If you’re here, it’s because you’ve decided to form an LLC in the state of Maryland, and you’re probably wondering what’s next?
Congratulations! Whether you’re starting a small business or expanding your existing company to a new state, it’s always an exciting move and it’s one you should be proud of.
(To skip to the “How to Form an LLC” section, click here.)
What Is a Maryland LLC?
A Maryland LLC is a Limited Liability Company formed in the state of Maryland that is governed by the laws, regulations, and statutes of the state of Maryland.
Why Choose an LLC?
There are three massive advantages to forming an LLC instead of choosing other business entities such as being a sole proprietor, being a C Corporation or an S Corporation that you should consider.
1. Limited Liability and Asset Protection
The first most important advantage of selecting a Limited Liability Company over other business types, like sole proprietorships, is the limited liability and personal asset protection that comes from owning an LLC. An LLC owner can’t be held personally responsible for the liabilities and debts of their Maryland LLC.
What does this mean? If your Limited Liability Company (LLC) runs into financial or legal problems (like bankruptcy or lawsuits) the creditors of your Maryland LLC aren’t allowed to list things such as your house, vehicle, or other pieces of personal property as a way to repay the debt owed to them by your LLC. The creditor’s only source of legal compensation is the assets and liabilities of the Maryland LLC.
Since even the most well-prepared business may be financially crippled by an unforeseen incident (such as a worldwide pandemic or natural disaster), this degree of personal liability protection is a necessity for anybody who appreciates the hard work they’ve put into establishing their legal entity with the Maryland Department of Assessments and Taxation.
Another advantage of forming an LLC in Maryland is that it allows you to keep your personal information private.
Over the past 10 years, hackers and fraudsters have grown much more skilled and they can now exploit even the most trivial personal information and use it to rack up thousands of dollars worth of debt in your name, all without your knowledge or consent.
When you run a business as a sole proprietorship or a partnership, your personal information is accessible on the public record, where it may be accessed by any hacker who wants to see it.
If you form an LLC, on the other hand, you can ensure that your personal information remains confidential.
Simply using an LLC formation service will allow you to avoid disclosing your personal information to people with criminal intent and keep both your identity and credit score secure. This will allow you to avoid exposing your personal information to nefarious individuals because this professional service will register their information with the Maryland Department of Assessments and Taxation rather than your own.
Finally, and perhaps most importantly, Limited Liability Companies (LLCs) enjoy significant tax advantages over corporations and sole proprietorships.
Business owners who choose a corporation rather than a Maryland LLC are subject to what is known as “double taxation,” which means they will pay taxes twice.
Due to the fact that profits earned by a corporation are first taxed at corporate rates, then disbursed to corporate shareholders as dividends (which are also subject to personal income tax), this corporate tax phenomenon is called “double taxation.”
Double taxation is avoided when you form an LLC (Limited Liability Company). The profits of your Maryland LLC are subject to company tax rates (which aren’t as high as corporate tax rates), and they are then distributed to LLC members and are regarded as personal income. Because of this method of taxation, your Maryland LLC will only be required to pay tax on its profits once.
But hold on just a minute, there are even more tax advantages for Maryland LLCs!
The Qualified Business Income Deduction is a new tax benefit for LLCs that was included as part of the 2017 Tax Cuts and Jobs Act. This enables the majority of LLC owners to get up to a 20% tax reduction, which is a benefit that isn’t accessible if you select another business type, such as a sole proprietorship. This is an excellent reason to form an LLC!
How to Start an LLC in Maryland
Given your newfound knowledge about what a Maryland Limited Liability Company (LLC) is, as well as a few of the reasons to form an LLC in Maryland, you can now determine if a Maryland LLC is the appropriate business structure for your business in Maryland. Here are the five steps to start a Maryland LLC.
*IMPORTANT* You may hire a professional service to help you with negotiating the complex red tape involved with forming a Maryland LLC, dealing with all of the formation papers, and protecting your privacy. In Maryland, these businesses will finish the LLC formation procedure on behalf of your business in Maryland and help get your LLC established with the Maryland Department of Assessments and Taxation.
These businesses, called LLC formation services, can be found in the state of Maryland and can help you form your Maryland LLC for as low as $0 plus state filing fee. But my top-rated LLC formation service is Northwest Registered Agent, which will provide you with LLC formation services for $39 plus the state filing fee.
If you’d like personal assistance through the red tape as well as security for your personal information, check out my guide on the best LLC service for more information on LLC formation services.
1. Obtain Articles of Organization Form
The Maryland Department of Assessments and Taxation will provide you with a copy of the Articles of Organization form, which is the initial step in starting your Maryland LLC.
The Maryland LLC Articles of Organization can be accessed in PDF form here.
