How To Start An LLC In Maryland
For many small businesses, LLCs are very appealing in most states, including Maryland, as they provide the same level of protection against creditors as a corporation. And they also provide a lot of flexibility and the flow-through tax treatment of a partnership for taxes.
Maryland is a great state where a limited liability business (LLC) can be successfully established. Continue reading to learn everything you need about forming an LLC in Maryland. We’ll take you step by step through the process while emphasizing key factors.
What is an LLC?
An LLC is different from other kinds of businesses. A limited liability company (LLC) is a type of entity that shields owners from being held accountable for the debts and losses of the company. In case of a lawsuit, liability is taken by the company rather than the partners or shareholders that make up the firm.
The Maryland LLC Act has specific procedures for establishing or forming an LLC. Except for operating as an insurer, an LLC may engage in activities connected to any purpose, investment, or business. An LLC applies to a profit or nonprofit organization. Additionally, the legislation specifies some guidelines for maintaining an existing LLC in Maryland. However, the law is relatively lenient when it comes to the decisions that an LLC can make.
Advantages Of an LLC In Maryland
Are you looking to start a business in the great state of Maryland? If so, forming an LLC is one of the best things you can do. An LLC offers entrepreneurs and small business owners several distinct advantages. Let’s discuss some of the major benefits of starting an LLC in Maryland.
It combines a corporation’s limited liability features with a partnership’s flow-through tax treatment of revenue and losses.
LLC in Maryland offers a one-owner firm the ease of a sole proprietorship and the limited liability protections of a corporation. Owners of an LLC in Maryland have limited accountability compared to general partners. Unlike partners in a limited partnership, their limited liability is not lost if they play an active role in management.
Easy tax treatments
An LLC in Maryland is exempted from the many technical regulations that apply to S-Corporations, even though its flow-through tax benefits are only minimally greater than those of an S corp.
Regarding the owners’ capacity to claim tax losses under specific tax laws, LLCs offer a significant advantage over partnerships or S corps for certain leveraged real estate ventures.
Quick and cheap filing
In Maryland, filing an LLC and its compliance, management, administration, and regulations is very easy. The cherry on the cake is that the cost of filing is very low.
Disadvantages Of an LLC In Maryland
Starting a Limited Liability Company (LLC) in Maryland can have advantages and disadvantages. Before starting an LLC, it is important to understand the implications of this business structure and how it might affect you and your business down the road.
Here we will discuss some of the key disadvantages of starting a Maryland LLC so you can make an informed decision.
New LLC laws
In contrast to the partnership and corporation laws that have developed over time, Maryland’s LLC laws are new and somewhat untested.
Business owners operating with this type of entity face more significant uncertainty and risks because courts in Maryland have not regularly interpreted many of the state’s LLC Act’s provisions.
LLC owners are held accountable for payroll taxes
Except for those who choose to be treated as corporations, single-member LLCs are not considered taxable entities. Although it is a good thing, a significant drawback is that the courts have ruled that when a single-member LLC is disregarded, the owner is responsible to the IRS for the employer’s portion of federal payroll taxes. Even the owners of multi-owner LLCs and corporations may be made accountable for being unable to pay overdue FICA and employee income taxes. Still, the employers are not personally responsible for the federal taxes levied against them.
How to Form an LLC in Maryland
Even though establishing an LLC is typically straightforward, there are a few matters you should attend to before filing your LLC.
- Choose a unique name for your business
- Choose a registered agent in Maryland
- File articles of organization
- Apply for an EIN
- The legal business address for an LLC
- Submit an annual report
Choose a unique name for your business
The first step in starting an LLC in Maryland is to choose a name that complies with the state’s naming requirements. There are many rules and regulations when choosing an appropriate LLC name. Let’s discuss it in detail below:
- First, the name should include words such as “limited liability company” or any abbreviation that exists for it (LLC or LLC).
- Secondly, any words that could potentially confuse your LLC with a government agency should be avoided in, such as the words “FBI,” “Treasury,” State Department, ICC, NIC, etc.
- If you are using any specific words that are restricted, it will require you to provide additional paperwork. It will also require a licensed individual, such as an attorney or doctor, to be part of the LLC.
