Saltzman Law

Should I start a corporation or a limited liability company in Maryland?

When you start a business without preparing any specific documents, you start either as a sole proprietorship or a partnership, based on how many people own the interests in the business. You might have a partnership agreement, but if you don’t, a statutory partnership agreement will govern your business. In any of these cases, you will be personally liable in lawsuits.

You have several options when determining what form of business you start in Maryland. If you start a corporation, limited liability company, or limited liability partnership, your individual liability will be protected. However, each one of these forms of businesses has varying pros and cons.

The tax designation of an S corp requires the designation of officers and president, and unless you are designated as a Maryland close corporation, a board of directors. S corps must be elected by filing a Form 2553 with the IRS. They are essentially double taxed as a pass through entity, but have specific requirements. For example, all stockholders must be individuals or a qualified trust. An S corp might be best for a small business with high levels of revenue.

A limited liability company (LLC) does not require designation of officers or directors. LLCs are pass through entities that do not require payment of corporate taxes. Sole-member LLCs can treat the LLC’s income as the sole proprietorship filed on the Schedule C of an individual return. If there is more than one member, a partnership return must be filed for the LLC.

Every business is different. At Saltzman Law, we can discuss your specific situation to determine the best form of business for you to create.