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The limited liability company structure provides businesses with both legal protection and credibility. While these businesses can be formed in any state, Maryland is the obvious choice for businesses that are based in the state.
Although Maryland doesn’t provide LLCs with the same tax advantages as neighboring Delaware, it also doesn’t have the same high expenses as states such as New York. Maryland is a fairly average state in how it treats LLCs, and that makes it a suitable choice for most businesses located within its borders.
The following guide will take you through the steps needed to understand how to form an LLC. Some of the information is general and applicable to all states, but many details are specific to Maryland. Knowing both the general information and the state-specific details will help ensure filing proceeds smoothly for you.
What you name your limited liability company will be the business’s official name on documents, and it can also be the name that you use for everyday operations (e.g., marketing, billing, paying invoices, etc.).
Maryland has fairly standard requirements for naming LLCs Your chosen name must adhere to the following:
In addition to meeting the official state requirements for naming LLCs in Maryland, you should also consider how visible your LLC’s name will be online. Most website hosts make it easy to search specific URLs, so you can see whether a name or variation thereof is available as a web address.
Once you have a chosen business name, the name can be reserved for up to 30 days by filing a Corporate Name Reservation Application. The form should be mailed to the Maryland State Department of Assessments & Taxation, 301 West Preston Street, Baltimore, MD 21201. A $25 fee must be included, and another $20 if expedited service is requested. (Of course, you can also drop the form off in person if you’re in the Baltimore area.)
Articles of organization (Step 2) must be filed within 30 days of the reservation, or else the name will no longer be saved for your LLC If you’re ready to file articles of organization, you can skip the reservation step and simply file with the chosen name.
If you want to conduct daily operations under a different name, you can file for a doing business as (DBA) name. This gives your business another moniker to advertise, bill, pay invoices and otherwise conduct business under.
In Maryland, DBAs are referred to as “trade names.” You can file for a trade name online through the Maryland Business Express website, or by sending in the Trade Name Application. Hard copy applications should be sent to the Maryland State Department of Assessments & Taxation, 301 West Preston Street, Baltimore, MD 21201. (They also can be dropped off in person.)
The fee for filing a D.B.A. is $25, regardless of whether it’s done online or sent in. Expediting the application costs an additional $50.
(Many official items can be attended to on Maryland Business Express. You’ll likely want to make an account on the site, to make both filing your LLC and sending in reports/taxes simpler.)
You can further protect your business’s name by registering for a state and/or a federal trademark.
To register with the state, complete and submit the Trademark or Service Mark Registration or Renewal Form. It should be sent to the Trademark Division, Office of the Secretary of State, State House, Annapolis, MD 21401.
Along with the form, you also must submit a $50 fee and three specimens that show the mark being used in commerce. Labels, tags, and packaging are the most common specimens used to establish a trademark.
The state trademark lasts for 10 years, at which point in time you can renew the mark following these steps (unless they’re updated).
The United States Patent and Trademark Office handles federal trademarks, and many businesses that file with this office have an attorney assist with the process. A federal trademark might be appropriate if a business expects to expand beyond Maryland.
Articles of organization are the documents that legally establish your limited liability company as a Maryland business. All LLCs in the state are required to file.
Maryland charges a $100 non-refundable fee when filing articles of organization, and expediting costs $50 for each additional document. Fees are paid to the Secretary of State.
Forming an LLC in Maryland is a fairly straightforward process that has only basic requirements:
A few states require new LLCs to have an operating agreement and/or meet publication regulations. Maryland doesn’t require either of these, although an operating agreement is still recommended (cf. Create an Operating Agreement).
The Articles of Organization are filed with the Department of Assessments and Taxation. The articles can be submitted online or via hard copy.
Online submissions are made through the Maryland Business Express website. Hard copies should be mailed to the Department of Assessments and Taxation, 301 West Preston Street, Baltimore, MD 21201. Copies can also be dropped off in person.
