A business owner who has a business idea to start a company in Maryland can begin the process by first filing Articles of Organization on form OS-01 with the Department of Assessments and Taxation. That is about all you need to do at this point, except, of course, creating a business plan!
Additional steps are required if forming a corporation or limited partnership, but these are easier to go through because one has more control over what they are doing.
Here is a step-by-step guide to forming an LLC in Maryland.
STEP 1: Name your LLC
This is the most crucial step in forming a company in Maryland and one of the hardest because your name must be unique and not likely to cause confusion with other companies. You can check if your LLC name is available by visiting the Maryland Business Express website.
The requirements for filing an LLC name are:
- Must end with “Limited Liability Company,” or “LLC,” or an abbreviation of these words. (For example, Limited, Ltd., Co., etc.)
- May not contain language stating or implying that it is organized for a purpose other than that allowed by its articles of organization under MD Code [COMMERCIAL § 12-101(h)(1)].
- Do NOT use terms such as “corporation,” “incorporated,” or “company.”
- May NOT be the same as another LLC name on file with MD SOS.
FAQ: Naming an LLC
Q.What is an LLC?
A. An LLC is a legal entity that provides small business owners with the liability protections of a Maryland corporation and the tax benefits of sole proprietorships or partnerships. With an LLC, owners are called members and manage the business themselves, unlike corporations where managers handle day-to-day operations.
Q. How do I choose a name for my LLC?
A. Your business name can’t mislead potential customers and must be unique to your business, so you should conduct a name search before filing your Articles of Organization at the Maryland Department of Assessments and Taxation (SDAT). The Secretary of State’s Business Express website allows you to check if a proposed company or assumed name is available by entering the necessary information into a database.
STEP 2: Choose a Registered Agent in Maryland
A registered agent is a person or business entity designated to accept legal documents on behalf of the company. As an LLC owner, you are not required by law to serve as your own LLC’s registered agent, but this may make it easier for you to be located should there be any questions about the company.
To choose a registered agent in Maryland, do NOT use:
- A natural person (professionals working out of their homes might want to reconsider using their home address.)
- An unincorporated association (LLCs must designate at least one individual-not an organization-to act as its registered agent; multi-member LLCs cannot use an unincorporated association).
FAQ: Resident Agent in MD
Q. Are all Maryland businesses required to have a resident agent?
A. No, but it is highly suggested for the safety of your LLC. If any legal documents are delivered to the address on file with the Secretary of State and you fail to respond, your LLC can be dissolved.
Q. How do I change my registered agent in Maryland?
A. To change or add a resident agent, you will need to submit an Application for Change of Registered Agent and Office (form OS-31) along with a $40 filing fee. You should also make sure that your registered agent’s contact information is up-to-date and accurate by logging onto the Maryland Business Express website. Fees: $40 – Filing fees; $20 – Resident Agent Change form; $25- Filing and issuance of Certificate of Resignation of Registered Agent for each name change.
STEP 3: File an LLC Articles of Organization and pay the $100 filing fee
The Articles of Organization must include:
- The name of your LLC.
- The purpose for which the LLC is organized.
- A statement about whether or not the LLC will be managed by its members or managers.
- If applicable, a statement that the LLC is to be governed by another body such as a board of directors under contract law.
- The address where correspondence and legal process can be delivered; if there’s more than one member, this cannot be a PO Box.
- Your registered agent’s name and address in Maryland (see above).
- The duration of your LLC: either perpetual (indefinitely) or limited (for a specific period).
FAQ: Filing LLC Documents
Q. How do I file my LLC documents?
A. Your LLC Articles of Organization can be filed online at the Secretary of State’s Business Express website. You will need a printer to print a copy for your records and a valid credit card for payment.
Q. What happens after filing my LLC Documents?
A. The Department of Assessments and Taxation reviews your filing, conducts a name search, sends an acknowledgment letter with your articles’ effective date, and then mails you a Certificate of Organization as proof that your LLC has been created in Maryland!