- When choosing a name for your Maryland LLC, LLP, LP, or corporation, the name must stand out from any other registered businesses in the state. The name should also be checked in the state’s database to ensure it is available and has not already been taken by another entity.
- Lastly, it is important that you make sure your name is easily searchable by potential clients, so make sure to choose a name that reflects what services your business offers. As a whole, the name should be descriptive and memorable.
Following these guidelines, you can secure a unique LLC name that meets all of Maryland’s regulations.
Choose a registered agent in Maryland
To function in Maryland, your LLC needs a resident agent. A resident agent is an entity or person that consents to collect legal documents on behalf of your LLC. This includes serving legal papers on anyone who sues your LLC. The agent must be a Maryland resident who is older than 18 and resides there.
The next step for the resident agent is to sign the company’s articles. The resident agent of an LLC is usually one of the members of an LLC. The use of a Maryland registered agent service should be considered if none of the members are prepared and competent to handle this role.
Fil Articles of Organization
You must submit complete articles of organization to the Maryland Department of Assessments and Taxation to formally establish an LLC in Maryland. Articles of the organization describe your LLC’s fundamental distinguishing characteristics and information. It is easy to complete this paper. In Maryland, you may create your LLC articles of the organization using a fill-in-the-blank form. Your LLC becomes lawful after you submit this form to the state.
The articles of organization must include the following information:
- LLC name.
- Address of your LLC, including the street address, not a PO Box.
- LLC’s purpose of existence.
- The address, name, and sign of the resident agent.
Your articles of organization can be submitted in person or online to Maryland SDAT for a $100 filing fee. Maryland SDAT will provide your LLC with a unique identification number when this document is accepted.
The cost to create an LLC in Maryland is $100. It takes a maximum of six weeks to process a paper filing. In contrast, online submissions are handled within a week. For an extra $50, paper filings can be completed quickly within a week. At the time of filing, you can additionally pay $20 for a Certificate of Status.
IRS provides Employer Identification Number (EIN)
An Employer Identification Number is necessary to identify your company to the IRS. EIN is used to submit payments for your employees and payroll data and to file and pay taxes. Additionally, a business bank account can be successfully opened with an EIN.
It may be used to establish guidelines and agreements among LLC members about things like:
- Management style.
- Rights and obligations of owners/ members.
- Ownership Percentage.
- Voting methods.
Maryland LLC operating agreement is beneficial for LLCs with just one member. This document is generally required if you wish to employ an accountant or an attorney. Additionally, an LLC operating agreement proves that you view the company as a legal organization. This aids in preserving the protection offered by an LLC. This number is free and easy to get by mail, fax, or online at the IRS website of IRS.
The legal business address for an LLC
Every LLC in Maryland needs to have a street address, regardless of whether it is an office building, a house (if you operate your business out of a home), or any other place. However, it cannot be a PO Box if it is situated outside of Maryland.
Submit an annual report
In Maryland, you must submit an annual report containing information about your company’s operations and total sales. This form must be submitted by April 15 with a fixed annual fee of $300. Whether the LLC is foreign or domestic, the price remains the same.
Types of LLC
Which type of LLC is ideal for me?
The primary types of LLCs in Maryland include:
- Domestic LLC: A domestic LLC is formed when the company is organized and operates within the state of Maryland. To form a domestic LLC, you need to file the Articles of Organization with the Maryland State Department of Assessments and Taxation.
- Foreign LLC: A foreign LLC is a company that is formed and primarily operates in a different state but wants to conduct business in Maryland. To do business in Maryland, a foreign LLC must register with the Maryland State Department of Assessments and Taxation by filing an Application for Registration.
- Single-Member LLC: A single-member LLC is an LLC with only one owner, known as a member. This type of LLC provides the owner with limited liability protection while maintaining pass-through taxation, where profits and losses are reported on the owner’s personal tax return.
- Multi-Member LLC: A multi-member LLC consists of two or more members. Like single-member LLCs, multi-member LLCs also provide limited liability protection and pass-through taxation. Members can be individuals, other LLCs, or corporations.
