Many business owners agree that LLCs are a great choice because of the tax benefits they provide, their simple structure with less regulation than corporations deal with, and of course, personal asset protection to keep your property and finances separate from those of your business. But we all know that government paperwork takes a while to process. In this guide we’ll tell you everything you need to know about how to start a Limited Liability Company, what it’s like to run a business in Maryland, and discuss how long it takes to get an LLC in Maryland.
Discovering Maryland
Maryland has a lot going for it. It’s where Captain John Smith first arrived in 1608, it was a crucial part of the Underground Railroad, as Harriet Tubman was a Maryland native, and Antietam, one of the bloodiest battles of the Civil War, happened in Sharpsburg, Maryland. There’s a lot of geographic diversity, which makes sense because it borders the Atlantic Ocean, as well as Appalachia. This means that it’s home to marshes, the Battle Creek Cypress Swamp, fertile farmlands, forests, mountains, hills, valleys, and streams. Most people know Maryland for crabs, as it’s the nation’s biggest producer of blue crabs, but its other natural resources include natural gas, coal, limestone and clay.
Economic Overview of Maryland
Maryland’s GSP (Gross State Product) is $370.1 billion, and has experienced a growth rate of 20.5k% between 2018-2023. The industries that have pulled in the most revenue are IT Consulting, Health & Medical Insurance, Public Schools, Drug, Cosmetic & Toiletry Wholesaling, and Hospitals. The companies that employ the most people in Maryland are the State of Maryland, Amazon.com, Inc., Baltimore County, Walmart Inc. and Johns Hopkins University. And the sectors that contributed the most to the state’s economy in 2023 were Real Estate and Rental and Leasing, Professional, Scientific and Technical Services, Healthcare and Social Assistance, Manufacturing and Information.
Business Environment in Maryland
Usnews.com released a list of the best states based on a number of variables. It ranked #42 under the Business Environment section, #32 in Employment, and #39 in Growth. Maryland’s Venture Capital is $2.61 per $1k GDP, whereas the national average is $7.65, and job growth is -1.6%, with a national average of 0.2%.
Mdbusinessclimate.org did a survey and asked business owners in Maryland what they thought of various aspects of business ownership in the state. One of the things that came up was the infrastructure. Many said that mass transit access issues and traffic congestion were problems. Considering 27.7% of roads in the state are in poor condition (national average is 19.0%), those complaints seem legitimate.
Some of the figures listed on Usnews.com’s ranking of Maryland are confusing at first glance. It rated Maryland #3 in terms of economic opportunity, and #10 in equality. The state has a cost of living index of 106.2 (national 100.0), the median household income is $90,203 (national $69,717) and the poverty rate is 10.3% (national 12.8%). But it ranks #44 in affordability. That seems to indicate that although people are paid well in Maryland, things are expensive, and that’s worth noting before starting a business in the state.
State-Specific Regulations and Incentives for Forming an LLC in Maryland
Here are some of the programs, incentives and regulations for Maryland businesses.
- Maryland Small Business Development Financing Authority: This agency helps businesses that are owned by socially and economically disadvantaged people both stay in business and expand, by financing businesses that struggle to obtain financing through traditional means. They have a contract financing program, equity participation investment program, long-term guaranty program, and surety bonding program.
- Small, Minority and Women-Owned business Account- Video Lottery Terminal Fund (VLT): This program uses the state’s VLT funds from casinos in Maryland to help out small businesses, minority, and women-owned businesses in areas targeted by the state government.
- State Small Business Credit Initiative: The SSBCI is part of the federal Small Business Jobs Act that was enacted in 2010. Maryland was allocated $23 million, split into 3 installments and subject to performance. The average borrower under this program must have 500 or less employees and loans that average $5 million.
- Military Personnel and Veteran-Owned Small Business No-Interest Loan Program: This program supplies no-interest loans (up to $50,000) that range from 1-8 years to businesses that are owned by veterans, National Guard personnel, military reservists, or for businesses that employ veterans and military personnel.
- Maryland Economic Adjustment Fund: This fund helps small businesses to upgrade manufacturing operations and develop commercial applications for technology, or to enter and compete with new markets. Business industries that qualify include skilled trades, wholesalers, manufacturers and service companies.
- Biotechnology Investment Incentive Tax Credit: This program provides income tax credits to companies that invest in Biotechnology companies in Maryland. It’s equal to 50% of the investment made, and it maxes out at $250,000.
- Enterprise Zone Tax Credit: This tax credit provides income and real property tax credits for businesses that are in designated enterprise zones in the state. The credit for real property tax is 80% with an incremental increase on the taxes during the first 5 years, then decreasing 10% the next 5 years. The credit for income tax is $1,000 per new employee. The credit increases to $6,000 per economically disadvantaged employee. There are enhanced credits for income tax and property tax in Enterprise Zone Focus Areas, as well.
