How to start an LLC in Maryland

A Limited Liability Company (LLC) is a business entity that protects its owners from personal liability. It may have one or multiple owners, known as members, and its members can share management roles unless they opt for an alternative management structure. LLCs are a popular structure for small businesses and their regulations vary by state.

An essential quality of LLCs is their limited liability, which shields the owners from personal liability for business claims and debts. As such, in situations where the business cannot settle a creditor or offset a payment owed, the creditor possesses no legal right to the property of the LLC's members. Although Maryland does not grant the same tax perks to LLCs as its neighbor Delaware, its expenses aren't as high as other states, like New York. Maryland is favorable to the businesses within its borders and is a great location to form an LLC.

Getting an LLC in Maryland may seem like a daunting undertaking at first. You may be overwhelmed with the idea of how to file all the paperwork. If this is the case, the following guide should help you determine the exact steps you need to follow to get your LLC Maryland running.

Benefits of an LLC in Maryland

In many states, Maryland included, LLCs are quite appealing entities.¹ Small business owners are constantly seeking to adopt this model. Because of their limited liability, tax flexibility, and flexible management structure, LLCs are popular in every state. As a small business owner, these advantages are likely important to you. Here are some of the benefits LLCs in Maryland can offer your business:

• For organizations with a single owner, LLCs in Maryland offer the accessibility of a sole proprietorship with the limited liability of a corporation. Talk about a win-win situation.

• LLCs offer better leverage with tax liabilities, including bearing losses, than partnerships and other business models. This is especially so in the case of specific real estate investments.

• As opposed to general partnerships, LLC owners have limited liability. Unlike the partners in a limited partnership, they retain their limited liability benefits due to their active participation in management.

• LLCs based in Maryland do not have any obligations regarding keeping minutes of meetings or documenting resolutions reached during one.

• Business owners are afforded limited liability and cannot be sued along with the business.

• Maryland offers a tax credit for businesses that create lots of new job opportunities in specific regions of the state.

Maryland LLC fee breakdown

To create an LLC in Maryland, you will need to budget accordingly. Most of the cost goes to the Maryland Certificate of Formation, but this cost differs depending on whether the LLC is a foreign or domestic LLC. Here are the fees you can expect to file your LLC:

• Filing fees: The upfront price to establish an LLC is $100 which goes to filing your LLC's articles of organization online. Articles of organization are processed at the Maryland Department of Assessments and Taxation. Expediting the filing process costs an additional $50.

• Annual report fees: Generally, the annual report isn't in the start-up costs, but all LLCs in Maryland are required to file an annual report, alongside franchise taxes with the state's Secretary of State, which costs $300. Filing of late returns will cost 1/10 out of 1% of the county's conducted assessment and an additional 2% interest every 30 days.

• Registered agent fees: Maryland permits business owners to be their own registered agent, but applying for a registered agent service aids in maintaining company compliance, reminders of vital filing deadlines, and also evades late fees. The cost to obtain a registered agent is between $39 - $300 yearly in Maryland.

• Foreign LLC fees: If you already own an LLC that is registered in another state and want to expand the business into Maryland, the LLC will be required to register as a foreign LLC in Maryland. The cost to process this registration is $100, and an expedited filing will cost $50. You can register your foreign LLC in Maryland by either filing a foreign LLC registration form in person, online, or by mail.

• Business permits and license fees: Depending on the geographical location and nature of your industry, your business might require local, state, and federal permits/licenses to operate legally in Maryland.

There are a few optional fees accompanying the formation of an LLC, including:

• LLC name reservation fees: Your name can be reserved for up to 30 days before the formation of your LLC. You will need to file a corporate name reservation application which costs $25.

• LLC name re-reservation fees: You can file a corporate name reservation application for re-reservation. This will qualify you to reserve the name for 30 more days. Re-reservation goes for a filing fee of $25.

• “Doing business as” (DBA) name fees: You can file a trade name application online to create a trading name that differs from your legal LLC business name for a fee of $25. You can also do it in person or by mail.

• Certified document fees: You can receive certified copies of your Maryland business documents by requesting through the Department of Assessments and Taxation, for a fee of $20, with an additional dollar for each page.

• Certificate of status fees: Also referred to as a Maryland certificate of good standing, you can obtain this document by requesting through the department of assessments and taxation for $20. Banks and lending institutions commonly ask for a Certificate of Status.

