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Geographically small but economically mighty, Maryland offers a highly conducive business environment. You may want to open a Maryland LLC to tap into the densely packed Washington–Baltimore metropolitan area, the agriculturally rich area surrounding the Chesapeake Bay, or the rural economies of western Maryland.
One of the first steps in starting a business is choosing a business structure. For most, this means choosing between setting up a sole proprietorship, a limited liability company (LLCs), or a corporation. If your business has a small footprint and relatively few employees, you may want to incorporate it as an LLC. So, what does it take to open a Maryland LLC?
How to start an LLC in Maryland
What is an LLC?
A limited liability company (LLC) is a business organization run by one or more owners (i.e., members) who control company operations without a corporate board of directors. If you’re the only member, your business is considered a single-member LLC. Otherwise, it’s called a multi-member LLC.
Is an LLC right for you?
For many Maryland small business owners, a limited liability company (LLC) offers an appealing middle ground between a simple-but-limited sole proprietorship and an expansive-but-complicated corporation, LLCs appeal to small business and medium business owners who want to avoid:
- The double taxation of a corporation. The LLC structure lets your business avoid double taxation, where company income can generate personal and business taxes—a crucial issue for corporations.
- The personal liability risk of a sole proprietorship. An LLC protects you from personal liability if someone sues your company. You also pass your profits and losses through the company to individual co-owners.
If there are multiple owners, you can offer different membership classes (i.e., managing members, who run the company, and non-managing members) who share ownership but aren’t involved in day-to-day operations. There’s no limit to the number of co-owners in an LLC. Multi-owner companies can also form partnerships, but these offer fewer protections and tax benefits; they don’t shield owners from liability incurred by their business and lack the tax flexibility that LLCs offer. (Maryland LLCs, for instance, can choose to be taxed like a corporation).
1. Name your Maryland LLC
The state of Maryland defines a trade name as “a name, symbol, word, or combination of two or more of these that a person uses to identify the business or occupation of the person, and to distinguish it from the business or occupation of another person.” Maryland lets you register a name through the Maryland Business Express online filing portal.
Here are a few things to keep in mind when choosing a name for your business:
- Make it memorable and meaningful. Customers can learn a lot about a business from its name. What do you want their first impression of your business to be? For instance, Wrangler and Paige are both denim manufacturers, but Wrangler—named after an occupation—connotes outdoor labor, while Paige—named after a designer—suggests urban fashion.
- Choose an original name. Your business can’t have the same name as another business entity or trademarked phrase registered in Maryland. You can search for existing business names on the Maryland Business Express online filing portal and in the U.S. Patent and Trademark Office records to confirm that someone hasn’t already trademarked your name.
- Make sure your name works online. If you plan to launch a business website for your LLC, you can use a free domain name generator to pick a memorable URL. You might also want to use this name on your social media accounts.
Some Maryland LLCs organize under one legal name but conduct operations under a different name, a common practice called doing business as (DBA).
2. Create a business plan
In Maryland and elsewhere, small business entrepreneurs create business plans to guide organizational objectives, declare planned revenue streams, plot business structures, and establish metrics for success. For guidance, check out a business plan template, which shows how to craft one according to your type of business. There are also business plan examples you can use to make sure you’re on track.
3. Get a federal employer identification number (EIN)
As your business transitions from an idea to a reality, you must apply for an employer identification number (EIN) through the IRS. An EIN functions as your business’s federal tax number. You’ll also use your EIN when opening a business bank account for your LLC. With an EIN, you can apply for a state tax identification number on the Maryland Business Express website.
You need an EIN and state tax ID number before you can start hiring employees and accepting payments.
4. File Maryland Articles of Organization
When completing the form, you’ll need to name a registered agent with a physical address in Maryland. The registered agent must be available during normal business hours to accept tax documents or legal forms on behalf of the business. While the registered agent needs to be in-state, the actual owners of the LLC can live anywhere and be of any age.
5. Prepare an operating agreement
Maryland does not require LLCs to have an operating agreement. Despite this, most LLCs choose to draft one to protect individual interests. Similarly, some states allow LLCs to file a copy of their operating agreements with a government agency.
An operating agreement is a legal document agreed to by all LLC partners and functions as your LLC's constitution. It defines the business’s ownership structure, articulates its scope of operations, and establishes voting procedures that require the consent of the LLC’s managing members (and sometimes the non-managing members). Processes that may require a managing member vote include taking on debt, accepting new partners, hiring employees, or selling or dissolving the business.