- Job Creation Tax Credit: If a business creates a minimum number of full-time jobs, it could qualify for up to $1,000 in tax credits per job, or $1,500 per job if they were created in a “revitalization area”. To qualify, businesses must create 60 full-time jobs in 2 years, or 30 full-time high wage jobs, or 25 full time jobs that are located in a Job Creation Tax Credit Priority Funding Area.
- One Maryland Tax Credit: If a business invests in a “qualified distressed county” by creating at least 25 full-time jobs, it could qualify for as much as $5.5 million in state income tax credits. These credits are determined by the costs that were incurred during acquisition, rehabilitation, construction and installation of a project.
- Wineries and Vineyards Tax Credit: This is a 25% tax credit for expenses that were made starting a new winery or vineyard, or for capital improvements on existing wineries and vineyards. The credit limit is $500,000 each year.
Pros and Cons of Establishing an LLC in Maryland
There’s both good and bad when it comes to doing business in Maryland, and we’ll tell you about both in this guide.
Maryland’s residents are highly educated compared to some other states. Around 40% of the workforce has bachelor’s degrees, and nearly 20% have graduate degrees. The state has a thriving science sector because of this, too. There are close to 60 different colleges and universities in the state and they support the science and technology industries.
Maryland has a supportive community for business owners. There’s a program called Main Street Maryland run by the Maryland Department of Housing and Community Development that encourages citizens of the state to shop in the state’s small businesses. You’ll find a number of networking opportunities, as well, with events, showcases and business incubators to take part in.
It’s a convenient location, close to other major states with densely populated cities and economic hubs. One of the biggest cities nearby is Washington, D.C. This means that you have a pool of customers in other states, as well as a diverse workforce pool to choose from.
Here are some of the disadvantages of doing business in Maryland.
Maryland’s economy is driven by tourism. Every industry is affected by the annual drove of beachgoers that head to Ocean City, or check out the National Aquarium. And that’s a problem in and of itself because it means that your business profits won’t be consistent and steady. But it gets even worse- tourism to the state has been decreasing since the Covid-19 pandemic. Government agencies have thrown millions of dollars in grant money at the situation, and some industries still haven’t fully recovered.
The cost of doing business in Maryland is high. In particular, you’ll pay through your teeth in taxes. The corporate income tax rate is 8.25%, and if you’re thinking you won’t have to pay that if you own a Limited Liability Company, some LLC owners choose to be taxed as a corporation because they get lower tax rates and benefits. The sales tax rate is 6%, which is pretty average for the region, but 1% higher than the national average. Personal income taxes range from 2% to nearly 6%, which is a number that LLC owners should pay attention to as pass-through entities. And minimum wage is $12.50 in Maryland, and it’s set to raise to $14 in 2024, which drastically affects payroll expenses.
It can be difficult for new businesses to get seed money in Maryland. Investors in the state are weary of new industries and companies, despite the booming startup scene and tech industry there. It typically takes networking with other business owners to discover state and local resources that can help your business in its early days.
Procedure of Establishing an LLC in Maryland
It’s hard to understand everything involved with formation time frames if you don’t understand the LLC formation process. That’s why we’ll provide step-by-step instructions on how to form an LLC in Maryland in this section of the guide.
Necessary Documentation for Filing an LLC in Maryland
You’ll need a number of documents and applications to file for an LLC in Maryland. Here’s a look at some of the paperwork you’ll need.
- Articles of Organization: One of the main documents involved in LLC formation is the Articles of Organization. This document includes important information about your LLC, like your business name, address, information about the ownership of LLC members, the management structure of your company, and your registered agent’s information.
- Name Reservation Application: The way the state government ensures that your business name is unique is by requiring every business in the state to reserve their business name. So once you’ve found a fitting business name and ensured that it’s available, you must file a Corporate Name Reservation form with the Department of Assessments and Taxation.
- Operating Agreement: It’s important to know that although an Operating Agreement isn’t a legal requirement for your business, it’s recommended that you draft one anyway because it’s an important internal business document that you’re likely to refer to frequently during your first year of business. It includes instructions on how your business will run, as well as information about each LLC member, the ownership and contributions of members, the distribution of profits and losses among members, contact information for managers, voting rights and meeting schedules for members, and the process involved with removing or adding new members, among other things.
- Initial Report: Businesses in Maryland must file an Annual Report, which is a way to update your business’s information with the state government. And yes, you must file one even if your information hasn’t changed. The first one you file when submitting your Articles of Organization is called an Initial Report.
- Employer Identification Number: To open a business bank account for your Limited Liability Company, hire employees and perform other business activities, you’ll need an Employer Identification Number, or EIN. Luckily, this is a free application you can get from the IRS website, or by filling out IRS Form SS-4.
