If you’re here, congratulations on taking the first step toward launching your own business! In researching various business structures, you may have noticed that corporations tend to be more expensive to set up than other business structures and require more extensive record-keeping, reporting, and operational processes. However, corporations offer you several advantages, including the strongest level of protection from personal liability. There are three types of corporations we’ll look at: C corporations, S corporations, and nonprofit corporations.
In this guide, we’ll explore everything you need to know about forming your Maryland corporation.
How do I form a Corporation in Maryland?
Steps to form your Maryland Corporation
- Name Your Corporation
- Appoint Directors
- Choose an Maryland Registered Agent
- File the Maryland Articles of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit your Corporation’s first report
Your corporation is officially established in Maryland once you register your new business with the Maryland Department of Assessments and Taxation. This is done by filing your Articles of Incorporation. However, before you can file, you’ll have to do a little bit of legwork.
Step 1: Name Your Corporation
Once you’ve determined which corporation offers the best structure for your business — whether you pick a C corporation, S corporation, or nonprofit corporation — it’s time to pick a name. Some things to consider include:
- Make sure that your name is available and distinguishable from other entities. You can use the Business Entity Search by the Maryland Business Express to check availability.
- Keep in mind that your corporation’s name must include at least one of the following words or their abbreviations: “Company” (Co.), “Incorporated” (Inc.), “Corporation” (Corp.), or “Limited” (Ltd.). If you use “Company” or “Co.,” you can’t have “and” or its symbol before the word.
- Certain words are prohibited or restricted in Maryland, and a business name can’t contain language stating or implying something other than its purpose included in the Articles of Incorporation.
- If you’ve selected the perfect name for your business but are not ready to register it, you can reserve it by contacting email@example.com. They will likely ask you to submit the Corporate Name Reservation Application, which comes with a $25 fee. This reserves your business name for 30 days.
- Before making the final decision on your company name, visit the United States Patent and Trademark Office website to make sure it isn’t federally trademarked. Trademarks also exist at the state level. To see if the name has any state trademarks, run it through Maryland’s trademark search engine. If you want some legal protection for your name, apply for a state or federal trademark of your own.
- You may also be interested in a “doing business as” (DBA) name, referred to as a trade name in Maryland. To register a trade name, mail a Trade Name Application with a $25 fee to: Charter Division Department of Assessments and Taxation 301 W. Preston Street, Room 801, Baltimore, Maryland 21201. You may also file online.
Step 2: Appoint Directors
Having secured your corporation’s name, Maryland requires that each corporation have at least one director on its board.
When appointing your director(s), you may also want to draft your corporation’s bylaws, which will establish the basic rules for how your corporation functions internally and determine your stock structure. Shareholders fund your corporation and, as owners of your business, will have a say in how it operates.
It is up to your corporation, not Maryland, to determine the qualifications required of the director(s). While it may be beneficial to appoint a director who is a shareholder (or an “owner”) in your corporation, it is not required.
Your board of directors will be responsible for overseeing your corporation and electing the officers who manage day-to-day business activities. In addition to its at least one director, Maryland requires a corporation to have at least three officers: a president, a secretary, and a treasurer. If desired, your business may have any number of additional officers.
Step 3: Choose a Maryland Registered Agent
Once you’ve appointed your director(s), you must choose a Maryland resident agent, commonly referred to as a registered agent in other states.
Every Maryland corporation is required to have a resident agent who agrees to accept legal documents (such as notices of a lawsuit) and important correspondence from the state on the corporation’s behalf. The resident agent is required to be either an adult Maryland citizen or an existing Maryland corporation (your corporation can’t be its own resident agent).
You can choose to be your own resident agent, but this may not be wise; some of your information will become public, and you could be served papers for a lawsuit in front of clients.
Step 4: File the Maryland Articles of Incorporation
Now you are ready to file the Maryland Articles of Incorporation.
Different states have different names for this document. While it is called the Articles of Incorporation in Maryland, it may be referred to as the Certificate of Incorporation in other states. Despite the different terminology, they are essentially the same.
