions.
  • To avoid LLC dissolution in Maryland, LLCs should be careful to follow state LLC law. Also to avoid dissolving of a Maryland LLC, an LLC doing business in Maryland must register the formation with the State of Maryland.

How much does it cost to start a Maryland LLC?

The process of forming an LLC is fairly straightforward. For most companies, though, the costs involved with forming a Maryland LLC will be very similar to the costs associated with incorporating elsewhere.

Depending upon what you want your business to do, there are many costs involved in starting up as well as maintaining an LLC.

The state fees for drafting a basic LLC operating agreement will typically be between $100 and $200. If you want to hire an attorney to draw this document for you, then it will cost more than $200.

  • There is a $125 application fee for each type of entity that you want to form (i.e. a corporation, partnership, limited liability company (LLC), or sole proprietorship).
  • There is a $200 state fee for registrations that must be paid to the Maryland Secretary of State when you file Articles of Organization and annual reports on time.
  • UCC Filings will cost between $200 and $500 depending upon the number of members in your LLC.
  • LLC members will be responsible for paying the annual $300 tax to continue to be recognized as an active business entity in Maryland.
  • You should plan on spending about $500 for an attorney to draw up your operating agreement and Articles of Organization, depending upon the size and needs of your business
  • You will need to set aside money to pay for your annual corporation franchise taxes (you are required by law to file Form BK-1 with Maryland as well as pay this service fee) which costs around $60.

Separate Your Personal and Business Assets

If you are filing papers for a new LLC, it is important to make sure you separate your personal and business assets. If the two are combined in an LLC, the assets cannot be used to satisfy debts.

Once your LLC establishes itself, you can make updates as necessary. If there is a change of control within your LLC, the new members will have to go through the same process of forming an LLC in Maryland as well as obtaining a Certificate of Formation.

If your business is not registered with the state of Maryland, you may need to obtain a Certificate of Assumed Name.

If there is a change in members or officers, you will need to file an amendment and obtain a new Certificate of Formation.

All you have to do is fill out the required forms and pay the fees, but this does not mean that the work is done just because it was easy to file paperwork.

You will have to take care of certain requirements and keep records up-to-date.

1. Opening a business checking account:

At the bank where you will be opening your LLC, ask for a business checking account. This account is not for personal transactions. It is to use as a depository for operating your business.

Also, it is acceptable to open both personal and business accounts at one bank. However, make sure that you use separate accounts and keep them as separate as possible from each other.

2. Getting a business credit card:

It is also a good idea to open a business credit card for your LLC after you open a bank account.

Again, you may have both a business and personal credit card. But, keep in mind the importance of separate accounts.

Again, the intent is to keep things separate as much as possible.

If you want to be paid on time by your customers, then you must establish a credit history for your business.

This way, when it comes time to apply for business credit cards, you will have a record of timely payments on your credit report.

3. Hiring a business accountant:

It is wise to hire a business accountant and an attorney to help you with your LLC legal affairs. If you do not have the money to hire both, then you should look for someone who can provide this service at a reasonable cost.

In addition to the services, you will need to provide these professionals with all of your financial records and cash flow projections so they can provide you with timely information about how your LLC is doing.

Be prepared to spend some money on an accountant and a lawyer or business attorney, but it will be well worth the investment as long as you use them to help run your LLC.

Get Business Insurance for Your LLC

Most states require some sort of business insurance. In Maryland, it is not required but it is highly recommended.

  1. One type of insurance that you should consider is general liability insurance. This will protect your business from third-party claims. It covers liability for property damage and bodily injury as well as legal defense costs.
  2. Other types of business insurance that you should consider are life and disability insurance. If you have employees, then you should plan on having disability insurance for them. If the business owner dies, the business would also cease to exist. The business would have to be sold or someone else would have to take it over.
  3. Business owners must also protect themselves with workman’s compensation coverage for their employees. This type of insurance covers the business owner for any lost wages and medical costs that may be incurred because of injuries to themselves or employees.

Finally, business owners should always consider long-term care insurance for their LLC benefit.

If you plan on running your business until retirement, then the cost of a long-term care policy will help to keep the business afloat if you ever need to retire and leave it to your heirs.

Create Your Business Website

Creating a business website can be crucial for small businesses. If it is not already a part of your operating strategy, there is no time like the present to get started.

Not only will you need a website to attract new clients, you may also find it necessary to inform existing clients about upcoming events and projects.

What’s more, it’s important to have a personal web page as well as your LLC site so that all customers and potential clients know your LLC contact information and what they can expect from future interactions with you.

A website is one of the most effective ways to promote your business, but it also provides a vehicle for networking and interacting with potential new clients.

That said, it’s important to choose a domain name – as well as a host of other website hosting services – that are appropriate for both personal and business use.

It’s also vital to keep in mind how your customers will be accessing your website; particularly, how they might be accessing it on various devices.

Send Out a Press Release

To ensure your LLC gets the maximum exposure, you need to take advantage of the media.

Businesses can use press releases to announce their new products and services and any other newsworthy events that affect their business.

Also, since they are typically disseminated via local media outlets in your area, they could potentially reach tens of thousands or even hundreds of thousands of people – including potential customers. Each press release is also like one small advertisement in its own right.

Business owners can use press releases to announce new products and services and any other newsworthy events that affect their business.

Maryland Business Licenses and Permits

In Maryland, business owners must register with the state to make sure they are complying with all the paperwork requirements. Some of these requirements include the following:

Having a business license:

A person can open a business in Maryland without having to obtain a specific license.

