How to Start an LLC in Maryland
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Forming an LLC in Maryland primarily involves filing the correct paperwork, but it is also important to know your business inside and out before getting started. Taking the appropriate steps can make the process simple and fast and avoid any issues in the long run. Working with the Maryland Department of Assessments and Taxation, anyone can have a Maryland LLC quickly. To learn more about this type of business, including how to pick a name, file for a name reservation, and pay LLC taxes, check out this step-by-step guide.
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Because of its history and proximity to the nation’s capital, Maryland is a state known for its work with federal government agencies and facilities. The Food and Drug Administration is just one of the well-known agencies that call the Old Line State home, with military installations and universities also large employers. But alongside these massive enterprises, small businesses in Maryland are booming, contributing to the high per capita income that residents enjoy. For those who are thinking of starting their own business in Maryland, a limited liability company offers tax benefits, personal liability protection, and a simple startup process.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
From a practical standpoint, knowing your business name early on makes it easier to fill out forms, order materials, and prepare to begin operations. This is true of starting an LLC in Maryland, especially as you will need the name to properly file for LLC status in the state.
The first thing you will want to do is check on business name availability. Maryland does not allow any two business structures to have names that are identical or indistinguishable from one another. You can use the state’s Business Entity Name Search to see what names have been registered previously.
If your name is available, you should also be sure it meets other naming requirements in the state. These include:
- The term “limited liability company” or an abbreviation like “LLC” or “L.L.C.” must be a part of the business’s name.
- No words can be used in the name that could confuse the LLC for a government agency.
- Some words will be restricted and require additional paperwork before they can be used. For example, you cannot use the word “Attorney” in your business name without showing that a licensed lawyer is part of the business.
When you have a name that meets all of the legal guidelines in Maryland, you may want to make some marketing considerations as well. Do a quick online search for your preferred name to understand if other businesses across states have used this name and what a customer might see if they did the same. You may also check to see if a matching domain name and social media handles are available.
Reserving business names
Because names must be unique, there is always a chance that another business can use your name until you have registered it with the state. The best way to ensure this doesn’t happen is to form an LLC using your chosen name, which takes it out of rotation. However, if you are not ready to take this step, you can put a hold on the name.
You will need to complete a reservation form with the state and include a $25 filing fee. This will prevent anyone else from using the name for the next 30 days while you prepare to form an LLC.
You can reserve a business name in Maryland for 30 days.
Select a registered agent
A resident agent, commonly known as a registered agent, will need to be named for each LLC formed in Maryland. This person or entity is responsible for receiving government correspondence on behalf of the organization, which can include tax forms, notices of lawsuits, and other legal documents. By being named as a resident agent, they are committing to availability during all normal business hours to serve as this point of contact.
If you choose to name an individual as resident agent, they must be over 18 and a resident of Maryland who agrees to the required availability. There are no limitations on this person’s relation to the LLC- they can be the owner, an employee, or simply a friend.
To ensure availability, many businesses choose to instead use a registered agent service. These companies charge a small fee to perform this service for your businesses.
Any resident agent will need to sign formation paperwork as a means of committing to the role.
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File Articles of Organization
For Maryland to recognize the existence of an LLC, you must file the Articles of Organization through the Department of Assessments and Taxation, not through the secretary of state as other states require.
This form will contain all the necessary information about your LLC, allowing the state to keep a record of your information and ensure everything is in compliance.
In order to fill out the Articles of Organization, you will need to provide:
- The name of the LLC
- The purpose of the LLC
- The address of the LLC (must be a physical address in Maryland)
- The resident agent’s name and mailing address
- Signature from the resident agent
- Signature of the authorized person completing the form
- Return address for the filing party
When your Articles of Organization are complete, you can submit them by mail, in person, or through the online portal.
You can fill out and submit your LLC formation documents here.
Filing fee
There is a $100 non-refundable fee associated with submitting the Articles of Organization.
Maryland processing time
The estimated turnaround time for Articles of Organization to be approved is between four to six weeks. Depending on the time of year, this can be toward the lower or higher end of this time frame. For a $50 fee, this can be expedited.
Create an LLC operating agreement
Unlike corporations, LLCs are not required by Maryland to have any governing documents like bylaws or an operating agreement. But even though there is no requirement, it is highly recommended that every LLC has an operating agreement in place. This legal document should outline business ownership and daily operating procedures that could be contested later.
There are a number of reasons it is best practice to have an operating agreement for both single-member and multi-member LLCs:
- The structure of an LLC offers personal asset protection for members, but this can be eroded if it is found that the business is not being treated as a separate entity. By laying out the exact financial terms of a company, an operating agreement can protect your liability protection.
- The operating agreement serves as a tie-breaker if any conflict arises. Financial and other questions should be answered in the document, which can be referenced if there is any question.
- If there is no operating agreement in place, all default LLC laws in Maryland are applied. These rules may not serve the best interests of you or your company.
- While the state doesn’t require an operating agreement, some banks or investors may request to see one to show you have done your due diligence.
Crafting an operating agreement doesn’t need to be complicated. Most LLCs will be able to use a free template they find online, though some may turn to an attorney for help drafting the document.
The basic items you should expect to include in an operating agreement are:
- Company information: Any information about your company’s goals, purpose, location, and basic structure should be included. This can often be covered by including your Articles of Organization.
- Membership information: The names and class of each member, their capital contributions, and the percentage of ownership stake in the company.
- Member governance: What happens when a member leaves or is added and under what terms this can happen.
- Management structure: Who manages the company (manager-managed or member-managed), how often meetings are held, how votes are conducted and weighted, and when unanimous consent is required.
