Photo Via Benjamin Child
Owning your own business represents the hardest work that you may ever undertake. It will require many late nights, establishing a business plan, as well as numerous bumps in the road. By this point, you have successfully established a plan – an idea of a good or service that you would like to sell to establish profit. But as with any business, there will be regulations, taxes, and other red tape that may be cause for concern on how to proceed.
The best way to confront these concerns is to establish an LLC, otherwise known as a Limited Liability Company. Maryland LLC’s provide the business owner(s) with similar protection to what large corporations enjoy, only for a smaller business. That means that your business can reap tax benefits and liability protections afforded to LLCs. In an LLC, business owners are referred to as “members,” and they are protected from personal liability from any of the business practices. This does not, however, mean that a business owner will be cleared if something like a civil wrongdoing suit occurs during the business’ tenure.
Otherwise, let’s take a moment and compare these “members” of an LLC business to shareholders of a large corporation. The difference is, unlike shareholders, LLC businesses are not taxed as a separate business entity. That means that all profits and losses are passed through the business structure, ending up in the hands of the members/owners of the LLC. From there, the members have to report these profits and losses on their personal federal tax returns (not the business’), which is exactly what owners of a partnership would do.
In Maryland, the process of becoming an LLC requires several preliminary steps, starting with filing Articles of Organization. A singular document, the Articles of Organization basically tells the state that your business is indeed legitimate, asking for information such as your business name, address, and the names of the members, if applicable. Once this form is completed, business owners will be required to file it through the Maryland Department of Assessments and Taxation, which can be found here.
Next, while not required, it is strongly advised that you supply an Operating Agreement with your LLC application as well. Think of this as an insurance policy: it can help you structure your business in ways that make the financial and working sectors of your business run smoothly. If you co-own your business with another individual, you can establish how much each individual’s percentage of ownership within the LLC will be, as well as his or hers rights or responsibilities, share of the profit, managing losses, and what will happen if one of you is forced to leave the business.
On the other hand, assume that you are the sole proprietor of your business. Do you still need an Operating Agreement? Absolutely. An LLC already provides you with a simpler approach – giving you the benefits a sole proprietorship would receive. But, an Operating Agreement will further protect your limited liability standing as a business, and help make sure your business is run more so by your rules – not the rules governed by the state. The agreement will lend a level of credibility to your LLC being of separate existence.
Once the Operating Agreement is drawn up, you must then comply with state tax and regulatory laws. In Maryland, this will require you registering with the Comptroller of Maryland, especially if you intend on selling any goods or services (sales tax purposes) or have employees that will be working under your control.
With that in mind, this means that filing an annual report with the Maryland Department of Assessments and Taxation will be necessary come tax season, which can be completed with the Personal Property Return (Form 1) worksheet. This ensures that your business will stay independent, while also obeying Maryland law.
On that same note, an LLC is also not subject to the endless technical rules that a business like an S-Corp would be. For example, an S-Corp (an IRS-fueled coalition, thus having more red tape) can be disqualified as a credible business if it carries more than 100 shareholders, thus issuing that it has more than one class of ownership (stockholders). However, an LLC is allowed to have multiple ownership, and if you see your business set to blossom in the foreseeable future, an LLC will be the better choice in the long run.
As you embark on your journey to reap rewards as an up-and-coming business, do not forget that an LLC will provide many more additional benefits not just to save you money, but also to keep your independence. A knowledgeable attorney can assist you in making sure your LLC is accomplished in accordance with Maryland law with minimal headaches. If you need help with your estate plan, get in touch today by calling (410) 848-4444, or to see what others have said about us, please read our client testimonials.