How to Form an LLC in Maryland
If you own or plan to open a business, you may want to know how to form an LLC in Maryland. Business ownership comes in different structures, and a limited liability company (LLC) might be the right one for you and your company.
Whether your business is just beginning, or it’s time to sell or close it, or you’re somewhere in between, Lusk Law, LLC, can help with the challenges you face. We have many years of experience helping entrepreneurs throughout Maryland from our Frederick office. If you need help choosing a business structure, or you need counsel to deal with litigation or to keep your company out of trouble, please call us at (443) 535-9715.
Is an LLC Right for My Business?
What are your goals? What problems do you want to avoid?
Your business’s legal structure could mean the difference between profit and loss, survival or bankruptcy. You might be thinking of starting a business and want to know whether an LLC is right for you; or perhaps your current structure is causing problems and you want to know your options.
There are many types of ownership structures for a business. The most common are sole proprietorship, partnership, limited liability company, and corporation. They all have pros and cons. Lusk Law, LLC, will be happy to discuss which is right for you and your company.
One option is an LLC. It mixes some elements of a partnership and corporation. Under Maryland statute, it may conduct any lawful business, purpose, investment, or activity, whether for profit or not, but it can’t act as an insurer. The LLC can exist indefinitely or be limited to a given time frame. As long as its owners (known as members) agree, there’s a fair amount of freedom to create the company and run it in the best way they see fit.
What are the Benefits of Establishing an LLC?
There are many reasons to select an LLC as the legal entity owning your business.
- Limited personal liability
Members are usually not personally responsible for the LLC’s acts or business debts. If your LLC is sued, your own money and assets are not on the line. This protection may end if a judge finds that you engaged in fraud, or the LLC did something illegal, or someone else suffered severely from your dishonesty or negligence.
Appearances matter, and a sole proprietorship or partnership may not look as impressive or credible as an LLC or corporation. If you’re selling professional services or something expensive, it may be worth the cost to create an LLC. If it gets one prospect off the fence to make a purchase, you may get your investment back.
Unlike corporations, LLCs aren’t usually taxed twice (unless that’s what members want). Corporations generally pay taxes on their income, and shareholders pay taxes on any dividends or profits they receive. Most LLCs are “pass-through” tax entities. The need to pay federal income taxes passes through the LLC onto LLC members, except the LLC pays income tax on out-of-state members.
An LLC can engage in a wide range of businesses and perform many acts to accomplish its goals.
- Fewer legal requirements and less paperwork
A corporation must have a board of directors and officers managing the business. An LLC needs neither. Members can make important decisions like a board of directors would and run the business as officers would. A corporation has records of accounts and transactions and minutes of its stockholder and board meetings. They don’t apply to LLCs. LLCs need to file articles of organization and make annual filings with the state disclosing gross sales and what the LLC owns.
The Maryland legislature encourages business formation to boost the economy. They’ve made LLCs an attractive choice for business owners.
How Do I Form an LLC?
There are several steps, but the process is simple.
- Choose a name
It must include “limited liability company,” L.L.C.,” or “LLC.” The name needs to be different than other Maryland LLCs, corporations, and other businesses.’
- Choose a resident agent
This person will receive legal papers for your business if it’s in court. They must be a Maryland citizen older than 18, a Maryland corporation or LLC. The resident agent can be an LLC member. The attorneys at Lusk Law can act as your resident agent, if you do not want to do it personally.
- Complete your articles of organization and file them with the State Department of Assessments and Taxation (SDAT)
The following needs to be part of the articles of organization:
- The LLC’s name
- The LLC’s purpose
- The address where the LLC will be based
- The resident agent’s name and address (not a Post Office Box)
- The signature of the member starting the LLC
- The resident agent’s signature
- A return address.
How Long Does it Take to Form an LLC in Maryland? What Does it Cost to File?
If you mail the Articles of Organization to the SDAT, it will take four to six weeks and cost you $100.00. To shorten the process, you can file online or in-person for same day service for an additional $50.00 fee. Documents filed online will be processed within seven business days. After approval, you’ll get a Certificate of Organization which shows the state recognizes your LLC and approved your Articles of Organization.
How Much Does an LLC Cost Per Year in Maryland?
An Annual Report and Personal Tax Return must be filed with SDAT each year (with a $300 filing fee for most LLC’s).
How are LLCs Taxed in Maryland?
The “pass-through” status can change if LLC members decide to treat it like a corporation by filing IRS Form 2553. In this situation, the business must file a separate tax return. Maryland has a corporate income tax, generally a flat 8.25% of net income that can be allocated to the state. Your LLC will pay this tax if members so choose.
Is an Operating Agreement Required for an LLC?
An operating or ownership agreement is a good idea no matter what form your business takes.
Under state statute, an operating agreement between members isn’t required, but it’s binding if members create one. It’s an agreement that states how the business will be managed. The statute spells out what should be part of the agreement:
- How the company and its affairs would be managed, controlled, and operated. This can include giving the exclusive authority to manage or operate the LLC to employees who aren’t members.
- How members will share LLC assets and earnings
- The members’ rights to assign all or part of their membership interest
- How a person can become a member in the future
- A member’s right to have their interest shown by a certificate issued by an LLC and how it is issued and changed
- How the operating agreement can change and how members would approve that
- When enforcing the agreement, a court may issue an injunction or other relief that’s fair and appropriate, including dissolving the LLC.
An operating or ownership agreement could prevent disputes, and it creates rights and responsibilities that result in business management certainty in an uncertain business environment.
Other Requirements May Apply to Form an LLC
Getting your LLC articles of organization approved may be just the beginning.
There are additional steps needed before your business is up and running:
- Business licenses
Based on what you’ll do and where you are, you may need local and state business licenses.
- Register your business
If you will sell goods and collect sales tax or have employees, you must register with the Comptroller of Maryland.
- IRS Employer Identification Number (EIN)
If your LLC has more than one member, you need an EIN, even with no employees. If it’s just you, you’ll need an EIN if you have employees in the future, you want the LLC to be taxed as a corporation or you don’t want to use your social security number for the LLC.
There are many practical legal issues a business faces. Lusk Law, LLC, can help you clear through the paperwork to get your business where it needs to be.
Get the Help You Need to Form Your LLC from a Business Attorney You Can Trust
Our counsel is responsive, highly ethical, and personalized to your unique needs and circumstances.
At Lusk Law, LLC, our relationships with clients are partnerships focused on finding practical, effective solutions, including selecting and forming an LLC. We are advocates for life’s obstacles and opportunities.
Get advice for business formation, litigation, landlord/tenant, business and estate matters. Contact us at Lusk Law, LLC, by telephone at 443-535-9715, or fill out our online contact form to schedule a confidential consultation for all your legal solutions.
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