The Articles of Incorporation must include the following information:
- The name and address of each incorporator
- The name of your corporation
- The intended purpose for which the corporation was formed (this description be very general, such as “providing services”)
- The address of the corporation’s principal office in Maryland
- The name and address of your corporation’s resident agent
- The number of shares the corporation is authorized to issue and the par value of each (if you want the shares to have no par value, put $0)
- The number and names of your corporation’s directors
- Signatures for all incorporators and the resident agent
The filing fee is $120, which includes an organization and capitalization fee. However, the fee can increase if (a) the aggregate par value (the par value multiplied by the number of shares) is more than $100,000 or (b) if more than $5000 shares without par value are authorized. If either of these are true, call the Department of Assessments and Taxation at (410) 767-1340 to find out what the fee will be.
Step 5: Create Corporate Bylaws
If you have not already, it’s important to draft your corporate bylaws after filing your Articles of Incorporation to establish the rules of how your corporation will function daily.
Your corporate bylaws will not be filed with the state of Maryland. However, they must be consistent with your Articles of Incorporation and the laws of the state.
Your corporate bylaws may include things like:
- Your business name, purpose, and location (explain why the corporation exists and provide your office location)
- Your organization’s members (outline the different types of members, members’ voting rights, and procedures for removing members)
- Your board of directors (outline the composition, size, and rules for the board)
- Your committees (detail how committees are appointed and their specific duties)
- Your officers (outline the selection, duties, powers, and responsibilities of officers)
- Your meetings (detail the time and place, notification requirements, and the number of members required for a quorum)
- Conflicts of interest (highlight any potential conflicts of interest on the board)
- Amending bylaws (include specific rules for how amendments are made and who is allowed to make them)
Step 6: Draft a Shareholder Agreement
Another important document to draft is a shareholder agreement. In Maryland, they are referred to as stockholders — all who own stock are also partial owners of your corporation. This document outlines the rights and responsibilities of all stockholders and may include:
- The names of all stockholders and their contact information (address, phone number, etc.)
- Stockholder responsibilities, including rules about any actions that stockholders are allowed to take on behalf of the business
- Stockholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
- How changes to the original stockholder agreement may be made
- How stock can be sold or transferred
- The financial obligation and time commitment for each stockholder
- A clear outline of how dividends are distributed
- A plan for the distribution of assets should the business close
This agreement can be drafted from a template, but you may want to seek professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Step 7: Issue Shares of Stock
One of the requirements for starting a corporation is issuing stock. When you filed your Articles of Incorporation, you stated the number of stock shares that were authorized. Make sure that the number of shares you issue is always less than or equal to this number.
Issuing stock is one of the advantages of forming a corporation. Because it’s necessary to raise funds (“capital”) to launch your business, you can determine how much capital you need and divide this value among stock shares that you issue to your stockholders.
Sometimes, stock shares may be issued as compensation for helping start the business. As a result, the stockholder to whom they are issued does not pay for them.
Each share is only issued once. However, after being issued, they can be traded and sold. All issued shares must be documented in the company’s annual report.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, managers, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Companies issuing public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should also check with the Maryland Securities Division to see what is required at the state level.
Step 8: Apply for Necessary Business Permits or Licenses
State and local governments may require you to have permits or licenses to operate. Most businesses, such as retailers, are required to have a license. If your business buys or resells goods, you are required to have a trader’s license. Furthermore, you or any professionals you hire may need individual occupational and professional licenses.
Maryland’s OneStop portal will help you determine what licenses and permits you need at the state level. Depending on where your business is located, you may also need to check with the Clerk of the Circuit Court regarding local licensing requirements. We encourage all business owners to do their due diligence and look at any required licensing and permits at the local, state, and federal levels.
Step 9: File for an EIN and Review Tax Requirements
Your corporation will be treated as its own legal entity, separate from you or the people involved. For tax purposes, you will need to apply for a federal Employer Identification Number (EIN), which acts sort of like the corporation’s Social Security number.
To apply for an EIN, visit the IRS website. It’s a simple process that can be completed for free online. Keep track of your EIN because you will need it for future documentation and when filing your business’s tax return.