- Administration: Tax classification and fiscal year-end, how profits and losses are distributed, and what tax audit rules will be used.
The operating agreement will be an internal document and does not need to be submitted to any Maryland agency.
Along with the activities necessary to form an LLC, each business must keep up with the requirements for their business on an ongoing basis. The steps below will help you to move forward as a business and remain in compliance with all laws.
Get your EIN
The Internal Revenue Service issues a nine-digit identification number to businesses for the purposes of tracking tax filings at the federal level. This is known as the Employer Identification Number or EIN. You can think of it as a Social Security Number for your business.
Not every LLC will need to obtain an EIN. Any business with employees is required to have one, and any business that files excise taxes. However, it is a good idea to always have an EIN as some banks require them before you can open an account. It is free to get an EIN through the IRS, so it is recommended to go through this process early, even if you do not yet have employees.
You can get your EIN by visiting the IRS website.
Get Maryland business licenses
Before you can do business in Maryland, you may need to obtain a variety of licenses and permits that allow you to operate lawfully. The exact licenses you need will depend on a variety of factors.
- Goods and services sold: Any business that intends to sell goods or services subject to Maryland state sales tax will need to obtain a seller’s permit, also known as a sales tax permit. This will apply to the majority of LLCs and is therefore the most common license at the state level in Maryland. You can obtain a seller’s permit through the Comptroller of Maryland for no fee.
- Profession: Some professions are required to obtain specific licensing in order to practice in their field. For example, medical professionals typically undergo testing for the purpose of being licensed to practice in a certain state. The Department of Labor has a full list of contacts for each individual area that requires this.
- Industry: Some industries are regulated at the federal level, rather than the state or local one. Areas like nuclear energy, television and radio broadcasting, and aviation are all a part of this category. If you work in a federally regulated industry, be sure to look for all federal requirements before beginning operations.
- Location: Within Maryland, your exact location will be a large determinant of what licensing and permits you need. Cities and counties can both require certain licensing to be in place before you can operate there. For example, Anne Arundel County requires that any business not engaged in growing, making, or manufacturing have a Traders License before selling products. Once you have a location for your principal office, you should contact the local government to understand the requirements.
Open business bank accounts
Maintaining your liability protection requires that you act as if your LLC is a separate financial entity from the members of the LLC. One simple way to show this is to keep separate bank accounts and avoid mingling finances.
A checking account in your LLC’s name is a good first step. Not only does this protect your personal assets, but it makes accounting simpler, which can save you money on tax filings. You can also open a credit card in your business’s name, which will help you to form a credit score on behalf of your business.
Review LLC tax rules in Maryland
The business owners of some LLCs will choose to have the business treated like a corporation for tax purposes. In this case, the Maryland corporation income tax of 8.25% of net income would be payable to the state. However, this is not the most common tax structure for LLCs.
More commonly, LLCs are pass-through entities. This means that rather than paying a corporate tax, the business passes its profits and losses onto its members, who claim them on personal tax returns. The LLC itself would then not owe taxes, while members would. Maryland does require LLCs to pay income tax on any income that is allocable to a non-resident member, however. If your LLC has members that do not reside in Maryland, you will need to be sure the applicable taxes are paid to the Comptroller of Maryland.
File an annual report
Each LLC must file a personal property return (PPR) for the LLC each year, which serves as the annual report (also known as a Statement of Information in other states). This form must be printed out and mailed in, along with the $300 filing fee, by April 15th of each year.
Filing the report and paying the fee keeps your business in good standing with the state.
Get insurance for your LLC
If your LLC has one or more employees, including any LLC members, state law requires that you have workers compensation insurance in place. This coverage is designed to compensate employees for work-related illness, injury, or even death.
There is no other required insurance for Maryland LLCs. However, most businesses do choose to have coverage in place. This is usually in the form of general liability insurance, which guards against property damage and injury lawsuits, or professional liability insurance for industries subject to malpractice laws.
About BOI Reports…
For LLCs to operate legally, owners must understand and comply with Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act. Properly filing your report with the Financial Crimes Enforcement Network (FinCEN) is crucial to avoid penalties. If you are unsure whether your LLC must disclose ownership information to FinCEN, see our post about BOI reporting here.
Additional resources to help you set up a business in Maryland
Maryland has compiled a state website called Maryland Business Express in order to make planning, starting, and running a business simple for LLC owners. In addition to portals for submitting paperwork, there are a range of resources available.
FAQs
Do LLCs in Maryland have to pay extra taxes?
LLCs can choose to be taxed as a corporation and pay the Maryland corporate tax rate, or pass-through all profits to their members and pay personal income tax. However, there is an additional franchise tax levied on LLCs in Maryland when they have a member who is not a Maryland resident. Their allocation of profits will be subject to this tax.
What employer taxes do LLCs in Maryland pay?
In Maryland, any business with employees must register for the Unemployment Insurance Tax and the Employee Withholding Tax. For this purpose, members do not count as employees. To pay these taxes, you must register through the Maryland Department of Labor, Licensing and Regulation.
How do an LLC pay state and federal taxes?
Typically, an LLC pays state taxes and federal taxes via their personal income tax return.
When are Maryland Annual Reports due?
Maryland requires that annual reports are filed by April 15th of each year. If you file late, there is a charge of 10% of your property value. There is also an extra 2% interest for every 30 days that your return is filed late. If it is never filed, your LLC could be dissolved in addition to higher fees.
Who can be a registered agent in Maryland?
In order to be a registered agent or a resident agent as it is called in Maryland, an individual must have a physical address in the state (not a P.O. box) and be over 18. A business must have a registered office in the state.
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