Starting a business in Maryland can be an exciting time. Before selling your product or service though, the nuts and bolts of licenses, registrations, and taxes must be completed.
The guide below will show you the DIY process of forming an LLC in Maryland. However, you can also use an online LLC service handle the paperwork for you. We reviewed and ranked the 7 best available.
The Top 2 Worth Considering:
- Northwest Registered Agent is a great option if you are looking for premium customer support.
- IncFile is ideal if you are looking for the best pricing with excellent features.
Step 1: Name Your LLC
Selecting a name for your Maryland LLC is a first step, yet a very important one. A name that is unique and easy to remember is helpful in finding potential clients or retaining customers.
The name should indicate the product or service. It should also follow guidelines set forth by the state of Maryland.
The name of an LLC will likely appear on business cards and stationary, marketing materials, a website, legal contracts, business bank accounts, invoices and/or a building directory.
Maryland law requires that the business name includes the words/abbreviations, “Limited Liability Company,” “LLC,” “LC,” “L.L.C.,” or “L.C.” It must also be distinguishable from other names already registered.
Let’s imagine that someone is considering opening a flower shop in Baltimore, Maryland. The name she is considering, Flowers by Fanny, LLC is already in use. Instead, she decides to legally name her business Fanny’s Florals and Design, LLC.
Determine the Name is Available
Following the selection of a name but before filing the Articles of Organization, check to ensure that your name is unique on the Business Entity Search on Maryland.gov.. Searching in other places, such as online, is also a good idea.
After you have determined that your chosen name is “distinguishable,” the name can be registered in order that you have exclusive rights for 30 days.
Optional: Name Reservation
Sometimes a situation may arise where an individual wants a particular name but needs time to organize his/her company before filing paperwork to create an LLC. In this case, a name can be reserved for 30 days in the state of Maryland.
The downside is that it does cost $25 for the reservation. Expedited processing is also available for an additional $20 fee. A Corporate Name Reservation application can only be filed by mail or in person. Regular processing through the mail will take seven to ten business days. Expedited processing will take three business days. If delivering in person, processing can be done while you wait.
Step 2: Choose a Resident Agent
Every LLC in Maryland is required to have a resident agent (often referred to as registered agent in other states). This agent can be an individual or a company.
The role of the resident agent is that of a contact person between the LLC and the state. As stated on the Maryland formation document, the resident agent “is another entity or individual designated to accept service of process for the LLC.”
Simply put, the resident agent receives communications or documents from the state involving such things as taxes or lawsuits and communicates them to the LLC.
Some may wonder why a Maryland resident agent is necessary. The importance of the agent is to ensure that someone is always available to receive important documents even if the business owner leaves the office, goes on vacation, or is otherwise away. Also, having a resident agent is especially important if a physical office does not exist in Maryland.
The owner of the LLC can designate a resident agent on the Articles of Organization application.
Individual as Resident Agent
Most importantly, the individual must be a resident of the state of Maryland. An LLC cannot act as its own resident agent. However, a member or manager can act as agent for the LLC.
Still, using a third party ensures that nothing falls through the cracks. The third party can be an accountant, an attorney, or even a friend. The agent must have a physical and mailing address in Maryland.
Resident Agent Service
If using a service, the resident agent must be a business or professional. We recommend either using an LLC formation service (like Incfile or Northwest Registered Agent) which gives you a free resident agent or ordering a resident agent service by yourself if you choose to DIY your Maryland LLC formation.
Step 3: File the Formation Documents with State
Let’s assume that fictional Fanny has selected both the name for her LLC and the resident agent. She is ready to complete the paperwork (called the Articles of Organization) that actually creates Fanny’s Florals and Design, LLC in Maryland.
This step can be completed online, through the mail, or in person. The filing fee is $100. When you are ready, it is important to note a few details about each method to ensure that your application is fully completed in the time frame in which you need it.
In order to complete an online application, you may need to first set up an account on the Maryland Business Express, a part of the Maryland.gov website. Applications for Articles of Organization filed online are consider expedited, and therefore, will be processed within seven business days.
Hard Copy Filing
Regular processing of an application that is mailed or delivered in person is four to six weeks. Expedited processing, available for an additional $50, will be completed within seven business days. If delivering the document in person and elect to expedite the processing, it can be done while you wait.
Applications and payments can be sent or delivered to the following address:
State Department of Assessments and Taxation, Charter Division
301 W. Preston Street; 8th Floor
Baltimore, MD 21201-2395
Step 4: Create an Operating Agreement
An operating agreement in the state of Maryland is recommended though not required. The agreement is a contract that defines the operations of the LLC, includes terms and conditions, states the responsibilities of its members, and ensures legal protections of its members.
