For entrepreneurs in Maryland, starting a Limited Liability Company (LLC) can be an exciting new business opportunity. Understanding how to navigate the LLC formation process is important for both seasoned business owners and new entrepreneurs starting a business. This guide will take you through the key steps involved in starting an LLC in the Old Line state, from choosing a business name to understanding the costs and benefits involved.
How to start an LLC in Maryland in 7 steps
01. Pick your business name
The first step to starting a business in Maryland is to select a name for your LLC. To comply with state requirements, make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company." Your business name should be unique and must not be the same as or too similar to other names on record with the Maryland Secretary of State.
Here's how you can make sure your business name stands out and meets all the necessary legal requirements.
Check for availability: Use the Maryland Secretary of State's online database to check that the name you want to use isn't already registered for another business.
Follow naming guidelines: Avoid restricted words that could confuse your LLC with a government agency (e.g., FBI, Treasury).
Consider your website and branding: Look up domain availability if you plan to also focus on creating a website. It makes more sense for your business name and domain to be the same, or at least similar.
Tip: Using a business name generator is an efficient way to brainstorm and choose a business name.
02. Choose your registered agent
Every LLC in Maryland must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Maryland. It's important that they're dependable, trusted and that they meet the legal requirements established by the state for such a role.
Need help setting up your LLC? Wix has partnered with LegalZoom, the No. 1 choice for online business formation to help you start, run and grow your business.
03. Obtain state business permits and licenses
Depending on the nature of your business, you may need specific permits or licenses to operate legally in Maryland. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Check with local and state agencies to determine what permits you need based on your specific industry and the business you're starting.
Fill out all required paperwork accurately and submit to the appropriate authorities.
Then pay any associated fees for obtaining your permits.
Let’s say you want to start a cleaning business in the state. First, you’ll need a general business license. You may also need additional licenses depending on the specific services your cleaning business will offer.
Learn more: How to get a business license
04. File Articles of Organization
The Articles of Organization is a critical document that officially creates your LLC in Maryland. You'll file this with the Maryland Department of Assessments and Taxation, either online or by mail, along with the required filing fee.
These key actions are involved in filing:
Gathering all your business information
Submit and pay the $100 filing fee.
05. Draft your LLC operating agreement
While not legally required in Maryland, creating an operating agreement is highly recommended for any LLC. This internal document outlines ownership, roles and operations for your type of business.
Here’s why an operating agreement is important:
It sets clear expectations for members of your LLC regarding operations and conflict resolution.
Helps maintain limited liability status by proving that your LLC is a separate business entity.
Reduces potential disputes among LLC members by detailing policies and procedures for how the business should be run.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is like a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes.
Securing an EIN involves:
Applying online or via mail: The IRS provides free EIN registration through their website or via mail submission.
Understanding your business tax obligations: Learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Maryland for an LLC owner this means a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Maryland Comptroller's Office website.
07. Organize annual reports
Maryland requires all LLCs to file annual reports as part of compliance with state regulations. These reports keep the state updated on any changes within your company and typically involve a filing fee. It's important to fullfil this requirement to prevent any business disruption.
To ensure you’re compliant with this regulation make sure to:
Know due dates: Mark your calendar for April 15th each year when the annual report is due to the Maryland Department of Assessment and Taxation.
Maintain proper records: Keep accurate records throughout the year to simplify report prep when due dates approach.
Fill out Form 1: This is the specific form used for filing an LLC's Annual Report in Maryland.
Submit and pay fees: Complete the submission process by paying the $300 filing fee.
How much does it cost to start an LLC in Maryland?
When starting an LLC in Maryland, it's crucial to plan your budget for the various costs involved. These expenses can vary based on your business's complexity and any additional services you may require.
Filing fee for Articles of Organization: The state requires a fee when you file your Articles of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $100.
Registered agent fee: If you choose to hire a professional registered agent service, they will charge an annual fee. Costs vary, so shop around for the best deal that suits your business needs.
Business permits and licenses: The cost for permits and licenses varies widely depending on your industry and location. Some may be one-time fees, while others could be annual.
Operating agreement: If you hire a lawyer or use a professional service to draft your operating agreement, this will involve a fee. However, there are many online templates that can reduce or eliminate this cost if you're comfortable handling it yourself.
Employer Identification Number (EIN): Obtaining an EIN from the IRS is free of charge.
Annual report filing fee: There is an annual fee for filing your LLC's report with the state of Maryland. This recurring cost keeps your business in compliance with state regulations. This is US$300.
State taxes: Depending on your LLC's earnings and tax structure, you may need to pay state income tax, sales tax, or other business taxes.
Additional costs may include:
Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Establishing an online presence via a website is crucial in today's market. Costs here include domain registration and potentially hiring a web designer or using a website builder like Wix.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Who can start an LLC in Maryland?
