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Whether you charter sailboats in Annapolis or sell crabs from the Chesapeake, your business venture should be an LLC to protect your personal assets from the claims of business creditors.
FORM A MARYLAND LLC IN 4 EASY STEPS
- STEP 1: Create an LLC Name
All LLCs that are formed in Maryland must include one of the following in their name: LLC, L.L.C, L.C., or LC.
Names cannot include language stating or implying any purpose other than that allowed by the LLC articles of organization, which must be a lawful business purpose.
Names must be distinguishable from the name of every other business entity that is either formed in Maryland or qualified to do business in Maryland.
- STEP 2: Articles of Organization
Articles of organization are filed with the State Department of Assessments and Taxation (SDAT) and must include: the LLC name, the address of the LLC’s principal Maryland office, the purpose of the LLC, and the name and address of the LLC’s registered agent. Other provisions can be included, but are optional.
Anybody authorized by the LLC members can sign the articles and file them with the SDAT, along with the $100 filing fee.
- STEP 3: Operating Agreement
Maryland LLCs have their internal affairs governed by operating agreements, which are not filed with the SDAT. For recommendations on operating agreements, please see our operating agreement page.
- STEP 4: Continued Compliance
EIN: If your Maryland LLC will have more than 1 member, it will need an EIN from the I.R.S. For more information on EINs, please see our EIN page.
Annual Reports: Maryland LLCs must file annual reports that contain information on the LLC’s assets and revenue, as well as any property in Maryland. The filing fee for this is $300.
WHY FORM AN LLC IN MARYLAND?
The Benefits and Advantages of Creating a Maryland LLC
The U.S. Chamber of Commerce ranks Maryland first in academic research and development intensity, and third in share of high-tech businesses. It also ranks Maryland fifth in “growth, productivity, and livability,” which was determined by considering long-term and short-term job growth, state gross domestic product growth, job productivity and income growth, and livability.
- Advantages of Forming a Maryland LLC
The Maryland LLC Act states that unless provided otherwise in the Act, its policy “is to give the maximum effect to the principles of freedom of contract and to the enforceability of operating agreements.” The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses. An LLC’s members can specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than their portion of capital contributions. This gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
In addition, an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests. This facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.
The Maryland LLC Act does not require LLC members to be listed with the State. A “person” may organize an LLC, and the person does not need to be a member of the LLC. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Articles of Organization with the Maryland Secretary of State.
The Maryland LLC Act provides for an LLC’s unlimited life. Unless otherwise agreed or the articles of organization specify a time an LLC will be dissolved, it has perpetual existence. An LLC’s existence therefore outlives its members’ lifetimes.
Dealing with Business Partners
The Maryland LLC Act gives members contractual freedom to customize the duties each party to an LLC’s operating agreement owes to the other parties. For example, the Act allows members to determine whether, and under what conditions, to allow contracts and transactions between an LLC and one or more of its managers or members or an entity in which they own an interest. The Act provides that “[u]nless otherwise agreed, a member may lend money to and transact other business with the limited liability company and has the same rights and obligations with respect to the transaction as a person who is not a member.” This gives members certainty in business planning and the ability to take advantage of mutually beneficial opportunities.
Preventing Unwanted Business Partners
The Maryland LLC Act protects membership interests from members’ creditors. An LLC agreement may provide that a membership interest cannot be assigned. Even if a membership interest is assigned, an LLC agreement may provide that the assignee cannot participate in the management of the LLC, become a member, or exercise any non-economic interests of the assignor.
In addition, unless otherwise agreed, a member “ceases to be a member” if the member makes an assignment for the benefit of creditors, files a voluntary petition for bankruptcy, is adjudicated bankrupt or insolvent, or fails to contest the appointment of a receiver or trustee over all or a substantial part of the member’s property.
Creditors Only Get Passive Rights, Not Control Rights
And if a creditor obtains a charging order against a member’s membership interest, it “constitutes a lien on the economic interest of the debtor,” and “requires the limited liability company to pay over to the creditor only any distributions that would otherwise be payable to the debtor whose economic interest is charged.” The member’s non-economic interest, such as voting and management rights, is “unaffected and is retained by the debtor.” If a creditor forecloses on a member’s economic interest, the purchaser at the foreclosure sale has the rights of an assignee.
These provisions are the “exclusive remedy by which a creditor of a member may attach the membership interest of the member or otherwise satisfy the outstanding debt of the member out of the membership interest of the member.” This enables members to protect their control of an LLC.
- Maryland Registered Agent Services
A Maryland LLC must list a Maryland registered agent for service of process. A commercial registered agent service may act as a Maryland registered agent.
- To Keep a Maryland LLC in Good Standing
The Maryland LLC Act requires LLCs to file annual reports, and if an LLC does not file a report, the Department of State may issue a proclamation that the LLC’s “right to do business in Maryland and the right to the use of the name for each limited liability company is forfeited as of the date of the proclamation, without proceedings of any kind either at law or in equity.” The LLC then has 60 days to pay any taxes or penalties due and be reinstated.
The fee for filing the report is $300. This fee is required whether an LLC is domestic (Maryland) or foreign (out of state). Therefore, if you are living in Maryland or doing business there, you will owe this fee whether or not your LLC was formed in Maryland or elsewhere. You cannot avoid this fee simply by forming in another state. Because of this, people sometimes form an LLC in Maryland to avoid paying two states’ annual fees, one for the domestic company (Maryland) and one for the foreign LLC.
Because of the advantages of forming an LLC in Maryland, over 29,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Maryland. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Maryland with your Delaware LLC (Form Delaware LLC).
- Maryland Corporations and Associations Code References
§ 1-203 “Recording, Filing, and Other Fees” § 4A-102 “Policy” § 4A-202 Formation” § 4A-203 “Powers” § 4A-204 “Articles of Organization” § 4A-206 “Execution of Articles and Certificates” § 4A-210 “Principal Office and Resident Agent” § 4A-402 “Operating Agreement” § 4A-405 “Business Transactions of Member with Limited Liability Company” § 4A-503 “Sharing of Profits and Losses; Distributions” § 4A-601 “Admission of Members” § 4A-603 “Assignment of Interest” § 4A-604 “Right of Assignee to Become a Member” § 4A-606 “Cessation of Membership” § 4A-607 “Rights of Creditor” § 4A-911 “Failure to Pay Taxes or Required Contributions; Proclamation” § 4A-912 “Notice of Proclamation; Reinstatement Upon Payment”
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