Articles of Organization

Forming your new LLC in Maryland requires filing articles of organization with the Corporations Division of the Maryland Secretary of State. The filing fee is $100.

The new LLC's articles of organization must be executed (signed) by at least one organizer and include the company's name, the purpose for which it is being formed, the address of the LLC's principal Maryland office, the name and address of the LLC's registered agent, and any other provisions which the members want to set forth (so long as they are not inconsistent to state law, of course).

Your LLC is considered "organized" once an original and a copy of the articles of organization are received by the Maryland Secretary of State's office with the appropriate filing fee. The articles of organization are effective as of when they are filed.

You can get a certified copy of the original articles returned to you by including an additional $20 plus $1 per page in your filing fee check.

Registered Agent and Office

Maryland LLCs must continuously maintain have an in-state registered agent and registered office to receive official state correspondence, both administrative and legal. An LLC's registered agent can be an individual Maryland citizen who resides in the state, or it can be a Maryland corporation or LLC authorized to conduct business in the state.

The registered office can be a place of the LLC's business, but the registered agent must have as a business office that is the same as the registered office.

Operating Agreement

One of the LLC's most important documents is its operating agreement, which can be amended or repealed as allowed by the agreement itself or applicable state law. Having an operating agreement isn't required by state law as such-but it's a vital internal document that officially sets out how the LLC will operate. The operating agreement lists the members, how much each one has invested, how profits are to be divided, and how much relative weight each member has when matters come to a vote.

The operating agreement may also list when meetings can be held, how much notice must be given, what constitutes a quorum, voting rules, and so on, but it is not required to. Usually, though, it does list rules already specified in state laws. It can also include constraints on the members' power to adopt, change, or repeal an operating agreement. If there is more than one member, the original operating agreement must be approved by all the LLC's members in writing.

Unless otherwise specified in the operating agreement itself, the operating agreement may only be amended by the unanimous agreement of all the LLC's members.

Membership in the LLC

An LLC has to have at least one member, and each member must be a natural person or a recognized business entity. A member may be admitted as a member of the LLC when it is formed, at a later time specified in the operating agreement, after formation directly from the LLC in compliance with the operating agreement, or with the written consent of all members.

To become a member, the newcomer normally needs to make a contribution, pay cash, or transfer property to the LLC, or take on an obligation to do so. However, a person may be admitted as a member of the LLC without acquiring a membership interest if there is such a provision in the articles of organization or operating agreement, or if all members consent and the person's admission is documented in the LLC's records.

Members' contributions to the LLC can be in the form of cash, property, promissory notes, services previously rendered, or some other valuable consideration.

A member can only resign from the LLC in the way that the articles of organization or operating agreement specify. In the case of Maryland LLCs, a member may only withdraw or resign after six months' written notice to the other members at their respective addresses-and the operating agreement can stipulate that the member does not have the power to withdraw at all, or it may specify another time or condition for withdrawal.

Unless otherwise specified in the operating agreement, members manage the LLC. The Maryland LLC Act does not mention managers or manager management as such, but it does allow the LLC's operating agreement to delegate management to persons who are not members. In effect, this allows LLCs to choose manager management, and to assign management to one or more persons (who may or may not be members).

Unless otherwise provided in the articles of organization or operating agreement, members must vote in proportion to their relative interests in the LLC's profits. The approval of members owning a majority of such interests is required for membership action.

Ongoing Requirements

In Maryland, annual reports are part of the Personal Property Return [PPR] for an entity, and are due on April 15 each year. The annual report fee is $300. This does not, however, include any taxes due as part of your personal property return.

Maryland LLC's should also keep their organization's records available for inspection at their principal executive office in the state. It's also a good idea to keep available minutes of the proceedings of the board and committees of the owners or members.

Dissolution

An LLC is dissolved when any one of the following events occurs:

• An event or events occur that the articles of organization or operating agreement specify as requiring dissolution
• All members agree to dissolve the LLC
• When a judicial order requiring dissolution is entered
• Unless otherwise provided in the operating agreement, when the LLC has no members for 90 consecutive days

In this last case, within 90 days of the time the LLC has no remaining members, the LLC does not have to be dissolved or wind up its affairs so long as the last remaining member's personal representative or successor agrees in writing to continue the LLC and to be admitted as a member (or to appoint a designee as a member), or a member is admitted to the LLC as set forth in the operating agreement as of the time the last remaining member ceased to be a member.

