How to Form a Professional Corporation in Maryland


Steve Goldstein
Steve Goldstein
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Form a Professional Corporation in Maryland

Are you considering starting a professional corporation in Maryland? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Maryland can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Maryland, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Maryland!

What is a Professional Corporation in Maryland?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Maryland. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Maryland.

LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Maryland if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Maryland

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Resident Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Maryland, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Maryland

After you have decided on the idea to form a professional corporation in Maryland, deciding the name for your corporation is significant. There is a complete guide on Maryland LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In Maryland, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 30 days. To keep the name, you must file a name reservation application with Maryland Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Maryland Resident Agent

The next step in forming a professional corporation is hiring the Maryland Resident Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Maryland. Forming a professional corporation for your service will be easier if you have Resident Agent in Maryland.

Alternatively, you can serve as your own Maryland Resident Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Maryland.

Step 4: File the Articles of Incorporation in Maryland

After you hire a Maryland Resident Agent to form a professional corporation, the next step is to file the Maryland Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Resident Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Articles of Incorporation in Maryland may be done with three ways, online, by mail and in-person. The Articles of Incorporation fee may vary from different states. However, in Maryland, it costs $120 for filing in person and by mail. Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. . For offline filing, Send the form by mail to CoState Department of Assessments and Taxation, Charter Division 301 W. Preston Street; 8th Floor, Baltimore, MD 21201-2395.

Step 5: Write an Operating Agreement in Maryland

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Maryland operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in Maryland

The next step is to appoint the initial board of directors in your PC in Maryland. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Maryland SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Maryland

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Maryland can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Maryland might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Maryland

Before your professional corporation operates in Maryland, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Maryland, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Maryland

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Maryland classification of taxes for the taxes an LLC in Maryland has to pay.

Important Information

Maintaining Professional and Business License in Maryland

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Maryland

In Maryland, you will be required to submit a report each year. The owners’ and Resident Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Maryland, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Maryland

A professional corporation takes a lot of time to process and pursue. However, with the help of the Maryland Resident Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Maryland.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in Maryland?
A Professional Corporation in Maryland is a type of business entity that is specifically designed for professionals such as lawyers, doctors, and accountants. This type of business entity offers the same protection and tax benefits as a traditional corporation.
How do I form a Professional Corporation in Maryland?
To form a Professional Corporation in Maryland, the first step is to register with the Maryland Department of Assessments and Taxation. This can be done online, by mail, or in person. After registering, you need to file articles of incorporation, a registered agent, and other documents as required by the state.
What is the cost to form a Professional Corporation in Maryland?
The cost to form a Professional Corporation in Maryland varies depending on the type of documents you need to file. Generally, it costs $100 to file the articles of incorporation and $25 to file a trade name registration. Additional fees may also apply.
Who can form a Professional Corporation in Maryland?
In order to form a Professional Corporation in Maryland, you must be a licensed professional in the state. This includes doctors, lawyers, and other professionals who are licensed to practice in Maryland.
What are the benefits of forming a Professional Corporation in Maryland?
Forming a Professional Corporation in Maryland offers many benefits, including limited liability protection, tax advantages, and the ability to raise capital. It also allows professionals to practice as a corporation, rather than as an individual, which can help to protect their personal assets and increase their credibility.
What documents do I need to form a Professional Corporation in Maryland?
The documents you need to form a Professional Corporation in Maryland include articles of incorporation, a registered agent, and other documents as required by the state. Additionally, you may need to file a trade name registration and other forms depending on the type of business you are starting.
Do I need to appoint officers for my Professional Corporation in Maryland?
Yes, in order to form a Professional Corporation in Maryland, you need to appoint officers such as a president, secretary, and treasurer. These officers are responsible for managing the day-to-day operations of the business.
Do I need to file annual reports for my Professional Corporation in Maryland?
Yes, you need to file annual reports for your Professional Corporation in Maryland. This report must be filed with the Maryland Department of Assessments and Taxation every year.
What types of taxes do I need to pay for my Professional Corporation in Maryland?
The taxes you need to pay for your Professional Corporation in Maryland depend on the type of business you are running. Generally, you need to pay income, payroll, and property taxes. In some cases, you may need to pay additional taxes depending on the type of business you are running.
What are the rules and regulations for Professional Corporations in Maryland?
The rules and regulations for Professional Corporations in Maryland are outlined in the Maryland Code. This includes filing requirements, tax obligations, and other regulations that must be followed when operating a Professional Corporation in Maryland.
Do I need to keep records for my Professional Corporation in Maryland?
Yes, you need to keep records of the day-to-day operations of your Professional Corporation in Maryland. This includes financial records, such as income and expenses, as well as records of any transactions you make.
Can I operate my Professional Corporation in Maryland from another state?
Yes, you can operate your Professional Corporation in Maryland from another state, as long as you meet the requirements of both states. However, you may need to register the Professional Corporation in the other state as well.
What documents do I need to file to form a Professional Corporation in Maryland?
To form a Professional Corporation in Maryland, you need to file an Application for Authority, a Business Registration Form and a Business Entity Tax Registration Form.
How much does it cost to form a Professional Corporation in Maryland?
The cost to form a Professional Corporation in Maryland is typically $100 for a filing fee.
What is the deadline for filing the documents to form a Professional Corporation in Maryland?
The deadline to file the documents to form a Professional Corporation in Maryland is typically within 30 days of the application filing date.
Is there a minimum capital requirement for forming a Professional Corporation in Maryland?
No, there is no minimum capital requirement for forming a Professional Corporation in Maryland.
Does a Professional Corporation in Maryland need to register with the state before it can do business?
Yes, a Professional Corporation in Maryland must register with the state before it can do business.
Does a Professional Corporation in Maryland need to obtain a business license?
Yes, a Professional Corporation in Maryland must obtain a business license prior to conducting business in the state.
Can a Professional Corporation in Maryland operate in other states?
Yes, a Professional Corporation may be able to operate in other states but it is important to check the laws of the other state first.
Does a Professional Corporation in Maryland need to file an annual report?
Yes, a Professional Corporation in Maryland must file an annual report with the Maryland Department of Assessments and Taxation.
What taxes does a Professional Corporation have to pay in Maryland?
Professional Corporations in Maryland must pay income taxes, state sales taxes and personal property taxes.
Are there any restrictions on the name of a Professional Corporation in Maryland?
Yes, there are certain restrictions on the name of a Professional Corporation in Maryland. The name must be distinguishable from other business entities registered with the Maryland Department of Assessments and Taxation.
Can a Professional Corporation in Maryland be dissolved?
Yes, a Professional Corporation in Maryland can be dissolved by filing a Certificate of Dissolution with the Maryland Department of Assessments and Taxation.
Does a Professional Corporation in Maryland have to pay unemployment insurance taxes?
Yes, a Professional Corporation in Maryland must pay unemployment insurance taxes.
Does a Professional Corporation in Maryland have to file a tax return?
Yes, a Professional Corporation in Maryland must file a tax return each year to report income and expenses.
Does a Professional Corporation in Maryland need to file a DBA (Doing Business As) name?
Yes, a Professional Corporation in Maryland may need to file a DBA name if it is using a different name than its legal name.
Does a Professional Corporation in Maryland need to register with the IRS?
Yes, a Professional Corporation in Maryland must register with the IRS prior to conducting business.
Does a Professional Corporation in Maryland need to file estimated taxes?
Yes, a Professional Corporation in Maryland must file estimated taxes each quarter.
Does a Professional Corporation in Maryland need to have a board of directors?
Yes, a Professional Corporation in Maryland must have a board of directors.
Does a Professional Corporation in Maryland need to have shareholders?
Yes, a Professional Corporation in Maryland must have shareholders.
Can a Professional Corporation in Maryland issue stock?
Yes, a Professional Corporation in Maryland can issue stock to its shareholders.
Does a Professional Corporation in Maryland need to keep corporate records?
Yes, a Professional Corporation in Maryland must keep corporate records such as meeting minutes, financial statements and corporate resolutions.
Does a Professional Corporation in Maryland need to have an registered agent?
Yes, a Professional Corporation in Maryland must have a registered agent located in the state.

