Guide to Forming an LLC in Maryland
Follow our free guide to form an LLC in Maryland
- Pros and Cons of Forming an LLC in Maryland
- Starting Your Maryland LLC
- Maintaining Your Maryland LLC
- Additional Maryland Resources
How do you form an LLC in Maryland? LLC formation is a multi-step process, and Swyft Filings prepared a detailed guide that explains every step.
Pros and Cons of Forming an LLC in Maryland
Privacy and Flexibility for Members
The LLC Act in Maryland gives the members of an LLC the freedom to decide how the LLC operates, and the LLC members do not have to be listed in the Articles of Organization, a public document.
Ranks in Top States for Entrepreneurship
Maryland ranks fourth overall and third against larger population states in the Kauffman Index of Growth Entrepreneurship, measured by the rate of startup growth, and 9th in innovation potential. Maryland is also one of the top 10 rising cities for startups, according to Forbes.
Ports Boost Economy & Job Growth
According to the Port of Baltimore Directory, the Port of Baltimore is the leading Auto port in the U.S. and has been for seven years, as well as handles a record-breaking number of general cargo and containers. In 2015, approximately 33,920 jobs were created for port activity, generating $2.2 billion in revenues and $310 million in state, county and municipal tax revenues.
Maryland’s LLC Act is Broad in Interpretation
Because of the flexible nature of the members in an LLC, the LLC is broad in interpretation. For example, if one member decides that another member is not fulfilling his or her fiduciary duties (with or without an operating agreement), it is up to the discretion of the court to decide the necessary provisions. The gray area for LLC members can be advantageous, but when conflict occurs with a troublesome member, this is a controversy.
Baltimore has the 2nd-Highest Violent Crime Rate in the U.S.
According to 2017 data provided by the FBI, Baltimore and surrounding counties within Maryland reported the worst homicide rate and the second-highest violent crime rate in the U.S, with 56 per 100,000 people who live in the city. This is the highest rate of any U.S. city with 500,000 people or more.
Governmental spending on Maryland’s infrastructure will cost an estimated $6.9 billion to improve drinking water and $9.92 billion to tend to wastewater needs. The state reported an estimated capital expenditure gap of $615 million, and other structures such as dams and bridges also contribute to Maryland’s overwhelmingly deteriorating infrastructure. The number of improvements impedes Maryland’s ability to focus efforts on the economy and other pursuits such as crime prevention.
Cost of Doing Business
- $100 filing fee / $300 annual report fee
- $0 personal property tax return filing
Phase One: Starting Your Maryland LLC
Swyft Filings is here to make the process of starting a Maryland LLC easier. Here are six key steps to LLC formation in Maryland:
- Step 1: Name your LLC
- Step 2: Establish Ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Articles of Organization
- Step 5: Create your Operating Agreement
- Step 6: Register for an EIN
Step 1: Name Your Maryland LLC
The initial step in Maryland’s LLC formation is choosing the proper name for your business. There are specific guidelines with the state and federal governments concerning business names. Follow along for the restrictions and acceptions regarding the use of certain terms.
Tip: Use a free business name search tool to ensure your company’s desired name is available.
Business Name Guidelines
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C.
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted - it depends on the state. Additional paperwork may be required.
A website is a valuable resource for marketing, customer relations, shopping carts, and more. Before creating your website, check if your business name is available as a URL at any domain hosting website.
Step 2: Establish Ownership
The owners of an LLC are referred to as “members” and “managers.” Depending on how you would like to organize your company. In Maryland, LLC members have the flexibility to choose between centralized and direct member-management. This means that the fiduciary duties are broadly interpreted in case of conflict.
LLC Management Structures:
- Member-managed: All members participate in operating and making decisions for the LLC
- Manager-managed: An appointed manager oversees the daily operations of the LLC and the members are not actively involved.
Maryland LLC Member Guidelines
Required Number of Members
There must be at least one member or manager to form an LLC in Maryland.
Member Disclosure Requirements
The members of the LLC are not disclosed in the original filing documents.
LLC members in Maryland may be of any age.
There are no residency restrictions imposed on LLC members in Maryland.
Step 3: Find a Registered Agent in Maryland
In order to form an LLC in Maryland, you must appoint a registered agent. Your business will not be official without this position filled.
What is a registered agent?
A registered agent is the primary point of contact of a business. Appointing a registered agent authorizes the contact to accept official government documents and service of process notices on behalf of the LLC.
Why do you need a registered agent?
The reason that Maryland LLCs are required by the government to have a registered agent is so the state government has a consistent and reliable contact to communicate with.
What are the main requirements for a registered agent?
- The registered agent must have a physical address — not a P.O. Box
- The registered agent must be available during business hours
Who can be a registered agent in Maryland?
- A state resident with a physical address in Maryland
- An LLC or corporation that is licensed to conduct business in Maryland
Can I be my own registered agent for my business?
You are legally allowed to be your own registered agent as long as you have a physical address in Maryland.
Is being my own registered agent discouraged?
Since the registered agent’s name and address are publicly listed, LLC business owners who choose to be their own registered agent risk compromising their personal information.
Tip: Avoid the hassles and choose Swyft Filings to fill the registered agent needs for small businesses in Maryland. Find more information here.
Step 4: File the Articles of Organization
The most important step in creating an official Maryland LLC is filing the Articles of Organization with the Secretary of State.
What is the Articles of Organization?
The Articles of Organization is a legally binding document that is filed with the state government to officially and legally form your LLC.
Why do I need the Articles of Organization?
The Articles of Organization serves as part of your LLC’s foundation because it outlines the details of your business. Your LLC in Maryland will not be legally recognized with the state without providing the proper documents listed in the Articles of Organization.