The subsequent procedures outlined below are entirely related to the fields on this Maryland LLC Articles of Organization form because it is the main formation document in the state of Maryland. Therefore, the rest of the steps in this list will refer to the Articles of Organization form.
2. Choose Your Business Name
Your LLC name is the first item you’ll need to provide in your Articles of Organization form after you’ve obtained a copy.
However, before you jot down any brilliant LLC name ideas that come to you, double-check that the name you’re considering hasn’t already been used by another business in Maryland.
Maryland law dictates that every business and LLC in the state of Maryland is required to have a unique business name, therefore you MUST check to see whether the name you choose is available before proceeding.
Fortunately for you, this is a straightforward procedure. Simply go to this page on the Maryland Department of Assessments and Taxation website, type your chosen LLC name into the search box, then click the “search” button to complete the process.
Every LLC in Maryland must contain the words “Limited Liability Company” in its name. These words can be abbreviated as “LLC”, “L.L.C.”, “Ltd.” or “Co.” Adding these abbreviations at the end of your business name will guarantee that you get it, in a similar way to adding numbers to the end of an online screen name.
Once you’ve found a name for your LLC in Maryland, you must file a Corporate Name Reservation Application form, and pay the $25 filing fee. Unfortunately, you can’t file online, so you’ll have to file this form by mail.
If you don’t like the official name you’ve had to register for your LLC in Maryland, you can use a trade name, DBA (Doing Business As) name or fictitious name, which is the name that you’ll show the world on signs, advertisements, and websites. To register for a trade name you must file a Trade Name Application, which is a form you can file online (here) or by mail and there’s a $25 filing fee (with an additional fee of $50 if you choose expedited service). It’s worth noting that you don’t need to register the trade name of your LLC in Maryland, but the Maryland Department of Assessments and Taxation does recommend doing so.
3. Choose a Maryland Registered Agent
Appointing a registered agent is the next step to starting a business in Maryland. In the state of Maryland, every Limited Liability Company must have what is known as a “registered agent,” which is also referred to as a resident agent in some areas.
A registered agent is an individual or business entity who will act as the point of contact for your LLC, accept mail and service of process during business hours, and safeguard your information by registering their name and address with the Maryland Department of Assessments and Taxation rather than your own.
When selecting a registered agent or resident agent in Maryland for your LLC, you have two options. You may act as the registered agent for your business on your own or hire a professional registered agent service. I'll discuss the advantages and disadvantages of each so you can make an informed choice when appointing a registered agent.
If you choose to serve as the registered agent for your business, it's important to understand that you will be legally required to receive mail and service of process during regular business hours on business days. The issue arises when you realize that the majority of LLCs work during regular business hours on business days, and it is not a good idea to spread yourself too thin by attempting to run your business while simultaneously serving as its registered agent/resident agent.
If you fail to comply with a service of process, your Maryland LLC may be sued, leaving you defenseless against a default judgment. What's more, missing a service of process may result in your LLC losing its “good standing” status with the Maryland Department of Assessments and Taxation, thereby barring you from doing business in the state of Maryland.
When opposed to taking on the registered agent job yourself, using a registered agent service substantially reduces your burden and safeguards your information. Appointing a professional registered agent service also ensures that you receive and be informed of any mail or service of process accepted on your behalf by the registered agent service. The sole disadvantage of employing a registered agent service is that they charge between $99 and $299 for their business services per year.
Given the dangers associated with acting as your own registered agent, the expense of hiring a registered agent service is justified. I usually suggest that new LLCs use a registered agent service rather than attempting to fulfill the function of registered agent on their own to save money.
If you're interested in learning more about registered agent services, you can read my article on the finest Maryland registered agents.
4. Choose Your LLC Address
The address of your LLC is a crucial piece of information you'll need to provide in your Articles of Organization. The Maryland Department of Assessments and Taxation requires every LLC and business in the state to register a principal business address, which is recorded on the department's website.
Your business will need to register its Maryland physical address if you don't use an LLC formation service or registered agent. In the absence of a physical location, your only alternative is to provide your home or office address, neither of which is desirable.
There is no need to worry about the address to put on the Articles of Organization if you have signed up with a registered agent service. When you use a registered agent service, they'll put their own address on the form, protecting your personal information from being misused.
5. Sign and File Your Articles of Organization
After collecting all required information and completing your Articles of Organization, it’s time to file the Articles with the Maryland Department of Assessments and Taxation in order to establish your Maryland Limited Liability Company. Your LLC’s Articles must contain the following information:
- the name of the LLC,
- the purpose of the LLC,
- the Maryland address of the LLC, and
- the name, Maryland address, and signature of the LLC's registered agent.
You can file the Articles of Organization by mail or online, depending on your preference. For online filings, you’ll spend $50 in addition to the standard filing fee of $100 (a 3% service fee is added for online submissions).