The Department of Assessments and Taxation no longer accepts faxes for corporate documents, including articles of organization.
A registered agent is the primary point of contact for a limited liability company’s official paperwork. The agent is responsible for receiving tax forms, legal documents, lawsuit notification and government correspondence.
In Maryland, registered agents are officially called “resident agents.” Either a person or a business entity can serve as the resident agent of an LLC A person must be a resident and is usually an owner of the LLC. A business entity must be located in the state and is most often a third-party registered agent service.
Hiring a registered agent/resident agent service allows L.Cs to outsource official document administration to a professional, thus saving time and possible headaches. For business owners who aren’t familiar with how various documents must be handled, the nominal fee for a registered agent is often worth paying.
A registered agent/resident agent service also helps LLC owners maintain anonymity, as they don’t have to be listed as the contact person of the business.
An operating agreement outlines the legal structure of a limited liability company. It defines ownership stakes and roles, and how general operations will be carried out.
With regard to ownership, the agreement should contain details on contributions, voting rights, distributions, changes in ownership and dissolution. It should also address non-ownership details, such as general organization and management. In short, an operating agreement clarifies roles, responsibilities and rights.
Maryland doesn’t require LLCs to file or have an operating agreement. Drafting an agreement is highly recommended, though. The work involved helps ensure an LLC is well-designed, and the contractual obligations can help mitigate future potential conflicts.
Because Maryland doesn’t require operating agreements, there are no state stipulations about what they must contain. Best practices are to include all of the details listed above (i.e., ownership and non-ownership issues).
Federal tax requirements stipulate that all limited liability companies must have an employer identification number. This is occasionally called an LLC’s federal employer identification number or federal tax identification number. It may be abbreviated EIN (most common), FEIN or FTIN.
An LLC’s EIN works much like a social security number for a business. The number is nine digits long and unique to the LLC It’s used when filing federal taxes, filing state taxes, hiring employees, opening bank accounts and some other times.
Filing for an EIN is fairly simple and free to do. Business owners can file by completing IRS Form SS-4 Application for Employer Identification Number. The form is submitted to the IRS (and not Maryland) by:
The fastest way to obtain an EIN is via the online form, as a number is issued immediately upon successful completion. Prompts guide business owners through the entire process.
Alternatively, we offer a convenient way to obtain your LLC’s EIN We can take care of the entire process for you, and quickly have a number ready for you to use.
After your limited liability company is officially set up and has an EIN., there are state tax requirements that the LLC must follow.
LLCs don’t themselves pay many taxes, although they often remit tax revenues received from other parties to the Comptroller of Maryland and Internal Revenue Service.
Income tax is paid on the money that LLC business owners earn from their interest in the business. Federal and state income taxes are both assessed via a tiered system that correlates with annual income, and many counties also set their own income tax rates:
How income taxes are paid depends on which of two taxation structures an LLC chooses. The business can choose to be taxed as an LLC or as an S Corp.
LLC taxation passes all income taxes — both income tax and FICA tax — onto business owners. Owners pay these taxes on all net income received from the business.
S Corp taxation passes income taxes onto the owners, but FICA tax isn’t necessarily paid on all net proceeds from the business. Under this structure, business owners must pay themselves a “reasonable salary” for their respective roles within the business. Both income tax and FICA tax are paid on this salary. Owners may receive additional distributions, not for their work per se, but rather for their interest as an owner. Only income tax must be paid on distributions — and not FICA taxes.
Federal Insurance Contributions Act (FICA) taxes consist of a Medicare tax that’s 1.45% and a Social Security tax that’s 6.2%. Avoiding these can save business owners 7.65% in taxes on any distributions that are above their salary.
Choosing S Corp taxation does complicate items, and most businesses that go this route pay for accounting, payroll and bookkeeping. Doing this usually only makes sense if the 7.65% that owners save on distributions is greater than the cost of these services.