- Series LLC: A series LLC is a relatively new and more complex type of LLC that allows for the creation of multiple “series” or “cells” within the same LLC. Each series can have its own members, managers, assets, and liabilities, providing liability protection between each series.
- Professional LLC (PLLC): A PLLC is a type of LLC specifically designed for licensed professionals such as doctors, lawyers, architects, and accountants. The formation process and requirements for a PLLC are generally similar to those of a regular LLC, but members must hold professional licenses in their respective fields.
Remember that each type of LLC comes with its own set of advantages, disadvantages, and requirements. It’s important to consult with a legal professional or business advisor to determine which type of LLC is most suitable for your specific needs and situation.
Applicable LLC taxes in Maryland
Business Taxes are a reality of life, and your LLC will need to pay a variety of taxes in the state of Maryland. Businesses are required to pay self-employment payroll and federal and state sales taxes in Maryland. LLC profits are not taxed like a C-corporation; instead, they are taxed as follows:
There are two main types of state taxes that an LLC has to pay in Maryland.
In Maryland, any money you pay yourself is subject to income tax. You will be taxed at the standard rates and enjoy regular deductions and allowances. On the basis of earnings, the income tax rates may vary from 2–5.75%. The counties of the state may also levy income taxes on their residents.
If your LLC offers specific services or sells different products, you may be required to collect sales taxes and pay them to the state. The sales tax depends on the county, city, and region of the state where the purchase is made. The state typically sets a base sales tax rate, and then certain cities and counties may impose minimal additional tax amounts.
Unlike many other states, Maryland does not impose a franchise tax.
As the owner of the limited liability company, you must pay Federal income tax and self-employment tax, both of which are imposed as pass-through taxes.
These taxes can be very complicated, so it would be best to consult with your accountant or tax preparer to ensure that your limited liability company in Maryland is paying the correct amount of tax.
Any manager or member who profits from the company must pay the self-employment tax. This tax is administered by the Federal Insurance Contributions Act, which covers many benefits such as social security and healthcare. It applies to all the profits that you gain from your business. In Maryland, the self-employment tax rate is 15.3%.
Here is the rate of self-employment tax depending on what you earn:
- On profits of 70,000 dollars, you will pay a self-employment tax of 10,710 dollars.
- On profits of 140,000 dollars, you will pay a tax of 21,420 dollars.
- On profits of 160,000 dollars, you will pay 24,480 dollars tax.
If you treat your limited liability company as an S-corp for tax purposes, you have to pay less self-employment tax. The IRS allows a company to be treated as a corporation if it meets the requirements. This helps reduce this tax by letting you declare a small amount of your income as salary and the rest as withdrawals or distributions.
You can consult your tax advisor or accountant for detailed information on reducing your employment tax by electing an s corporation.
Employer and employee tax
If you pay your employees, then you may have a slightly different tax imposed. Employees may need to pay payroll tax, whereas employers must collect payroll tax from employees when they are given their salaries. The employer has to withhold 7.65% of their wages, and the employees will also be responsible for 7.65%, which makes a total of 15.3% Federal tax rate.
Estimated tax for your Limited Liability Company
The majority of limited liability companies in Maryland are required to pay estimated taxes throughout the year. The estimated taxes depend upon the income and profit the company expects to make. The three main types of estimated tax are Federal self-employment tax, Federal income tax, and Maryland income tax.
Many limited liability companies pay the estimated tax on a quarterly basis. If you are unsure about estimated tax, visit the IRS website or consult your accountant.
Licenses and permits for businesses
Depending on Maryland’s city, county, or state laws, your LLC may need specific permits or licenses to function. For instance, a license is necessary for your LLC to operate as a wholesaler or retailer. A trader’s license is necessary if your LLC purchases products for resale. You can require individual professional or occupational licenses if your LLC provides a professional service.
To find out what licenses and permissions you possibly require, it’s important to look at the local and state levels.
Cost of forming an LLC in Maryland
Please note that these costs are approximate and subject to change. It is essential to consult with a legal professional or business advisor for the most up-to-date information on the costs of forming an LLC in Maryland.
Foreign LLC registration fee
Name reservation fee
Registered agent service fee (optional)
Operating agreement (optional, up to)
Business license and permits
Annual report fee
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