If you choose to file the Articles of Organization by mail then simply send your Articles to the following address:
State Department of Assessments and Taxation,
Charter Division 301 W. Preston Street; 8th Floor
Baltimore, MD 21201-2395
If you are filing by mail then you can expect a processing period of four to six weeks. If you would prefer your business formation documents to be expedited, Maryland offers expedited document processing for an additional $50 fee. Documents filed online or flagged for expedited processing will complete the process in seven business days.
Other LLC Activities
Following the filing of your Articles of Organization, there are a few more steps to do to ensure that your Maryland LLC gets off to a good start on your business journey.
Maryland LLCs are required to file an Annual Report and Personal Property Tax Return with the Department of Assessments and Taxation Personal Property Division. LLCs, like corporations and partnerships, must file annual reports by April 15th of each calendar year, in a manner similar to how state and federal tax returns are filed. Your LLC must file an annual report online via the Maryland Business Express website or by mail. Failure to file your Annual Report and Personal Property Tax Return by April 15th may result in a loss of your “Good Standing” status with the Department of Assessments and Taxation. However, if you are behind on your paperwork and filing, you may seek an extension for your business. The annual report filing fee is $300.
Additional business licenses and permissions will likely be required, depending on the location of your LLC and the kind of business you want to conduct. Before you begin, check with the city or county clerk in the region where your LLC is situated to see if you need any local business permits. For state licensing requirements, you can check the Maryland Business Express here.
You may also wish to acquire a Certificate of Status for your LLC. A Certificate of Status shows that your LLC is in good standing with the Maryland State Department of Assessments and Taxation. This certificate may be needed for other services your LLC may need in the future, such as certain kinds of business loans.
Maryland LLCs that will provide professional services, such as legal aid or accounting, must complete the Professional LLC or PLLC formation procedure. Professional Limited Liability Companies (PLLCs) are limited to delivering a single kind of professional service, and all members must have the necessary business licenses and permits, or be registered with the state, in order to provide the licensed professional service for which the LLC was formed. As part of the LLC creation procedure, you may be asked to submit a copy of each LLC member's applicable business license or state registration.
If your LLC wants to sell goods, collect sales taxes, or hire employees, you must register with the Comptroller of Maryland. Even if your LLC won't be collecting sales tax or hiring employees, you may be required to register with the Comptroller of Maryland for other reasons. You may register online by visiting the Comptroller of Maryland's website by clicking here.
If your LLC is located outside of Maryland and is expanding into the state, or if you are not a Maryland resident, you must complete the foreign LLC formation process. This process is similar to that for forming a domestic limited liability company. The primary difference is that you must file a Foreign Limited Liability Company Registration. Additionally, you must choose a registered agent with a physical address in Maryland. The application’s filing fee is $100 and it may be filed online or by mail.
Check the Maryland business name database prior to filing to verify that the foreign limited liability company's name is available in Maryland. If the chosen name is not available, the foreign LLC must register a trade name with the Maryland Department of Assessments and Taxation in order to do business in the state. You must file a Trade Name Application and a $25 filing fee, or $75 for expedited service. You may file your application online or via mail.
If this is your first time filing annual reports or applying for a business license, expert services are available to help you. A Maryland PEO service may be able to help you with submitting your annual report and other documents, and online legal services may also be able to assist you with the extra paperwork.
Maryland LLC Fee Summary
How much does it cost to form an LLC in Maryland? No matter how you go about forming an LLC, you’re going to encounter some state filing fees. Here’s a list of some of the filing fees and taxes you can expect to pay as part of the LLC formation process:
Articles of Organization filing fee: $100 ($50 expedited fee and 3% service fee for online filing as well)
Name Reservation filing fee: $25
Registered Agent Fee: $99–$299
Annual Report filing fee: $300
State Personal Income Tax: 2%–5.75%
State Corporate Income Tax: 8.25%
After Starting Your Maryland LLC
Making the decision to form an LLC in Maryland is a significant first step and it’s one worthy of celebration. So relax and enjoy a beer or glass of wine, take a trip or have a nice dinner, but don’t let your guard down too much. You’re still not prepared to take over the controls of your LLC.
There are three more critical steps that you must finish to lay the essential foundations for business success.
Step 1. Create an Operating Agreement
Maryland law does not require LLCs to establish or adopt an LLC Operating Agreement. Nevertheless, it’s in the best interests of your business to do so.
Without an Operating Agreement, your LLC will be controlled solely by Maryland's business and LLC laws and regulations, which may or may not be advantageous to your small business. By adopting an Operating Agreement, you may establish operating processes and standards that exceed the requirements of state law, which often only addresses the bare minimum.
*IMPORTANT* Before you begin drafting the Operating Agreement, you must define the management structure for your LLC. A multiple-member LLC makes decisions via a voting process. If you or any of your LLC members lack management experience, you should opt for a manager-managed structure. Your LLC delegates authority to make high-level choices to managers rather than making them yourself under this arrangement. If you choose this management style, it is essential to ensure that each manager is competent and trustworthy.
