First off, a limited liability company is one of the many types of business structures that exist. There are sole proprietorships, partnerships, limited liability companies, corporations, etc.
A limited liability company is a business entity where the business owners are legally separated from the business.
This means that they are not personally held liable for the failure, debt, or losses of the LLC except in few cases where the business owners or shareholders are guilty of fraud.
Basically, the business owner is protected in the event that he acted in good faith.
There are a number of perks for establishing an LLC in Maryland. First and foremost, LLCs are very flexible. They can exist in perpetuity. This means they can literally exist forever. They also are the best options for a business that has the potential for massive growth in the future.
Secondly, LLCs often get tax concessions in comparison with other business structures. This means that LLCs are not as heavily taxed as corporations or sole proprietorships.
Thirdly, an LLC can be established for diverse reasons. You can run it as a profit-making business, establish it for charitable reasons and it can be used to hold assets.
Lastly, aside from the fact that owners aren’t personally held liable for losses of the business, one indirect benefit of establishing an LLC is that it gives your business credibility. People are bound to trust their money with an LLC over a sole-proprietorship or an ordinary partnership.
If you need further clarity and would like an article that goes in-depth to explain and distinguish how an LLC compares to a sole proprietor, check out our article
#1 Naming your Maryland LLC
The very first step you need to take when establishing your LLC in Maryland is to give it a name. Your business name is the first point of contact everyone has with your LLC, so it has to be good.
The tricky part in naming your LLC though is that there are rules to follow when naming your LLC. You don’t just go off on your emotions, name your LLC and move on with your life.
There are rules to this and Maryland has requirements and laws guiding the naming of an LLC.
- The first step is the creative part. Choose a name for your LLC. A name you like, maybe the same name your business had when it was a sole proprietorship. You can write down multiple names in order to have many options to choose from.
- Check if this name or names are available to be used in Maryland. You can do this by doing a name search with Maryland Business Express tool.
- Check to see if this name is available internationally.
This means two things:
After checking if your name is available for use in Maryland, you must check if you have anybody else is using that name outside Maryland and the US.
- This is important because if there’s any other brand with your business name in say Michigan or New York, they’d always confuse your business with your competitor’s and that means you will definitely lose some dollars to your competitor. Also, if there’s a big corporation that already has that brand name, chances are they already have the name trademarked. For example, it is definitely not a good business choice to choose a name like Coca-Cola, Nivea, or Nike for your new LLC. You can’t fight for brand visibility with those big dogs and a little originality never hurts anybody.
- You need to check if the name you’ve chosen is available as a domain and as an official email address. Every serious business has a website. Even if you can’t create a website immediately, it’s a safe bet and a good business decision to buy the domain name with your business name before it gets taken. You can check sites like GoDaddy or Bluehost to check if your business name is available as a domain name. If you wait and a smart domain merchant buys it before you do, they will sell it for an exorbitant price. Save your money and make the smart choice. It is important to note that finding a suitable email address with your business name is secondary and still way more flexible than getting a domain name. There are so many ways around an email address, however, it is important to get one as soon as you can.
- Make sure your name complies with all Maryland requirements:
- You must add the phrase ‘Limited Liability Company or any of its abbreviations (LC, L.L.C, LLC, L.C) to the end of your business name. For example Baby Showers Limited Liability Company, Baby Showers L.C, Baby Showers L.L.C, etc.
- You cannot choose a name or include a term that will make people mistake your LLC for a state or government agency. For example State, Federal, ‘Department of’, Treasury, etc.
- There are certain special terms that you can only include in your LLC name if you’re granted legal permission or if certain licensed professionals like lawyers or doctors work in your LLC. These are terms like Associates, Bank, University, etc.
#2 Choosing your LLC’s Resident Agent
The next step after choosing a name for your LLC is to choose your Maryland resident agent. A resident agent is the same as a registered agent.
A resident agent is a person or business entity that receives legal correspondence such as emails, tax forms, legal documents, etc. on behalf of your LLC.
Their job is to help your LLC stay compliant with state law and regulation. They’re important because they are the government’s first point of contact with your business. So, choose wisely.