Also Read

Why Maryland Professional Corporation is So Important

The primary reason why Maryland Professional Corporation is so important is liability protection. By forming a PC, business owners can separate their personal assets from the assets of the business, providing a significant layer of protection in case of lawsuits or financial hardship. Without this separation, business owners risk losing everything they have worked so hard to build in the event of legal proceedings or financial struggles.

Furthermore, a PC structure can also offer tax advantages. Unlike other business structures, such as sole proprietorships or partnerships, Maryland professional corporations are eligible for certain tax deductions and incentives that can help reduce the overall tax burden on the business. This can lead to significant cost savings and increased profitability in the long run, making it a wise choice for business owners looking to maximize their financial resources.

In addition to liability protection and tax advantages, forming a professional corporation in Maryland can also enhance credibility and professionalism. The mere presence of the term “PC” in a business name can convey to clients and customers that the business is well-established, reputable, and dedicated to providing high-quality services. This can help attract new customers, retain existing ones, and create a positive reputation in the industry.

Another key benefit of Maryland professional corporations is the flexibility they offer in terms of governance and ownership structure. Unlike other business entities, PC owners have the ability to create unique shareholder agreements, establish voting rights, and define roles and responsibilities within the organization. This flexibility can help ensure a smooth and efficient operation of the business, allowing owners to focus on growth and success.

Lastly, forming a professional corporation in Maryland can also open doors to opportunities for growth and expansion. With a solid legal foundation in place, business owners can pursue financing, partnerships, and mergers with confidence, knowing that their business is protected and positioned for success. This can lead to increased market share, greater profitability, and overall business sustainability in the long term.

In conclusion, the importance of Maryland Professional Corporation cannot be understated. From liability protection and tax advantages to credibility and flexibility, there are numerous benefits to be gained from forming a professional corporation in Maryland. Business owners looking to safeguard their assets, reduce their tax burden, enhance their credibility, and position their business for growth and success should strongly consider establishing a professional corporation in Maryland.

Conclusion

In forming a professional corporation in Maryland, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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