Taxes

An LLC provides certain tax advantages compared to a corporation, including being able to make more deductions. An LLC is not treated as a separate tax entity like a corporation, but rather can be a "pass-through entity" when it comes to taxes, so that the LLC owners report business losses or profits on their personal tax returns.

The tax rate for Maryland LLCs varies, based on taxable net income.

Articles of Incorporation

After choosing a name, the next step for your new Maryland corporation is filing articles of incorporation, along with a minimum filing fee of $120. The articles must be delivered to the state secretary of state's office by at least one of the incorporators, all of whom must be adult individuals of at least 18 years age. Their duties are to sign, verify, and deliver in duplicate those articles of incorporation to the secretary of state. The articles must include:

• Name and address of each incorporator
• Corporate purpose, or a statement that the corporation may engage in any lawful activity
• Number of directors authorized
• Names of all initial directors
• Total number of shares, itemized by class and par value (if designated), that the corporation is authorized to issue
• If par value is used, the aggregate par value of all the shares
• Any preferences, conversions, or other share rights
• Name and address of the corporation's resident agent (must also sign the articles)
• Address of the principal corporate office in Maryland

Maryland also allows other, optional provisions to be included in the articles of incorporation, such as:

• Transferability of stock
• Division of directors into classes and the term of office for each class
• Establishment and terms of cumulative voting in the election of directors for the purpose of minority representation
• Regulating the powers of the corporation, its board of directors, and shareholders
• Limiting director and officer liability to the corporation in certain situations

You can authorize shares of stock either with or without a stated par value. The most common practice is to issue shares without par value. Maryland imposes a stock fee that depends on the number of shares you authorize in your articles. You can authorize up to 5,000 shares without par value or a number of par value shares whose total par value equals $100,000 for the minimum filing fee of $120 ($100 recording fee plus a $20 minimum stock fee). Authorizing 100,000 shares with a stated par value of $1 or 1,000,000 shares with a stated par value of $.10 both result in an aggregate par value of $100,000, and therefore qualifies your corporation for the minimum $120 filing fee. Most incorporators authorize one class of common shares with equal voting, dividend, and liquidation rights, and no special restrictions.

Registered Agent and Office

Maryland corporations must each have a registered, in-state agent. The registered agent is the person or business entity designated to receive official state correspondence, including notice if the corporation is "served" with a lawsuit.

Likewise, the state requires that all corporations maintain a registered, in-state office that may be its primary place of business. The registered agent must maintain a business office identical to the registered office, and must be either an individual person living in Maryland or a corporation authorized to conduct business in the "Old Line" State.

Bylaws

Bylaws lay out a corporation's basic managerial and legal operating principles. The corporation must keep a copy at its principal executive office, but is not required to file them with the state. Nonetheless, they are a critically important document for the corporation.

At its initial meeting, the board of directors should adopt corporate bylaws, and then keep them updated as time goes on. The corporation's board of directors can make, alter, amend, or repeal those bylaws, unless the articles of incorporation reserve this right to the shareholders. Bylaws normally address:

• Shareholders' and directors' meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A Maryland corporation must have at least one director, unless the articles of incorporation or bylaws specify a greater number. Directors for the corporation should be listed by name in the bylaws. State law does not specify any eligibility requirements for directors, but the corporation's articles or bylaws may prescribe director qualifications.

Officers must be listed in the bylaws or elected by the board of directors. A Maryland corporation must have at least a president, a secretary, and a treasurer. Unless the bylaws specify otherwise, officers serve one-year terms and until a successor is elected and qualifies.

So long as the bylaws permit it, state law allows a person to hold more than one office in a corporation, but they may not serve simultaneously as both president and vice president of the same corporation. A person may hold more than one office in the same corporation, but they may not act in more than one capacity to execute, acknowledge, or verify a document that requires that action by more than one officer.

Required Reports

An annual report, accompanied by a $300 fee, must be filed with the Maryland State Department of Assessments and Taxation each year with the corporate business personal property return.

State law also requires the president (or another officer specified in the bylaws) to furnish an annual statement of affairs report to the shareholders, which must include the corporation's balance sheet and financial statement of operations. This report must be submitted at each annual stockholders' meeting and filed at the principal office within 120 days after the end of the fiscal year.

Taxes

Maryland's corporate tax structure consists of a flat rate of 8.25 percent based on federal taxable income after state modifications. Among states that have corporate income taxes, Maryland's rate ranks 16th highest nationally.