Again, there are certain rules guiding who can be your Maryland LLC Resident Agent.
- You can nominate yourself, a trusted friend, family member, an individual within your company, or a business entity with that specialty to be your resident agent.
- If you’re using a resident agent service: a business entity that specializes in being resident agents for businesses, ensure that they are licensed to do operate in Maryland.
- Your resident agent must live in Maryland and have a street address in Maryland. Note that by state law, PO Box addresses are not allowed.
If you by chance do not live in Maryland and you don’t have a friend or family member that can stand in as your resident agent, you can use a resident agent service. They usually cost around $100 to $300 dollars a year.
#3 Filing your LLC’s Article of Organization
The Articles of Organization is one of the most important business documentation needed when starting an LLC in Maryland. It’s a form you will need to fill. It outlines important information about your LLC that the state needs to know.
The Articles of Organization will be filed with the State Department of Assessments and Taxation and it can be filed online, by mail, or in person. Applications by fax are no longer permitted by the SDAT.
The mailing address for the State Department of Assessment and Taxation:
State Department of Assessments & Taxation,
301 W Preston St, 8th floor
Baltimore, MD 21201, United States
How to File for the Articles of Organization Online
Please note that filing online is the fastest way of filing your Articles of Organization. It costs $100 and the process will be completed within 7 business days. You can apply online with the Maryland business express site.
How to File for the Articles of Organization by Mail
Before going into the details, note that filing by mail costs $100 and it takes approximately between four to six weeks to finish the entire process. You can access the Maryland Articles of Organization.
How to File for Articles of Organization in Person
There’s one more method which is by filing in person for same-day service.
This however comes at an extra cost of $50 and you will have to physically go to the Department of Assessments and Taxation.
It is advisable that you’re present at the SDAT anytime between 8:30 am and 4:15 pm on weekdays, in order for your application to be completed that very day.
How to fill the Articles of Organization
Here are the questions to expect in the Articles of Organization:
- The name of your LLC. Be sure to fill your LLC name correctly in the full form approved when you performed your name search.
- The purpose your LLC was created for. This is simply asking what your LLC will do. For example, an automobile LLC will simply explain it as ‘My LLC sells and repairs automobiles, etc.’
- The physical address of your LLC in Maryland. Please note that PO Boxes are not allowed.
- The details of your LLCs resident agent. This will include their full legal name, physical address, and signature.
Certificate of Organization
This is the certificate that the SDAT will send to you after your Articles of Organization has been approved.
Please note that receiving the certified true copy of this document comes at an extra $20 charge and an extra dollar per page.
Additionally, a certificate of Status which is different from the Certificate of Organization costs $20.
#4 Creating an Operating Agreement
An operating agreement is a document that outlines the owners of an LLC, how it is going to operate, and the duties and role of its members.
It should be noted it is not a mandatory document for establishing your LLC, however it is highly advisable to get one before starting with your LLC. In fact, it is recommended by Maryland law in Section 4A-402 of the Maryland Code.
It has proven to prevent legal issues and is always a reference point for administrative problems.
Here are some things you need to include in your operating agreement:
Your Operating Agreement should clearly state who the owners are and how ownership is divided.
This should state the day and date the LLC was formed, who its founding members are, and who the current members are.
This section should state if your LLC will be member-managed or manager-managed. It should also stipulate the voting process for members when deciding business matters.
Capital investment should note how much each member has invested in the LLC and the methods the LLC will adopt in raising capital in the future.
This should state how profits and losses will be shared in the business.
The Member Structure illustrates the membership structure of the LLC, and how roles can be changed or transferred in case a member leaves the LLC or passes away.
Most people do not plan and do not hope that their LLC packs up, but life happens and curve balls can appear from unexpected corners.
LLCs that do not clearly state how the company will be dissolved in their operating agreement almost always end up with ugly lawsuits and discontentment when the company is finally dissolved.
This is an important safety net just in case. The dissolution of a company can be done without drama if the dissolution process is documented and agreed upon before the LLC is established.