Remember that corporations must pay their own taxes separately from any taxes paid on stockholder earnings. This must be done at the federal and state levels by submitting the appropriate return each year.
Maryland also has a business personal property tax, which is a tax on your company’s tangible property (like inventory, office furniture, equipment, computers, machinery, and anything else that’s not real estate). If your business owns, leases, or uses personal property in Maryland or if it maintains a trader’s license with a local unit of government in Maryland, you’ll need to file a business personal property tax return along with your annual report, which we’ll cover in the next section.
Maryland has a combined registration application you can use if you need to get a sales and use tax license, start an employee withholding account, or register for a variety of other taxes.
Step 10: Submit Your Corporation’s First Report
You can submit your annual report online or mail it to:
Department of Assessments and Taxation
Baltimore, Maryland 21297-1052
How much does it cost to start a corporation in Maryland?
The base filing fee for the Articles of Incorporation in Maryland is $120 (unless you meet the criteria we covered in Step 4). You’ll also be required to pay $300 to file your annual report.
Note this does not include any additional fees that may be required for operating your business. Depending on your industry, you might need specific permits or licenses. This base fee does not include ongoing costs to grow your business like maintaining a website or creating marketing materials.
For a low annual fee, ZenBusiness can provide expert guidance and help reduce the time spent launching your corporation, so you can focus on growing your business.
What are the benefits of a corporation in Maryland?
Due to corporations being treated as their own legal entities, stockholders (owners) are usually not personally liable for business debts. In other words, forming a corporation protects you and your personal assets from many of the risks associated with running a business.
Other advantages include:
- Stocks can be issued, making it easier to raise funds to launch your business
- Incorporating formally establishes your business
- U.S. corporations are recognized internationally
However, there also are some disadvantages to forming a corporation. For example, double taxation and the fact that corporations require a great deal of paperwork can be a big deterrent for some entrepreneurs.
How is a Maryland corporation taxed?
There are three main types of corporations in Maryland: C corporations, S corporations, and nonprofit corporations.
C corporations are treated as separate tax entities and must file their own federal and state tax returns. In addition to this, when profits are distributed to the stockholders, the profits are taxed again on the stockholders’ individual tax returns. This is called “double taxation.” While that might seem less than ideal, there are some benefits to this tax structure, including more flexibility in what can be deducted.
S corporations are “pass-through entities,” much like limited liability companies (LLCs). The corporation itself doesn’t pay federal income tax under this system, just the individual stockholders, thus eliminating the double taxation on federal taxes. For state corporate income tax, though, Maryland is a little different in that S corporations must file Form 510, the Pass-through Entity Income Tax Return. The business itself would not owe any taxes with this form unless it has any members who are nonresidents of Maryland and any nonresident taxable income.
Nonprofit corporations can apply to be exempt from paying federal taxes, provided they stay within the rules for nonprofit activity. If a Maryland nonprofit successfully applies for tax-exempt status with the IRS, it can also then apply to be exempt from paying state income tax. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
As mentioned earlier, your corporation may also be responsible for paying business personal property tax. However, a nonprofit Maryland corporation can fill out an application to be exempt from this tax.
Maryland Corporation FAQs
- Does running a corporation in Maryland involve more paperwork than running other types of businesses?
Corporations are more complex structures than other types of businesses and typically require additional paperwork, such as special tax filings and reports on stock transactions.
- What is the difference between an LLC and a corporation in Maryland?
Like a corporation, a limited liability company (LLC) is a type of business structure that keeps the owners’ assets separate from business assets (i.e., “limits liability”). However, LLCs do not have a board of directors, do not issue shares, and are not recognized outside of the U.S.
Corporations, by contrast, pay income tax based on their annual revenue, and their owners/directors are taxed again at the individual level on the money they make from the corporation.
- How do I change my corporation’s name in Maryland?
- How many people are needed to form a corporation in Maryland?
Only one person is required to file the Articles of Incorporation in Maryland.
- Can I form my Maryland corporation online?
You can form your Maryland corporation online through the Maryland Business Express filing service.
- How do I dissolve my Maryland corporation?