If you fail to receive this letter within 30 days of submitting your application, contact the DOS at 410-260-7980. Fees: $100 – Filing fees; $40 – Resident Agent Change form.
STEP 4: Create an LLC Operating Agreement
Although not required by law, it is advisable that you craft an Operating Agreement that details the business structure of your LLC and describes each member’s rights and responsibilities. For instance, whether certain members are entitled to more voting power than others or how much money each member must contribute for a membership interest, etc.
FAQ: Creating an Operating Agreement
Q. Why should I have a Maryland LLC Agreement?
A. Having an Operating Agreement is highly recommended because it establishes rules for the business’ operations, describes each member’s capital contributions and business ownership interest, determines how profits are to be distributed, details member withdrawal rights, and even covers events involving involuntary termination or member exit.
Additionally, this document could prove very useful if you ever face a legal dispute with another LLC member!
STEP 5: Get an LLC EIN
For federal tax purposes, a Federal Tax ID Number known as an EIN is required for LLC members. Request a Maryland LLC EIN by filing IRS form SS-4. Fees: $0
FAQ: How to get an EIN for an LLC
Q. How do I file for my Maryland LLC’s Federal Tax ID Number?
A. An Employer Identification Number can be applied online with the Internal Revenue Service (IRS) at their Business & Self-Employed website. You will need to have your company’s financial information available before submitting this application and you must print out a confirmation page after filing in order to open a business bank account or file taxes under your business name!
Q. What if I forget my company’s MD EIN?
A. If you can’t find your business’ Federal Tax ID number and the IRS has it, visit their website to check the status of your application or request that a duplicate be re-issued online by filing IRS form 4506-T.
Pros and cons of forming an LLC in Maryland:
- Maximum flexibility and minimal organizational formalities.
- Limited liability protection.
- Members enjoy limited personal liability protection for business debts and obligations, including court costs and lawyer fees if they’re sued because of something related to the LLC’s activities.
- Only one member is needed to form a Maryland LLC, which can be a very useful benefit, particularly when your company is just starting out or you have limited funds.
- As opposed to some states where certain tax statuses are only available after being registered for a specific number of years, new companies in Maryland can immediately qualify as a pass-through entity for federal tax purposes upon LLC formation!
- The cost associated with creating a Maryland LLC ($100) may outweigh potential benefits depending on your small business needs, especially if you’re just starting out.
- Additionally, operating as an LLC provides more formalities than some might prefer, including meetings of the managers or members, written notice before certain actions are taken by Management Members or Managers, and detailed annual reports filed with the State of Maryland.
How much does it cost to register a company in Maryland?
The fees associated with creating a company in the state of Maryland are as follows:
- $100 – Filing fees for Articles of Organization
- $40 – Resident Agent Change form for a change of address or agent of service
How long does it take to start a business in Maryland?
After you complete all required steps, including filing your LLC’s Articles of Organization, obtain an EIN from the IRS, obtain professional liability insurance, and file additional forms along with the application fee stated above, you should have your new LLC Operating Agreement on file with the State of Maryland within 10-14 business days.
Separate Your Personal and Business Assets
If you’re planning on forming an LLC in Maryland, it’s advisable to establish a separate checking account for your business and keep all your company receipts and expenses separate from any personal finances.
This will ensure that if your company faces some financial difficulties due to unforeseen circumstances, the bank won’t freeze or take control of the owner’s personal assets!
1. Opening a business checking account:
Many banks require that you open an account for any LLC you create, but there are some that will let you simply change the name of your existing business banking account without having to worry about changing its ownership.
2. Getting a business credit card:
This is an easy way to start separating business and personal expenses right from the get-go, plus it’s a great way to build your business credit.
If you’re looking for a card with excellent customer service, flexible payment terms, and rewards that will help your bottom line at the end of the year, check out our in-depth reviews on the best small business credit cards online.
3. Hiring a business accountant:
Until your company is large enough to justify hiring a full-time accountant, it’s wise to find an individual or business entity that can help you keep track of all the finances and taxes associated with your business.