In Maryland, almost anyone can start an LLC, but there are a few requirements and considerations to keep in mind:
Age requirement
You must be at least 18 years old to form an LLC in Maryland.
Residency
There is no residency requirement to start an LLC in Maryland. You don't have to live in the state, but your LLC must have a registered agent with a physical address within Maryland.
Legal status
Individuals, including non-U.S. citizens and people residing outside of the United States, can form an LLC in Maryland. However, certain legal entities may be restricted or prohibited from being members of an LLC depending on state laws.
Number of members
There's no minimum or maximum number of members required to start an LLC. You can start a single-member LLC or have multiple members.
Business type
Most types of businesses can be structured as an LLC, but certain professional services may require a different business entity, such as a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC).
Benefits of starting an LLC in Maryland
Forming an LLC in Maryland has a range of advantages that business owners find appealing. These benefits include legal protections and tax advantages, making it a popular choice among small business owners.
Learn more: Benefits of an LLC
Limited liability protection
Members of an LLC are protected from personal liability for business debts and claims. This means personal assets are typically not at risk if the LLC faces bankruptcy or lawsuits.
Pass-through taxation
LLCs often benefit from pass-through taxation where the business itself is not taxed. Instead, profits and losses are passed through to members' personal tax returns, potentially leading to tax savings.
Flexibility in management
Unlike corporations, LLCs have a flexible management structure. You can choose to manage your LLC collectively as members or appoint managers to handle the business operations.
Ease of formation and compliance
Compared to other business entities, forming an LLC in Maryland is relatively straightforward, with fewer formalities and compliance requirements.
Credibility with customers and partners
Forming an LLC can enhance your business's credibility, making it more attractive to potential customers, vendors and investors. People understand what type of a business they're interacting with.
Potential disadvantages of starting an LLC in Maryland
When considering forming an LLC in Maryland, it's important to weigh all the benefits and potential drawbacks. Understanding these will help you make an informed decision about whether an LLC is the right business structure for you.
Here are a few challenges you might come across when starting an LLC in Maryland:
Annual fees and compliance
Maryland requires annual report filings and fees which can be seen as a disadvantage compared to more informal structures like sole proprietorships that do not have these requirements.
In addition to taxes, just about every LLC is required to file an annual report, which includes basic legal information and activities from the previous year. You may owe filing and renewal fees along with your report. Tax season is also a good time to make sure that your registered agent, licenses, and permits are all set for the upcoming year. Shylene D’Addario, VP and associate general counsel at LegalZoom
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits, which could be higher than the taxes on wages if they were employees of another company.
Limited growth potential
Some businesses may find that investors prefer corporations over LLCs due to the ability to issue stock. This could limit growth opportunities for some LLCs.
Transferability of ownership
Transferring ownership interests in an LLC can be more complex than with a corporation. Typically, all members must approve new members coming into the business.
Why start an LLC over another business entity in Maryland?
Choosing the right business structure is crucial for anyone starting a business In Maryland, and often an LLC is the first choice due to its unique advantages. But it's always worth comparing it to other types of business structures to understand why an LLC might be the best choice for your business goals.
Here's how an LLC compares to other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages:
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
You've formed your LLC in Maryland, now what?
Once your LLC is successfully formed in Maryland, your exciting journey to building and growing your business begins. To ensure smooth operation and compliance with state laws, follow these important steps.
Open a business bank account
To keep your personal and business finances separate, open a business bank account specifically for your LLC. This will also help maintain your limited liability protection.
Obtain business insurance
Protect your LLC by obtaining the appropriate insurance. Common types include general liability insurance, professional liability insurance, and property insurance.
For example, if you’re looking to start a landscaping business in the state you’ll need to consider general liability insurance, professional liability insurance, workers’ compensation insurance, tools and equipment insurance and potentially commercial property insurance too.
More specifically you'll need to apply for a home improvement license from the Maryland Department of Labor, Licensing and Regulation for and landscaping and sod related work. This will cover any work down to land that sits adjacent to any building. You'll need two years of landscaping experience as well as proof of it to quality for the license. You'll also be required to show that you've taken out liability insurance. And then pass an exam.
Thinking of working with pesticides? The regulation means you must have a commercial pest control application certificate and a pesticide business license. To gain either you'll need a years experience of pesticide application or related degree and then pass a mandatory exam.
Consistently comply with state requirements
Ensure you file your annual reports on time and renew any permits or licenses as required to make sure your can keep operating your business.
Additionally, focus on these areas to manage and grow your LLC:
Develop a strong brand identity: Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Implement a good accounting system: Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits, and financial growth accurately.
For more information on how to start an LLC by state
How to start an LLC in Maryland FAQ
How long does it take to form an LLC in Maryland?
The time it takes to form an LLC in Maryland can vary. Once the Certificate of Formation is filed, it typically takes about 4-6 weeks for the state to process. Expedited services are available for an additional fee if you need to form your LLC more quickly.