However, for things such as liquor licenses and other more complex businesses, there are specific licenses that must be obtained. For example, to own a bar or a restaurant you will need an alcohol license.

Tax filing:

Maryland business owners are required to file quarterly tax returns.

Businesses are not reciprocity states, meaning that Maryland does not recognize the taxes of other states.

Therefore, things like sales tax, personal property tax return and income tax are required to be paid by small business owners in our state.

Registering employee vehicles:

As a business owner, you must register motor vehicles owned by employees if they fall under the weight limits for commercial use.

Registering business vehicles:

You must register an 18-wheel truck if it is used for business purposes.

Business entity filing:

Whether you are a sole proprietorship, partnership, or corporation, you will need to file with the state and obtain a certificate of authority.

Maryland LLC Tax Filing Requirements

Maryland LLCs are required to file a quarterly or annual report with the state. This is done on an automatic continuous basis and does not require any separate filing or payment.

Also, Maryland LLCs are required to pay quarterly taxes for their active business entity, with a minimum of $5,000 in gross receipts for the quarter.

Maryland LLCs are also required to pay annual fees based on their business activity. If they engage in real estate, personal property, or other business activity, they will be required to pay a franchise tax.

Maryland has a tiered franchise tax system; the amount paid is based on gross business receipts for the year.

Maryland S Corp Tax Filing Requirements

In Maryland, S Corp’s are required:

  • to file an annual report with the state. This must be filed by April 15th of each calendar year.
  • to pay annual fees based on their business activity.
  • if they engage in real estate, personal property, or other business activity, they will be required to pay a franchise tax.

Maryland has a tiered franchise tax system; the amount paid is based on gross business receipts for the year.

State Department of Assessments and Taxation

Maryland is a non-reciprocity state with the federal government; that means that Maryland does not recognize taxes from other states. For example, the federal government will not consider income tax payments you make in Maryland for your LLC, as well as sales tax or property tax.

In Maryland, partnerships are required to file an annual report with the state. This is done by April 15th of each calendar year and does not require any separate payments or filing.

Maryland partnerships are also required to pay quarterly taxes for their active business entity, with a minimum of $5,000 in gross receipts for the quarter.

Maryland Sales Tax

SDat (a type of LLC that is taxed as either a partnership or a corporation) sales tax stands for Service and Distinct Activity Tax and is a tax paid by all businesses in Maryland that do not have a sales tax license.

If you are not an S Corp, you may be able to avoid paying sales tax. In order to do this, you must have less than $10,000 in annual gross receipts. In Maryland, sales taxes range from 2% – 4%.

Maryland Employer Taxes

Maryland employers are required to pay unemployment taxes. This is based on the number of employees and the amount of money paid to each employee. The rates are determined by the state and vary over time.

Maryland’s corporate income tax rate is 7% and is assessed on Maryland S Corp’s, LLC’s, and C Corps. The rate of assessments and taxation depends on the net profit over the previous income year.

Maryland unemployment taxes are required for employers over $1 million in payroll.

The rate depends on how many employees a business has and the total wages paid to each employee for the year (this must be more than $6,000).

Maryland does not have an inheritance tax but does have other rules regarding gifts.

Register for Maryland State Taxes

Maryland’s state tax registration program is known as ITIN. If you are a foreign company, you will need to apply for an ITIN to file Maryland taxes.

Maryland State Taxes

Maryland has a variety of state taxes, such as:

  • Maryland Sales Tax –  2.0% – 5.75%
  • Maryland Income Tax- Maryland has a flat-rate income tax of 3%. However, corporations and LLCs must pay 3.07% of their net income.
  • Maryland Unemployment Tax –  Maryland has a separate unemployment tax for employers that have over $1 million in payroll. Regardless of the wage level, if you have at least 32 employees, you will be assessed a 6% tax.
  • Maryland Corporation Tax – For corporations that earned over $50,000 annually and had at least 50% of their profits in Maryland, Maryland has an 8.75% corporate income tax rate.
  • Maryland Use Taxes – Maryland imposes a use tax on products purchased out of state.

Federal LLC Tax Filing Requirements

Maryland is a non-reciprocity state with the federal government; that means that Maryland does not recognize taxes from other states.

For example, the federal government will not consider income tax payments you make in Maryland for your LLC, as well as sales tax or property tax.

Maryland Department of assessments does, however, recognize and assess taxes on the profits of your LLC.

However, this must be a partnership that is qualified to do business in Maryland; otherwise, it would be a disregarded entity. The rate of corporate income tax is 7%.

File Your Maryland LLC Annual Report

Maryland LLCs are required to file annual reports with the state. This report must be filed by April 15th of each calendar year and is done on an automatic continuous basis.

Maryland LLCs are required to pay annual fees based on their business activity. If they engage in real estate, personal property, or other business activity, they will be required to pay a franchise tax.

Maryland has a tiered franchise tax system; the amount paid is based on gross business receipts for the year.

Hiring Employees

Maryland does not require you to register for Maryland taxes if you hire someone as an employee. However, the hiring of a non-resident is against the law.

Similarly, Maryland does not allow for business entities that hire residents out of state to be taxed in Maryland.

Maryland does not have a minimum wage but instead uses the federal and state minimum wage as their baseline.

Conclusion

Maryland is a good state to do business in; however, it can be complicated.

The key is to plan ahead and have the right accounting and legal help to ensure that you are meeting your profit projections and tax obligations. This will allow for a smooth and easy transition.

With guidance of this article, you can organize your business in Maryland and register for taxes the right way.

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