An accountant can help you determine whether the additional complexity of S corporation taxation provides sufficient savings. If it doesn’t now, you can change your business’s selection any year.
Any FICA tax savings apply only to federal income taxes, and not state or local income taxes.
LLCs must file various tax forms, depending on their chosen taxation method:
Business owners can file themselves, or with the aid of a qualified tax professional. Form 500D and Form 510D can be filed online or via hardcopy:
(You should confirm the proper address for each form that must be filed, as some forms go to different departments. Mailing/dropoff addresses are printed on each state form.)
Sales and use tax must be collected on all taxable sales in Maryland. The state sales tax rate is 6% for most taxable goods, and 9% for alcohol. Counties/municipalities may charge their own sales and use tax on top of this.
Businesses don’t themselves pay sales tax on products/services they sell, but they’re responsible for remitting it to the state. Maryland requires that sales tax be paid online through Maryland bFile, and many businesses set up regular payments. Payments may be due monthly, quarterly or annually.
LLCs should also register for a Sellers Permit, which allows them to not pay sales tax on goods that are purchased for resale. A permit can be obtained online.
LLC taxation requires business owners to pay FICA taxes as part of their self-employment tax. The 2022 self-employment tax is 15.3%, which includes Medicare tax of 2.9% and Social Security tax of 12.4%.
If business owners are taxed as employees of an S Corp, they pay only 7.65% Medicare and Social Security taxes. The business pays the other 7.65% FICA taxes, thus bringing the I.R.S.’s revenue to 15.3%.
The 7.65% FICA taxes that businesses pay are referred to as payroll taxes. These are paid on all employees’ gross wages, including for owners who draw a reasonable salary and other employees.
If you choose LLC taxation and have no employees, the business doesn’t have to pay payroll taxes (because you’re paying them as self-employment taxes).
Maryland has no other taxes that must be paid, but LLCs in the state must pay a $300 annual fee. This fee is paid to the Secretary of State. It can be paid via Maryland Business Express, or by sending Form 1 Annual Report to the Maryland State Department of Assessments and Taxation, P.O. Box 17052, Baltimore, MD 21297.
When your limited liability company is formally registered, you should attend to a few additional items. These help ensure your LLC operates smoothly and is positioned to be successful.
The business finances of an LLC and personal finances of its owners should be maintained in separate accounts. This ensures that a business’s revenues and expenses can be clearly understood, both for general bookkeeping and potential audits. It also gives the business a certain legitimacy when paying others and may be helpful in maintaining the business’s corporate veil.
The best way to maintain separate finances is by opening a new business bank account. You can open a business checking account with only a small initial deposit in just a few minutes at most banks. Many banks have no fee for opening a business account. Accounts can normally be opened in person at a local branch or online.
If you expect to accumulate a cash reserve for the business, a business savings account might be helpful, too.
All LLCs in Maryland must pay an annual $300 fee to the Secretary of State. Payment can be made via Maryland Business Express, or by sending Form 1 Annual Report to the Maryland State Department of Assessments and Taxation, P.O. Box 17052, Baltimore, MD 21297.
With a business checking account (and maybe a savings account) set up, you can put processes in place for managing the LLC’s finances. Consider how your LLC will make payments, receive payments, pay employees, issue disbursements, and keep track of all of these details.
It’s generally wise to consult with a tax advisor, certified public accountant and/or tax attorney when setting up your business’s finances. They may be able to help make sure your LLC is taking advantage of every legal tax benefit and provide some best practices for streamlining these processes. A professional can also help you set up a system to keep documents in order, which is necessary for filing taxes and navigating potential audits.
You may have to obtain licenses or permits for your LLC Whether these are required depends both on where the business is located and what products/services it offers.
While the state has some licensing and permitting requirements, these are most often required by counties or municipalities. A knowledgeable attorney in your area should know what’s required, or you can contact your county or municipality.
There are often nominal fees associated with local licenses and permits. Expect to pay fees of less than $100 to a few hundred for most local documents.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.