6. Obtain a business license and permits
Maryland requires some LLCs to obtain a business license or business permit before they can legally start operating. The Maryland state government launched an online licensing and permitting portal known as the OneStop Portal, which serves as the central hub for your Maryland licensing and permitting needs.
7. Understand Maryland state tax requirements
LLCs are pass-through organizations, meaning business profits and losses pass through to company owners, who report them on their income taxes using IRS Form 1040. In other words, when the company makes money during a tax year, LLC members report it as personal income. When the LLC loses money during a tax year, its owners may claim a loss on their income taxes. LLCs inform their owners of profits and losses via IRS Schedule K-1.
As an incorporated business, your LLC must file Maryland’s Form 1 Annual Report, which you can do online. The current rate for filing is $300 per year.
If your business conducts retail sales, you must collect sales tax from customers and send it to the state. Maryland levies a surcharge of 6% on retail sales and 9% on alcohol sales. The Maryland State Comptroller’s office provides additional resources concerning sales tax remittance.
Maryland law allows LLCs to be taxed as corporations if members choose. In this scenario, the Maryland LLC files corporate tax returns and then covers the income tax bill for the company’s business profits. This tax approach benefits LLCs that make money yearly, because LLC members may not want company profits jacking up their taxes, and therefore let the LLC pay on their behalf. Conversely, money-losing LLCs typically choose to pass their earnings and losses down to their members, letting members claim a loss on their tax returns, lowering their overall bill.
8. Examine insurance options in Maryland
Maryland publishes a Business Owner’s Guide to Commercial Insurance that helps LLCs understand what business insurance they need. The guide covers categories like liability insurance, workers' compensation insurance, and health insurance for small business employees. Additionally, the Maryland Insurance Administration provides resources to LLCs new to the business insurance marketplace.
Examples of insurance in Maryland include:
- Workers’ compensation insurance. All Maryland employers must purchase workers' compensation insurance for their employees.
- Commercial general liability insurance. Commercial general liability insurance, or CGL, protects a business from financial claims involving bodily injury, property damage, slander, libel, and misleading advertising.
- Commercial automobile insurance. An automobile insurance policy must cover all vehicles in Maryland, including those dedicated to commercial use, personal use, or both.
Beyond state requirements, small business owners often purchase supplemental policies that limit their liability in case of a mishap. Your need for such policies depends on your company's finances and risk exposure.
9. Understand financial considerations
It’s worth exploring funding, grants, and tax benefits. Here, the U.S. Small Business Administration (SBA) can serve as a resource. Marylanders can drop into a physical SBA branch, including one in downtown Baltimore. If you want to fund your LLC’s initial stage with small business loans, there are ways to get the startup cash you need to hit the ground running.
10. Market your business
The first step in business marketing is building a brand. Create a small business marketing strategy using logos, color schemes, fonts, slogans or taglines, and points of view to teach potential customers about your business. Once you’ve established your identity, explore the various other ways to market your business, including:
- Awareness content (articles, blog posts, videos, newsletters)
- Traditional TV and radio ads
- Pay-per-click web ads
- Social media/influencer campaigns
- Store displays
Starting an LLC in Maryland FAQ
How much does it cost to start and maintain a Maryland LLC?
Maryland charges LLCs $100 to file their initial Articles of Organization. Once per year, the LLC must file Maryland’s Form 1 Annual Report at $300 per year.
What are the pros and cons of incorporating in Maryland?
Maryland LLC fees rank among the highest in the country. While notably cheaper than fees in California and Nevada, they cost more than in the neighboring states of Virginia, West Virginia, and Pennsylvania. They are the same as the fees in neighboring Delaware and Washington, DC. Still, many business owners choose Maryland because of its dense population, affluent regions, and economic engines, including government contracting, information technology, aerospace, scientific development, manufacturing, port shipping, fishing, farming, and hospitality.
Do you need a registered agent for your Maryland LLC?
Yes. Maryland requires LLCs to designate a registered agent who maintains a business address in the state. That registered agent must be available during regular business hours to receive documents and queries related to the LLC.
How do state taxes work for LLCs in Maryland?
A Maryland LLC passes its profits and losses through to its members, who report the sums on their income tax returns. If they choose, a Maryland LLC can be taxed as a C corporation, meaning the business pays taxes on its profit at a rate of 8.25%. Maryland also charges 6% sales tax on retail purchases and 9% sales tax on alcohol purchases. Merchants must collect the sales tax from customers and remit it to the state.