Forming a limited liability company

Some entrepreneurs in Maryland can benefit from structuring their businesses as limited liability companies. A limited liability company is a hybrid between a partnership and a corporation because it provides tax efficiencies for its owners without functioning as a separate entity. Owners of LLCs can be individuals, groups of two or more people or other businesses.

When a corporation is created, the corporation is taxed as an entity that is separate from its owners. On the other hand, profits and losses of a limited liability company are passed through to its owners who report them to the IRS on their personal federal tax returns. Because an LLC is not considered a separate taxable entity, LLCs are classified as corporations, partnerships or sole proprietorships on tax forms.

There are a few basic steps that must be completed in order to form a limited liability company. First, the owners of an LLC must register a business name that does not already exist in Maryland. The name must indicate that the business is an LLC, and the name cannot include any restricted words like ‘insurance” or ‘bank.” Next, owners of the LLC must file articles of organization and obtain all of the appropriate business licenses and permits.

There are several different ways to structure a limited liability company that business owners should be aware of. It is also important for business owners to understand how their LLC will be classified for tax purposes. A small business owner who is thinking about setting up an LLC may want to work with an attorney to ensure that all of the proper steps are being followed.

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