Steps to take to create an LLC Maryland

It isn't as complex as most people think to create an LLC in Maryland, and the seven steps below will illustrate just how to go about it:

1. Name your Maryland LLC

Like all other business entities, it is vital to brand the company first to establish its identity. Consider your LLC name properly, as it bears the nature of the business to the public. Maryland has a handful of naming requirements:

a. State laws require that your business name contains the words "Limited Liability Company" or its acceptable abbreviations of L.C, LLC, LC, L.L.C.

b. You will have to confirm that your desired LLC name is available for use, and the name you pick should differ from all other LLCs in Maryland. You can use the State Department of Assessment and Taxation's website to check if your business name is already in use.

c. The business name can't have words employed to name a government agency, like a state department, or the FBI, CIA, Treasury, and so on.

d. Specific restricted words such as “lawyer”, “bank”, “credit union”, “attorney”, etc., could need additional licensing and documentation paperwork.

Something else to keep in mind is the availability of URLs. Regardless of whether or not you plan on creating a website right away, you will likely need one in the future. At the least, you should retain the choice of having one by purchasing your domain name immediately. Before completing the process of naming your LLC, it’s ideal to check if the URL is still available. If you are unprepared to establish your LLC in Maryland, then you can file a corporate name reservation application and hold your chosen name for up to 30 days. Expediting the process attracts an additional fee of $20.

2. Choose a registered agent in Maryland

To set up an LLC in Maryland, you must have a registered agent, also known as a resident agent. An employee or owner can be appointed as the company's resident agent, so long as they are a Maryland resident and are above the age of 18. The agent must be stationed on-site and be present to receive documents during general business hours. A Maryland LLC or corporation can also assume the role of registered agent.

Another method is to hire a specialized company to handle the position. This service generally costs between $100 - $300 annually, but some offer the service for less.

3. File Maryland articles of organization  

The articles of organization document is what confirms your LLC officially, as it contains basic information about your company. The organization's articles should be prepared and filed with the Maryland Department of Assessments and Taxation to register your Maryland LLC properly. It seems like a lot, but essentially, it involves filling out a simple form online and submitting it for processing. You can also send it by mail. You will need the information below to prepare your articles:

• The name of your LLC

• The name, signature, and address of your designated registered agent

• The purpose/aim of your LLC (simply put, what the business is going to do)

• The address of your LLC

• The signature of the LLC's founder

Applications filed online take about seven business days to process, and paper filings can take up to four to eight weeks. You can expedite paper filings and have them processed for an extra $50. A certified copy of the documents costs $20, with $1 extra per page, and at the time of filing, you can also pay $20 for a Certificate of Status. Once you file the articles, the Secretary of State will conduct the review, and if your LLC is approved, it legally becomes a business entity.

4. Receive a certificate of formation from Maryland

You will be issued a state certificate that verifies the LLC's formal existence after the formation of the business has been filed and approved. The certification allows the LLC to acquire an EIN (employer identification number), business bank account, and business licenses.

5. Create a Maryland operating agreement

You will need to create an operating agreement for your LLC. This lays down the methods for how you want to operate your LLC and execute its internal affairs. A well-drafted operating agreement will contain everything from how the business will conduct its daily affairs to the amount of money contributed by members of the company. An operating agreement can guide the company's activities and help the partners stay in sync in their managerial roles.

6. Get an EIN number

A majority of businesses need to have an EIN, sometimes referred to as a federal employer identification number (FEIN) or federal tax identification number (FTIN). Although, if your business exists as a single-member LLC and you have no employees, you can use your social security number instead. Your EIN can be obtained online or by mail through the IRS at no cost, and it will aid you in:

• Managing and filing state and federal taxes

• Hiring employees

• Creating a business bank account

Even if your business is not required to get an EIN, you should probably consider getting one as it keeps your Social Security Number separate from the business.

7. Get a Maryland business license and permits

Business licenses are permits given to businesses by a government office that permits the company to operate in a specific area. The state, local, or federal governments issue these licenses/permits, and different businesses and locations require different licensing types. The most commonly needed by Maryland businesses is a seller's permit, as this permit enables you to sell services and products. In Maryland, it is called a sales tax permit.

You can register for a sales tax permit by mail or online through the Maryland Comptroller's Interactive Web Services website for no cost at all. This specific permit does not require renewal, but others you may have might, so endeavor to check with the relevant government offices or make inquiries with a knowledgeable attorney. Other permits might bring up costs starting from $100 and above.

Do you need a business license in Maryland? 

Yes, you do, if you wish to do business in Maryland. Generally speaking, to be able to sell products and services, you need a Maryland seller's permit. You might need specific profession-related licenses, zoning permits, health department permits, environmental licenses, and more. Most businesses do not require a federal business license; however, some industries such as drug manufacturing, investment advertising, and broadcasting have federal licenses and regulations you will need. 