All owners of the LLC must be in agreement of the terms in the agreement and sign before a notary public.
The operating agreement is useful for both multi-member and single-owner LLCs. In both cases, the agreement provides protections.
For example, in the case of the multi-owner LLC, the terms can stipulate what should happen if a death or divorce occurs among one of its members. In the case of the single-owner LLC, the agreement could be used in court as evidence that the LLC is separate from the individual owner.
The operating agreement can be created in two ways. Some individuals may choose to write the agreement on their own, using an online template. In this case, forms are available that are specific to state. Be sure to use the correct multi-member or single-member form.
The alternative is hiring an attorney to create the document. The benefits of using an attorney are ensuring the document doesn’t exclude any important information, adheres to state law, and invalidates default provisions that may not be what you wish.
Step 5: Get an EIN
An EIN is an Employer Identification Number. Anyone who runs their business as a corporation or partnership must file for this 9-digit number in order to identify the tax accounts of a business. The number can be applied for in one of the following three ways:
Applying online is the quickest method. The process can be completed between 7 a.m. and 10 p.m. EST, Monday through Friday. When the form is completed, the information will be immediately validated and a number issued while you are still online. In order to apply online, a valid individual taxpayer number, such as a Social Security number, is required.
Form SS-4 can be downloaded, completed and faxed to 855-641-6935, twenty-four hours, seven days per week. The EIN will be provided within four business days.
If either of the above methods are unavailable, Form SS-4 can be mailed, though processing will take approximately four weeks. The form can be mailed to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Think you’re ready to open up shop now? Guess again!
Step 6: Taxes, Licensing & Income Reporting
Businesses like Fanny’s Florals and Design, LLC may be official after completing the above steps, but it is important not to overlook a few critical details.
On the federal level, most LLCs do not pay taxes directly to the government. Instead, they report income and losses on the owner’s personal 1040 tax returns. Schedule C is often used for reporting. Unless the LLC chooses to be taxed as a corporation, a single-member LLC is taxed as a Sole Proprietorship and a multi-member LLC is taxed as a Partnership.
Similarly, most LLCs will pay state tax on pass-through income via their personal income tax returns. The exception is if an election is made to tax the LLC as a corporation. Note that if the LLC has members who are not Maryland residents, they will need to file a Maryland income tax return on their earnings as well.
Unlike some states, Maryland does not require LLCs to pay a franchise or privilege tax.
If your LLC has employees, you will need to pay a withholding and unemployment tax. Businesses that sell merchandise will need to pay a sales or use tax. Registration for all of the above-mentioned taxes can be completed on the Maryland Combined Registration Online Application.
Finally, an LLC may need to file and pay a local tax to a city, municipality, or county.
In some cases, a business and/or professional license are needed before a business can begin operations.
To determine whether you need a business license contact your local Clerk of Court or call the State License Bureau, (410) 260-6240. Business licenses are obtained through the Clerk of the Circuit Court in the county where the business is located. The State License Bureau monitors the licenses.
A professional or occupational license is required by a number of occupations, all of which are listed online through the Maryland Department of Labor, Licensing and Regulation. Requirements and fees vary according to the license.
After an LLC is formed, an annual report must be filed with the state of Maryland by April 15 each year. A 60-day extension is available, but the extension must be filed by April 15. If missing the deadline, the LLC does risk being assessed a fee between $30 and $500. It also risks dissolution by the state.
The filing fee is $300, payable to SDAT. Reports can be filed in one of the following three ways:
File the annual report through the Maryland Business Express.
Print and complete the hard copy. Next, send it, along with payment, to the following address:
Maryland Department of Assessments and Taxation
PO Box 17052
Baltimore, MD 21297-1052
Access the annual report form above, and deliver to the following address:
State of Maryland – State Center
301 W. Preston Street, Room 801
Baltimore, MD 21201
When all of the mechanics of setting up an LLC in Maryland have been completed, someone like Fanny can get down to the business of setting up a website, creating a logo…or purchasing flowers!
Need Help Creating Your LLC?
We recommend LLC formation services because it allows you to knock off an important thing off your checklist so you can focus all your energy on actually starting a business.
Can you do it yourself? Absolutely.
However, a service that forms an LLC for you will help with ongoing maintenance and keep you notified of any requirements you should adhere to.
As we mentioned earlier, IncFile and Northwest Registered Agent are the top LLC services available. If you’re not familiar with them, as a point-of-reference many of our readers like to compare them to the most well known LLC service, LegalZoom.