If you’d prefer someone who specializes in small business administration, another great option is to hire a CPA (certified public accountant) since they’re specifically trained to handle any accounting needs for companies both big and small.
If you plan on receiving business income from more than one source as a self-employed person such as freelancing or consulting, be sure to check out our article on how to file your taxes as a solopreneur!
Get Business Insurance for Your LLC
In addition to forming an LLC, personal asset protection from any liabilities that come with your business is vital. The easiest and least expensive insurance option is a commercial general liability policy that protects against bodily injury and property damage claims made by third-party clients.
If you’re looking for professional service industry-specific coverage such as product liability or professional malpractice, we recommend reaching out to a local agent who specializes in small businesses such as those at eLocal.
Maryland Business Permits and Licenses
Along with opening a business checking account and getting a business credit card, be sure to research any additional business licenses or permits you might need before starting your LLC. Some of the more common licensing requirements include:
- A sales tax license if you’ll be selling goods or services in Maryland
- A contractor’s business license if you plan on hiring subcontractors to provide labor for your construction projects
- An operating permit from the commissioner of revenue if your business is going to have employees
Maryland LLC Tax Filing Requirements
If you’re using an accountant to handle your company taxes, they’ll usually do all the work for you. If not, be sure to file your annual reports with the Maryland Department of Assessments and Taxation on or before March 1st each year. For more information on state LLC taxes in Maryland including filing fees, deductions, and tax rates for sole proprietorships, check out our article on how LLCs are taxed.
Maryland Sales Tax
The Maryland sales tax rate is currently 6%. This means that for every $100 you sell, you’ll need to collect an additional $6. If your business is registered as a limited liability company (LLC) or sole proprietorship, make sure to keep all your receipts!
You can claim up to 80% of the amount you spend on office expenses, transportation costs, and tools used for your job.
Maryland Employer Taxes
If you hire employees at any point, you’ll need to register yourself as an employer with the state of Maryland. As part of this registration process, keep in mind that there are two types of unemployment taxes employers must pay:
- The Federal Unemployment Tax Act (FUTA) which is 6% on the first $7000 in wages for each employee
- State Unemployment Tax (SUTA), which rates vary by location but usually run around 3% – 5% for each employee For more information on how to register your business and taxes associated with hiring employees in MD, check out our article on startup business costs.
Register for Maryland State Taxes
As a small business owner, it’s your responsibility to make sure all the money you earn is properly documented and reported for tax purposes.
The first step is to register with the state of Maryland by filing form COM: 101. If you meet any requirements such as having employees or needing an Employer Identification Number (EIN), be sure to take care of that before moving forward.
Once your company has been registered with the state, you’ll need to file Federal Employer Identification Number (FEIN) – Form SS-4. This provides your business with its own unique 9 digit identification number so both federal and state taxes can be filed under your company name.
Maintain Good Records for Your Company
Proper record-keeping is essential when it comes to running a successful business! Here are some of the most common records that should be kept up to date at all times:
- Sales invoices
- Expense receipts
- Monthly financial statements
- Payroll records
- Employees’ W2 forms or 1099s at year-end
- Relevant corporate bookkeeping is kept up to date within QuickBooks accounting software if you use that to handle your company expenses.
Maryland LLC Annual Requirements
Along with filing an annual report each March, be sure to double-check whether or not you’re required to file a list of the names and addresses of all managers, members, and managing members.
Most states do require these lists to be made available for public record, but Maryland is one exception! Unlike most other states where this information must be filed yearly by April 1st, in Maryland, it’s only necessary for companies who are managed by managers (which includes LLCs with two or more members) to file this documentation every 10 years.
Now that you know the requirements for starting a business in Maryland as well as a few other steps you should take next, it’s time to form your limited liability company!
At USA Business, there are a lot of services that can take care of everything from start to finish including filing your articles, applying for an EIN, and registering for any local or federal licenses such as a sales tax ID or contractor’s license.