Are you looking to form a limited liability company (LLC) in the state of Maryland, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Maryland LLC that is compliant and able to do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Maryland LLC?
The Maryland LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes personal asset protection that's lacking from sole proprietorships and general partnerships.
LLCs in Maryland have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Forming an LLC in Maryland (in 6 Steps)
Step One) Choose an LLC Name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Maryland, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Maryland, or you’ve officially formed your business. Thanks to Maryland’s state business database, you can simply search your desired business name. If no results pop up, then your name is still available. If you’re not yet ready to form your LLC, you can reserve your desired name with the Corporate Name Reservation Application form. Doing so will give you 30 days to get your LLC’s affairs in order. If that’s not enough time, don’t worry. Maryland offers a re-reserve option with this form, which gives you an additional 30 days. Please note that the initial reservation and a re-reservation both cost $25 each.
Step Two) Designate a Registered Agent
Every LLC in Maryland is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Maryland Attorney General,
A resident agent is a person or entity that is designated to accept service of process on behalf of the entity in the event of a lawsuit. The address of a Maryland resident agent must be an actual physical location and not a post office box.”
Without a registered agent, you could lose your good standing with the state of Maryland, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Step Three) File Formation Documents with State
Once you are ready to form your Maryland limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of Maryland charges a $100 fee to form an LLC.
Processing Time: The amount of time it takes for the state to process your Maryland LLC formation paperwork largely depends on how you file. It can take 4-6 weeks if you simply file by mail. For an additional $50 fee, you can expedite your mailed-in filings, reducing the time to approximately seven business days. However, if you file online (which is considered an expedited filing), your filings should be complete within three business days. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC in Maryland, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Maryland levies these taxes based on the nature of your business. The most important of these is income taxes. If your LLC is considered a pass-through entity—usually a sole proprietorship or partnership—you’ll pay income taxes on your individual tax returns. However, LLCs which choose to be taxed as corporations will be subject to the state’s corporate income taxes. You can learn more about Maryland’s corporate income taxes here.
Several other taxes apply to Maryland businesses. For example, if you’ll be working in retail sales, you’ll be subject to Maryland’s sales tax. The current rate is 6%. You can learn more about sales taxes here.
LLCs with employees are also required to pay several employer taxes. First, you’ll be required to pay withholding taxes; essentially, you keep back a portion of an employee’s wages from each paycheck and forward it to the state. The Comptroller of Maryland offers some guidance on your withholding responsibilities as an employer. Similarly, employers are also required to pay unemployment insurance taxes. This state program is funded through taxes. You can learn about your UI tax obligations here.
You may also need to pay some industry-specific taxes, such as alcohol taxes, boxing and wrestling taxes, and more. You can look here for taxes that may pertain to Maryland businesses.
Knowing what taxes to pay and then paying them can be a little overwhelming. But thanks to Maryland’s bFile, you can get started on paying a wide variety of your taxes.
Depending on where in Maryland your business is located, you could also need to pay some local taxes. For example, in Maryland, you may end up paying property taxes to both the state and your local government. Rates can vary depending on where you’re located, too. You can learn more about state policies here, and look up your local government office.
Step Six) Obtain Business Licenses and Permits
The state of Maryland does not have a general business license that each LLC needs to acquire in order to do business. That said, you’ll need to register your business with the state. You can get started at the Maryland Business Express.
However, Maryland upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the state has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. Maryland has hundreds of these licenses, so there’s a good chance at least one of them applies to your LLC. Thankfully, the state makes it easy to determine which licenses you’ll need. Simply get started with Maryland’s OneStop.
Next Steps: What to do After Creating a Maryland LLC
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Maryland business with employees is strictly required to acquire workers’ compensation insurance. This policy provides partial wage compensation for your employees in the event that a work-related injury or illness makes them unable to work. For more information on either of this policy, check out the Maryland Workers’ Compensation Commission. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. Maryland offers this resource to help business owners understand and file their income reports.
Understand annual reporting
Maryland requires that all LLCs file an annual report. You can log in to file it online here. Your annual report will essentially serve to update the state on any pertinent information regarding your business that has changed over the course of the year.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.