Maryland Business Formation Lawyer

In Maryland, as in most states in the United States, there are several types of business formations to choose from. The choice of business entity depends on factors such as liability protection, taxation, management structure, and the specific needs of your startup. The various business entities are codified in the Maryland Code generally in the Corporations and Associations Article. Here are the main types of business formations in Maryland, along with reasons to consider each one:

1. C Corporation (C Corp):

Liability Protection: A C Corp provides limited liability protection to its shareholders, meaning their personal assets are generally protected from business liabilities and debts so long as the shareholders are not the ones committing a negligent act or a tort.
Taxation: C Corps are subject to double taxation. The corporation itself is taxed on its profits, and then shareholders are taxed again on dividends received.
Investment and Growth: C Corps are suitable for startups that plan to raise funds through venture capital, angel investment, or public offerings, as they can issue different classes of stock to attract investors.
Complexity: C Corps are subject to more regulatory and administrative requirements compared to other business structures.
Requirements: A C Corporation in Maryland can be set up by having an adult individual sign and acknowledge articles of incorporation and filing them with the Maryland Department of Assessment and Taxation. Articles of Incorporation can be pretty basic just setting forth the name of the corporation, the purposes for which the company is formed (can and often is for any lawful purpose), the address of the principal office, name of the resident agent, total number of shares of stock and all classes of stock the company is authorized to issue including par value, and the number of directors and names who will serve of directors until successors elected.

2. S Corporation (S Corp-also known as Close Corporation):

Pass-Through Taxation: S Corps have pass-through taxation, meaning the business’s profits and losses are passed through to shareholders’ personal tax returns, avoiding double taxation at the corporate level. Generally speaking, S Corporation Shareholders will receive a IRS Form K1 showing their share of the profits as taxable income.
Limited Liability: Similar to C Corps, S Corps provide limited liability protection to shareholders, so long as the shareholders don’t actively commit a wrongful act.
Ownership Restrictions: In Maryland if stock is outstanding in a close corporation the company cannot issue or sell it unless the sale or issuance is approved by all shareholders or permitted by unanimous consent of all shareholders.
Suitable for Small Businesses: S Corps are suitable for smaller startups that want liability protection and pass-through taxation, and who want to avoid some of the formalites of a C Corporation.

3. Limited Liability Company (LLC):

Limited Liability: LLCs offer limited liability protection to their owners (members), separating personal assets from business debts and liabilities.
Flexible Taxation: LLCs have flexibility in taxation. They can be taxed as a sole proprietorship/partnership (for single-member or multi-member LLCs) or elect to be taxed as a corporation.
Pass-Through Taxation: By default, multi-member LLCs are taxed as partnerships and single-member LLCs are taxed as sole proprietorships, with both benefiting from pass-through taxation.
Management Flexibility: LLCs can be managed by members or by managers, providing flexibility in decision-making.
Simplicity: LLCs have fewer administrative requirements compared to corporations.
Formation: A Limited Liability Company is formed by filing Articles of Organization with the Maryland Department of Assessment and Taxation. The only requirements for the Articles is the name of the LL, the address of its principal office in Maryland, the name and address of the resident agent,

When deciding which business formation is best for your Maryland business, consider factors such as your growth plans, funding requirements, desired management structure, liability protection, and tax implications. It’s highly recommended to consult with legal and financial professionals who can provide personalized advice based on your specific situation and goals.