What information is included in the Articles of Organization?
- The name and address of the LLC
- The type of registered agent (personal or commercial)
- The name of the members or organizer filing the paperwork
- The name and location of the registered agent
- The chosen LLC management structure
- The duration of the LLC (perpetual or not)
Step 5: Create an LLC Operating Agreement
An LLC Operating Agreement may be not required by the state, but it is still necessary for the successful formation of your Maryland LLC.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that owners of an LLC can refer to for responsibilities of each person involved in the LLC, as well as details on how the business operates.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes. The LLC Operating Agreement is also necessary because it provides structure for the business, protects business assets from creditors, and reduces disputes among members.
Do I need to file the LLC Operating Agreement?
Due to Maryland’s flexibility for LLC members, it is ideal to create an LLC Operating Agreement to refer to in case of legal and/or internal conflict. It is better to be prepared with a written, legal document for the court system to make provisions from.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC Operating Agreement, most documents include the following information:
- List of the members/managers and their roles
- Designation of authority in the LLC
- Initial capital contributions of the members
- Voting designations and percentages of the members
- Member transfer/addition rules and restrictions
- Distribution of profits
- Meeting schedule
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Register for an EIN
Most businesses forming in Maryland must register for an EIN to conduct business in the state.
What is an EIN?
The EIN (Employer Identification Number) is also known as a Federal Tax ID and is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS). The EIN identifies your business with the government much like a personal Social Security number.
Are all businesses required to have an EIN?
Federal law states that certain types of business entities register for an EIN:
- Any business with employees (even if owned by one person)
- Any business with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is not required to have an EIN, but it is still recommended.
Why does my LLC business need an EIN?
The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
In short, if you make money through your business and it has employees, you must have an EIN.
Is the EIN publicly listed?
The EIN for your LLC will be part of public record.
Can I use my Social Security Number as the EIN?
If you are a sole proprietorship who wants an EIN for your business, you can elect to use your social security number; however, your EIN is part of public record.
Swyft Filings offers EIN services for small businesses in Maryland. Find more information here.
Phase Two: Maintaining Your Maryland LLC
Now that we walked you through the initial phase of starting your Maryland LLC, there are additional steps to be aware of to stay compliant with the state and federal governments:
- Step 1: Register for the necessary taxes in Maryland
- Step 2: Apply for the required permits and licenses
- Step 3: File the Annual Report/Personal Property Tax Return
- Step 4: Request a Certificate of Status
Step 1: Register for Maryland State Taxes
All businesses formed in Maryland are responsible for paying taxes, depending on how you elect to tax your LLC.
Personal Property Tax Returns
In addition to the annual report (explained later in this guide), you must file a Personal Property Tax Return if you meet any of the following criteria: (no business fees apply)
- The business owns, leases, or uses personal property located in Maryland
- The business maintains a trader’s license with a local unit of government in Maryland
State Income Taxes
In addition to statewide tax rates, residents in Maryland pay additional income taxes per county. Here are the tax rates for single filers in Maryland:
Corporate Tax Information
You can also choose to have your LLC taxed as a corporation; if so, you will be responsible for paying the corporate income tax rate on your business’s earnings. Corporations in Maryland must pay an 8.25% corporate income tax.
Additional Tax Information
Other taxes your LLC may need to pay:
- Personal Property Tax
- Sales and Use Tax at 6.35%
- Employee Withholding Tax
- Unemployment Tax
Step 2: Obtain Business Licenses and Permits
The licenses and permits required for an LLC in Maryland can vary, depending on a number of variables:
- Location (city and county)
- Type of Business
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Report/Personal Property Tax Return
All businesses formed in Maryland are required to file an annual report with the Secretary of State.
What is an annual report?
An annual report, which is also called a periodic report, is a legal form that is filed with the Secretary of State on a periodic basis that is designed to keep your business’s information current with the state.
What kind of information is in the annual report?
The information requested in the annual report is similar to what was listed in the annual report:
- The name and address of the business
- The name and address of the registered agent
- The names of the members
- The business’s EIN
Is the annual report part of public record?
The annual report filed on behalf of your LLC is a matter of public record.
Fees and Due Date
Due Date: April 15th
Implications of Late Filings: If you file the forms after April 16th, the business will receive an initial pentalty of 1/10 of one percent of the county assessment, or the base penalty, whichever is greater. Interest accrues at a rate of 2% of the initial penalty amount for each 30-day period that the forms are late.
The minimum and maximum base penalty amounts are as follows:
Swyft Filings helps you stay compliant by providing stress-free solutions. File your annual report with us today.
Step 4: Request a Certificate of Status
The final step to forming and maintaining your LLC in Maryland is to obtain proof that your company is compliant with the state, otherwise known as the Certificate of Status.
What is a Certificate of Status?
The Certificate of Status is an official notification that confirms your business is properly formed and is in compliance with all state regulations.
Who issues the Certificate of Status?
The Certificate of Status in Maryland is issued by the Maryland Department of Assessments and Taxation.
When can I request a Certificate of Status for my business?
You will be able to request a Certificate of Status after your LLC paperwork is officially received and confirmed by the state.
Why do I need a Certificate of Status?
If you are obtaining a license, applying for business loans, or a vendor requests proof of LLC formation, you must provide the Certificate of Status.
Additionally, some states require a Certificate of Status before a business can apply for Foreign Qualification.
Does the Certificate of Status have an expiration date?
The Certificate of Status does not expire and does not need to be renewed.
Swyft Filings can create a Certificate of Status for your Maryland LLC. Click here for more information.