8. Open a business bank account for your Maryland LLC

To separate your personal and business expenses, you will want to open a business bank account for your LLC. Also, acquiring business credit cards is an initial step to building a company's credit profile by providing legitimacy when making payments. Later, you can qualify for lines of credit or larger loans. To open an account, contact your chosen bank and ask about the steps you need to take to open a business bank account. Generally, you will require:

a. Your LLC's filed paperwork

b. Your EIN

c. A company resolution granting permission to open the account (signed by the LLC's members, owners, directors, etc.)

With a business account, you can ensure a clear understanding of the revenue and expenses of the business for potential audits and general bookkeeping. After creating your business bank account, you should request a business credit card to process company expenses and acquire business insurance conveniently.

You can take additional steps to familiarize yourself with the continuing legal obligations of your LLC, especially annual reports. You should prepare if some details need to be corrected or your registered agent needs to be changed. 

Frequently asked questions

How much does it cost to open an LLC in Maryland? 

Most of the cost goes to acquiring the articles of organization, which is $125 (including the fee for reservation of your LLC name). You may also have to pay an additional fee of $50 to expedite your filing. Other costs required include:

• The cost of a registered agent, which goes between $39 to $300.
• The price to file annual reports which cost $300.
• The cost to register a foreign LLC, which is $100 (plus $50 if you choose to expedite the filing).
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Other payments you should anticipate include the fees for a “trade name application” which costs $25, prices for certified document copies, which go for $20 (plus $1 per page), and fees to acquire permits and certificates. The latter differ depending on the type and purpose of the permits. For permits, you can expect to pay around $100.

How long does it take to get an LLC in Maryland?

You can obtain an LLC in Maryland within a couple weeks or less if you file for one online. Alternatively, it could take four to eight weeks if you file through the mail. If you need your files to be processed faster, you can file for your Maryland LLC by mail and pay additional fees for expedited processing. This will cut your LLC approval time down to three weeks by mail. 

Is there a yearly fee for LLCs in Maryland?

Yes, you are required to pay for an annual report for your LLC, which costs $300. Filing your annual report late will rack up additional fees.

How are LLCs taxed in Maryland?

LLCs on their own don't pay a lot of taxes; however, they frequently remit tax revenues gotten from other parties to the Internal Revenue Service (IRS) and the Comptroller of Maryland. There are five different forms of taxes within the Maryland LLC system:

• Income tax: This is paid on the funds that LLC business owners obtain from their profits in the business. How the state collects income taxes depends on which taxation structure a Maryland LLC chooses. LLC taxation transfers all income taxes (for both FICA tax and income tax) onto business owners, and these owners pay the taxes from the net gain received from the business.

• Sales tax: Use and sales tax are obtained on all taxable sales in Maryland. The tax rate on state sales is 6% for most taxable goods and 9% for alcohol. Municipalities/counties can charge their use and sales tax in addition to this. LLCs don't pay sales tax on the services/products they sell, but the responsibility of remitting it to the state falls to them. Maryland requests that sales tax be paid through Maryland bFile online, and several businesses set up regular payments, which could be due quarterly, monthly, or annually.

• Self-employment tax: LLC taxation requires that business owners pay FICA taxes as an accompaniment to their self-employment tax. The self-employment tax of 2022 is 15.3%, including 2.9% medical tax and 12.4% social security tax. 

• Payroll taxes: Businesses with employees pay FICA taxes of 7.64%, also known as payroll taxes. These are all obtained on all employees' gross wages, including owners who retain a reasonable salary pay and other employees. If you are an LLC with no employees, the business is not required to pay payroll taxes because you already pay them as self-employment taxes.

• Other state taxes: There are no other taxes in Maryland that you must pay, but LLCs within the state have to pay an annual fee of $300. You have to pay this fee to the Secretary of State. You can render it via Maryland Business Express or by delivering Form 1 Annual Report to the Maryland State Department of Assessments and Taxation.

Does Maryland allow single-member LLCs?

In Maryland, it is required that LLCs have at least one member. They can form an LLC as anyone or a group would. The sole member can file by themselves, and can leave their name out of the articles of organization.²

How do I get a free LLC in Maryland?

Frankly, it is not possible to establish an LLC for free. You can create an LLC without seeking professional aid, but forms that will validate your business will have associated costs, no matter where you establish it. You can cut down the amount spent by finishing the formation processes on your own, choosing to hire fewer or no employees, and ensuring that you submit all documents on time. You can take on the role of a registered agent to avoid the costs of outsourcing the job, but this is usually not convenient. 

References

1. 12 July. 2022,
   https://www.avvo.com/legal-guides/ugc/the-pros-and-cons-of-maryland-limited-liability-companies

2. 12 July. 2022, https://www.upcounsel.com/single-member-llc-maryland

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