How to Succeed in Business: Properly Incorporate Your Business!
As a business consultant, my main area of expertise is assisting small business owners with properly incorporating their businesses in their particular state. In the State of Maryland, one has to ensure that their business is properly registered with the Maryland State Department of Assessment and Taxation (SDAT). In Maryland, the average yearly fee of incorporating one’s business is from $150 to $300. It is normally advisable to incorporate your business with the appropriate state agency, in your particular state, within the first three years of being in business.
Here are the different types of companies or corporations that are allowed and recognized in the State of Maryland:
- Sole proprietorship: simplest business form and not a legal entity. The business is not legally separate from the owner. The owner’s personal assets and obligations of the business are not distinguished.
- General Partnership: This is the simplest form of partnership and is created when two or more individuals engage in business together for profit. A general partnership can begin with just a verbal agreement and handshake. There is no liability protection in this form of business and every partner is equally liable for all debts and obligations of the business. Also, the personal assets of each partner can be used to pay such debts.
- Limited Partnership (LP): There are two classes of partners (general and limited). The general partners normally handle the day to day operations of the business and are held personally liable for the business debts and obligations. Limited partners only contribute money and capital to the business. The limited partners are not involved in the daily operation of the business. The limited partner’s personal liability does not go beyond their capital contributions to the business.
- Limited Liability Partnership (LLP): This business entity is a hybrid and similar to a Limited Liability Company (LLC). All partners in the business handles the daily operation and management of the business. Unlike the Limited Partnership, Limited Liability Partnerships ensures that all partners’ personal assets cannot be used to satisfy the business debts and liabilities like an LLC. LLP partners are ensured that they will not be held accountable for the acts of other partners (have personal liability protection).
- Limited Liability Company (LLC): It is an unincorporated business that can be formed by one or more individuals with no personal liability for debts of the LLC. An LLC is unique because for statutory purposes it is treated like a corporation regarding limited liability of partners and partnership status for tax purposes.
- Corporation: Corporation is an independent entity. The corporation is separate from the owners of the business because can contract in the corporate name, sue and be sued as the corporation, and buy, sell, and own property in the corporate name. There is no personal liability for owners of the business because the corporation is responsible for its own debts and liabilities. The business entity outlasts the death or disability of all stockholders.
- S-Corp and C-Corp: Have the general guidelines as a corporation. Must be registered with SDAT similar to a corporation. There is no difference between S-Corp and C-Corp for purposes of Maryland Corporate Law. S-Corp does not have double taxation like a C-Corp. C-Corp has double taxation because it is treated as a separate taxable entity and distributions to stockholders are generally treated as dividends. S-Corp is the best avenue over C-Corp because it provides liability protection of a corporation while allowing tax treatment similar to a partnership.
Here are the general steps to consider when incorporating a small business in the State of Maryland or another state:
- Step One: The formation documentation to incorporate a business is normally called the Articles of Incorporation or Certificate of Incorporation, it depends on the state.
- Step Two: The fees for registering a business as a company runs from $50 to $400. In the State of Maryland, the fees run from $150 to $300.
- Step Three: The normal time wait to have the formation documentation approved by the State varies from four to six weeks (non-expedited services). But, for an extra fee a business can have their paperwork approved within a few days or even a few hours (expedited services). Now in many states, like Maryland, you are able to fill out the formation documentation online and this speeds up the approval process.
- Step Four: Have to disclose certain information in the incorporation documentation such as the following:
- Company Name.
- Business of purpose both general purpose and specific purpose.
- Registered Agent.
- Incorporator- the person or company who is incorporating the business.
- Step Five: Must have a registered agent who is the individual who can accept service of paperwork for the company.
These are just some general steps to take when deciding to incorporate your small business as a legal entity in your particular state. It is advisable to consult with your attorney, accountant, and business consultant to determine the best incorporation form for your small business.
Donya Zimmerman is a business consultant, mediator, and legal professional with over ten years of experience. She is owner of Family & Community Mediation and Business Consulting (FACMBC) based in Baltimore, Maryland and has been in business since 2013. Services provided by FACMBC: Mediation and Conflict Resolution Services; Business Registration Assistance (Limited Liability Company, Corporation, S-Corp, Limited Liability Partnership, etc.); Business Plan Drafting Assistance; Business Certification Assistance (MBE, WOSB, 8A, 501(c) (3), Hub Zone, etc.); and Business Organization Assistance. She is also a contributing writer to the Maryland Daily Examiner Newspaper. Contact information: firstname.lastname@example.org; www.facebook.com/FACMBC; www.twitter.com/FACMBC; https://dzimmerman36.wordpress.com; http://www.linkedin.com/in/dzbusconsultantandmediator