Operating Agreements provide guidelines and expectations for how members, managers, and departments of your LLC interact with one another, as well as their respective responsibilities and obligations. Without Operating Agreements, LLCs are severely limited in their capacity to function.
Additionally, an Operating Agreement acts as a contract between members, explicitly defining their individual responsibilities and degrees of power. Operating agreements that are poorly written often include unclear or deceptive wording, causing conflicts between LLC members and departments. A poorly written Operating Agreement may also exclude procedures for onboarding new members and distributing shares and responsibilities in the case of a member's exit, stalling the growth of your business.
To avoid these situations, ensure that the rules in your Operating Agreement are explicit and thorough. A well-written Operating Agreement should describe each LLC member, their profit and loss share, their responsibilities and authority level, and how they should interact with the other divisions of your LLC. If your LLC has managers, the Operating Agreement should include standards and procedures defining their authority and responsibilities. A well-written Operating Agreement that includes clear instructions and thorough operating procedures may streamline the daily operations of your business, enabling you to relax while your business develops.
If this is your first time drafting an Operating Agreement, many LLC formation services offer assistance with the process as part of their service package. Consider subscribing to an online legal service if you need help with wording your Operating Agreement correctly. Additionally, Northwest Registered Agent offers a free Operating Agreement template on their website, which you may get by clicking here.
Step 2. Apply For an Employer Identification Number
Obtaining an Employer Identification Number (EIN) is required if you want to establish a business bank account for your LLC, collect sales tax, or hire employees. An EIN is a tax identification number for Maryland businesses that identifies businesses in much the same way that a Social Security Number identifies individuals. In fact, one of the incentives for obtaining an EIN is that you won’t have to use your Social Security Number on your business’s forms as much if you have an EIN.
You can get an EIN for your business entity from the Internal Revenue Service (IRS), and it’s quite simple.
Of course, if you use an LLC formation service, they will apply for an EIN for your business entity as part of their services. But if you’re starting a business on your own, you can apply for an EIN by going to the IRS website Monday–Friday between 10am and 7pm to fill out and file the application.
Step 3. Open a Business Bank Account
The last step before your small business can fully function is to establish a business bank account that is dedicated solely to the financial transactions of your LLC in Maryland.
This is an often neglected, yet essential, stage in the process of forming an LLC.
A large number of small business owners will do business from their personal bank account and then later attempt to tell the difference between personal and business financial transactions when tax season rolls around, which is a difficult task. This may seem to be a more convenient option than opening a separate account for your business transactions, but I don’t recommend it for two reasons.
The first reason it’s absolutely necessary to have a business bank account is that while you may be able to tell which transactions are for personal use and which are for business purposes in the moment, it’s much harder to determine the difference months later when you’re sorting through hundreds of transactions. As a result, federal tax filing becomes much more stressful than it needs to be if you use this method for your business.
The second reason is that, even though you obtained the personal asset and limited liability protection of an LLC, if you pay all of your business expenditures via your personal bank account, you may be personally liable in legal and financial situations, which voids the limited liability and personal asset protection.
Therefore, if you’d like to avoid stress during federal tax filing and still retain ownership of your personal assets, you should consider opening a business bank account.
It’s customary to open business bank accounts with a bank kit, which contains a copy of your Articles of Organization, LLC Operating Agreement, EIN, and your initial resolution.
Another point to mention is that if you want to escape the burden of collating all of these documents yourself, many LLC formation services in Maryland will put together a bank kit for your business as part of their services.
What Is a Resident Agent?
You've probably come across many businesses promoting themselves as a “resident agent” when doing research on how to start a business and are wondering whether this refers to a distinct kind of business service that your LLC may need.
The term resident agent is no longer used to refer to what are now referred to as registered agents and registered agent services. There is no distinction in the types of business services provided by a resident agent in Maryland and any other registered agent service. A registered agent will still be required to provide the same services to your business as any registered agent, so you don’t need to worry about which of the two is better. As previously stated, the term “resident agent” is simply an older term that refers to the same type of business service as a registered agent.
Starting a Maryland LLC is a significant step to take, and you should be commended for having the fortitude to stick it out, get through the process, and take charge of your business career.
If you’ve decided not to utilize a Maryland LLC formation service (which can cost as little as $0 plus state filing fees), then there are five important steps you must take in order to form your Maryland LLC. They are as follows:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
While navigating through the sea of red tape, learning new legal terms, and forming an LLC can be a time-consuming procedure if you’re taking on the task all on your own, finishing it will be the first of many enjoyable milestones along the road to establishing your entrepreneurial empire.
Once again, congrats and good luck on your career path!