#5 Getting an Employer Identification Number
An EIN is an identification number issued to a business by the Internal Revenue Service. It’s basically your business’ Social Security Number.
The EIN can be used to process tax payments, open an official bank account for the LLC amongst many other things. The EIN is the same as the Federal Employer Identification Number or Federal Tax Identification Number.
Please note that applying for the EIN is free.
It is advised that you only apply for an EIN when your LLC has been approved by the SDAT.
The mailing address of the Internal Revenue Service:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
How to Apply for your EIN by Mail
Applying by mail takes between 2 to 4 weeks for approval.
You can apply for the EIN by mail by filling the SS-4 form.
How to apply for your EIN by Fax
Application by fax takes approximately four business days to get approved.
You can also apply by faxing SS-4 form to this is the fax number: Fax: (855) 641-6935
How to apply for your EIN Online
Applying online is still the fastest way of getting your EIN. Most online applications get approved the same day of application.
You can apply online by accessing the IRS EIN portal.
Before you start the application, here are some things you should note;
- You can only apply for an EIN online if your principal business is located in the United States.
- The applicant or your EIN responsible party must be resident in the US and have a valid Taxpayer Identification Number, such as the Social Security Number, the ITIN, or EIN.
An EIN Responsible Party is someone chosen by you to apply for your EIN and receive correspondence on behalf of your LLC as regards your EIN.
- You must complete this application in one session. You will not be allowed to revisit the application portal once you’ve left. Also, your session on the portal closes automatically if you’re inactive for more than 15 minutes. If it expires, you will have to start the application all over again (important note, trust me!).
Moving on to how to apply for the EIN online:
– Open the online application portal
– Click on “Apply Online Now”
– Read the information written on the page and click “Begin Application”.
Identify your Business Structure
– Click on the ‘limited liability Company” option when asked what type of legal structure is applying for the EIN
– Click on ‘Continue’ after an explanation of what an LLC is, pops up on the page
– Input the total number of members of your LLC
– Choose the state where your LLC was formed and click on “Continue”
– If you chose 2 as the total number of members in your LLC, you will be asked how your LLC will be taxed and whether or not you want it classified as a Qualified Joint Venture
A qualified joint venture is when an LLC is owned by a couple and it was created in a community property state.
If they file a joint tax venture, the state may tax them as a sole proprietorship. If there are more than 2 members, the state may tax the LLC as a partnership instead.
– The next section specifically asks if you’d like for your LLC to be classified as a single-member LLC or as a multi-member LLC. If you select single-member LLC, the IRS will consider your LLC as a ‘disregarded entity’ and it will be taxed as a sole proprietorship, if not it will be taxed as a partnership.
– The next question explains this further and requires that you confirm your selection.
– Please note that despite how the IRS classifies you on this form, your business structure as an LLC is not removed or changed.
– Choose the option that suits your LLC if your EIN Responsible Party is an individual or a business entity.
– If your EIN Responsible Party is a person, you are required to provide their full details. This includes their full legal name, street address, state and also indicate if they are a member or owner of the business or a third party.
– Input your EIN Responsible Party’s Social Security Number or ITIN.
– Enter your LLC’s physical address and U.S. phone number.
– If you’re creating an LLC in Maryland but you don’t live in Maryland or the United States, you can use the address of your Resident Agent. Please note that a PO Box address is not permitted by the IRS.
– Enter the full legal name of your LLC without any special characters like commas or hyphens. Don’t worry about this. It doesn’t affect the name of your LLC. It is only that way so that the portal can process your application.
– Input your business name. You can leave this section unanswered unless you have a registered ‘Doing Business As’ name.
– State the county and state where your LLC was created. Include the state where your Articles of Organization were filed.
– Enter the date your LLC was started. The exact date can be found on your Articles of Organization document.
– The next section requires that you check either the yes or no box. and accurately answer how the question pertains to your business
– Choose your LLC’s primary business purpose among the options listed.
– Here, you are required to choose how you want to receive your confirmation letter. It is advisable to choose the ‘Receive letter Online’ option because it promises the fastest response.