- Business Licenses and Permits: Every business is required to have a number of business licenses and permits, both from state and local governments. For county and local licenses and permits, inquire with county and local clerks. For state licenses, head to Maryland’s Business Express online.
- Tax Registrations: Businesses in Maryland are also required to file a Personal Property Tax Return with the Department of Assessments and Taxation Personal Property Division. On top of that, you’ll need to register your business to collect sales tax through the Comptroller of Maryland.
Legal Requirements for Starting an LLC in Maryland
Here are the legal steps involved in starting an LLC in Maryland.
- Procure an Articles of Organization Form: This is essentially the form that creates your LLC, as well as your application to form an LLC. You get your Articles of Organization from the Maryland Department of Assessments and Taxation.
- Select a Business Name: One of the legal requirements for business names in Maryland is that every business must have a unique name. Translation: you can’t use a business name if another business is already using it. You’re also required to include words or abbreviations that indicate the LLC status of your business, like “Limited Liability Company”, “L.L.C.”, “LLC”, etc. So your first stop should be running a business name search on the Department of Taxation’s website to find out if the business name you want to use is available. Once you find one that you’re allowed to use, that’s when you fill out your Corporate Name Reservation Application.
- Pick a Registered Agent: LLCs in the state are required to name a registered agent. This is a person who receives and accepts mail from government agencies, as well as service of process and legal notices on behalf of your company. They typically have a set of legal requirements they must meet, like having a physical address, but as long as they meet those requirements you’re allowed to designate anyone you want as your registered agent. But many business owners choose to hire a professional registered agent service so they can rest assured that this important legal job is carried out in a professional manner.
- Choose the Address of Your LLC: There are several factors involved with choosing your business address. It will be listed on the public record so people (and government agencies) can contact your business. So if you don’t want literally everyone to have access to your address, maybe you should reconsider using your home address as your business address. In some situations your registered agent may allow you to use their address, but that comes with limitations, as well. The best option is to research virtual offices and virtual addresses you can use.
- Sign and Send Off Your Articles of Organization: Once you’ve filled out your Articles of Organization, you can submit it to the Department of Assessments and Taxation. If you’ve chosen to use an LLC formation service, they’ll file the document on your behalf.
Time Frame for Establishing an LLC in Maryland
Now that you know more about the LLC formation process, you’ll be better able to understand what’s involved with the LLC formation time frames we’ll discuss in this section.
How Long Does the Initial Paperwork Take in the State of Maryland?
Total approval times for filing online are around 2 weeks, or 7-10 weeks if you file by mail (plus mail time). Approval time is the total amount of time it takes for the Department of Assessments and Taxation to receive and go over your documents, and it includes processing time.
Processing Times in the State of Maryland
Processing time if you file by mail is 5-8 weeks, or two weeks for online filings.
Common Delays in the LLC Formation Process in Maryland
Here are some of the things that slow the formation process.
- Application Volume: If there is a high volume of applications, then it will take the Department of Assessments and Taxation longer to process your documents.
- Filing Method: Generally speaking, it’s faster to file online, and filing by mail results in slower processing times.
- Non-Business Days: Most government agencies aren’t open on weekends or holidays, so if you file on or during one, they won’t get to it until the next business day.
Expedited Processing for LLC Formation in Maryland
The fastest method for getting an LLC is expedited processing, and we’ll tell you all about it in this section.
What Are the Expedited Options Available?
Maryland has a same-day expedited processing option.
Additional Costs for Expedited Services in Maryland
If you want expedited processing, you’ll be required to pay a fee in addition to the filing fee. Maryland’s same-day expedited processing costs $50 extra.
Comparing LLC Formation Time Frame in Maryland with Other States
Here’s a look at the formation time frames of other states.
Brief Comparison with Key States
To review, Maryland has processing times of 5-8 weeks for mail filing, two weeks for online filing, and you have the option to file with same-day expedited processing.
You’ve probably already guessed that Maryland has one of the slowest mail processing times, but believe it or not, it isn’t in dead-last place. That honor goes to New York, which has mail processing times of 8 months. In terms of slower online filing times, Arizona takes 14-16 days, and Texas takes 13-15 days, which is really only a day or two longer than Maryland. And Arizona has an expedited processing option that takes 5 days.
In contrast, West Virginia, Delaware, Michigan, Nevada and Montana all have 1 hour expedited processing. Several states offer immediate processing for online filings. And Ohio and Kentucky have 1 day mail processing times, while Alabama, South Dakota and Massachusetts have 1-2 day processing on mail filings.
Why is Maryland a Favorable Place for Forming an LLC?
Maryland is a favorable place to start an LLC because it’s in a prime location near major metropolitan areas, its workforce is well-educated, and it’s developed a supportive network of business owners that work to lift up new businesses.