– Go through your entire application again and be sure the information you’ve provided is accurate, then click ‘Submit’
– Ensure that you download the confirmation letter. Note that the IRS will send you a duplicate copy of your confirmation letter within 4 to 5 weeks.
EIN Application Form
If you’re applying by mail or by fax here are the questions you will find in the application form and how to answer them.
– Enter the name of your LLC
– Input your LLC’s mailing address
– Enter the street address, city, state, and zip code your LLC is located in
– Input the country and state where the principal business of your LLC is located
– Enter the full legal name of your EIN Responsible party
– Enter your LLCs EIN
Type of Business Entity
– There a number of business entities listed here, however in this particular section of the form; LLC isn’t written as an option. Don’t panic, there’s a reason for this and there’s a way around it.
The IRS has not created a tax class specifically suited for LLC’s. Therefore, the tax class your LLC will fall under will depend on the number of members your LLC has.
– If your LLC is a single-member LLC owned by a US citizen and resident, click on ‘Other’ and enter ‘Disregarded entity- Sole proprietorship’
– If it is a single-member LLC owned by a foreigner, select ‘Other’ and enter ‘Foreign-Owned US-Disregarded Entity’
– If your LLC is a multi-member one and you would like to be taxed as a partnership, select ‘Partnership’
– If your LLC is a multi-member one and you would like to be taxed as a Corporation, select ‘Corporation’
– If your business is a multi-member LLC and you want it to be taxed as a C-Corporation, select ‘Corporation’ and enter ‘1120’ in the ‘Enter form number to be filed’ space. Note that you can also choose this tax classification for a single-member LLC if you want.
– If your business is a multi-member LLC and you want it to be taxed as an S-Corporation, select “Corporation and enter “1120S” in the box for ‘Enter form number to be filed.” Note that you follow this same direction if you want this tax classification for your single-member LLC.
Basically, you’re allowed to choose the tax classification you want your LLC to have. It is advisable to consult an accountant before you make a choice. This will help you choose what tax bracket will be most suitable for your LLC.
– Click on ‘Yes’ for the question that asks if your application is for a Limited liability Company
– Enter the total number of members of your LLC
– Choose the option that pertains to your LLC if it was established in the United States
Reason for Applying
– Click on ‘Started a new business” in the section that asks why you’re applying for an EIN. Choose this option if it is true about your LLC. If one of the other options like ‘hired new employees’ or ‘changed the type of organization’ is accurate about your business, choose it instead.
– Enter the specific date your LLC was started or acquired.
– Input the highest number of employees you expect your LLC to have in the next 12 months
– Enter the closing month of your LLCs accounting year
– This next section asks you to check a box if you expect your less than $1,000 dollars in a year. What this means that if you fall into that category, you can just file Form 944 annually instead of filing a Form 941 quarterly. That just saves you time and a bit of a headache
– Enter the first day wages or annuities were paid in your LLC
– Check the appropriate box that describes the main business activity of your LLC
– Enter the principal product or service of your LLC
– Check the appropriate box that pertains to your business if you have ever applied for or received an EIN before. Enter the previous EIN if you’ve received one before
– It should be noted that you only need to fill this section if you want to authorize a third party to receive your LLC’s EIN and answer questions regarding the completion of the form
– Enter the designees full legal name
– Their address and zip code
– The designees’ telephone number with their area code included
– Their fax number
– Enter your (the applicant) phone number including their area code
– Enter your fax number including the area code
– Enter your Signature of the designee and date
If you’ve gotten to this point and followed every step, congratulations! You’ve successfully established your LLC in Maryland.
However, if you’ve gotten to this point and you feel overwhelmed with the sheer amount of work involved, and would love to get professional help. Professional LLC formation businesses can get the job done quickly as revied the best formation services online.
Hiring an LLC formation service helps you save time and stress. They do the work and all you have to do is answer questions and supply them with information.
So What Are You Waiting For?!
Registering for an LLC in Maryland may seem overwhelming. There are definitely a few moving pieces, but If you stick to this step-by-step guide, forming an LLC in Maryland should be a breeze.
Just keep moving forward and be confident that Maryland is one of the best states to format a business.