Starting a Professional Corporation in Maryland 2024: Ultimate Guide

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How to Start a Professional Corporation in Maryland

Licensed professional? Level up your business with Maryland professional corporation! Enjoy unique benefits like Maryland LLC, such as limited liability, tax perks, and a polished image. Our step-by-step guide unravels the essentials for smooth compliance and the right fit. LLCBase has your back with expert guidance, so make an informed decision and triumph in Maryland with your professional corporation today!

This guide will review the requirements for starting a professional corporation in Maryland, explore the advantages and disadvantages of this business structure, and help you determine if it is the right fit for your business goals.

What is a Professional Corporation

A Professional Corporation (P.C.) is a unique type of corporation designed for licensed professionals, such as doctors, dentists, lawyers, architects, and accountants. Forming a P.C. allows licensed professionals to offer their services through a corporate structure, providing them with the benefits of a traditional corporation, such as limited liability protection and tax advantages. Forming a professional corporation in Maryland is a popular choice due to the thriving professional landscape and business-friendly environment. When starting a professional corporation, choose a reliable formation service in Maryland.

The primary purpose of Maryland Professional Corporation is to protect its owners from personal liability for the corporation’s actions. The shareholders’ personal assets are protected if the professional corporation faces legal issues. Moreover, Maryland professional corporations can offer certain tax benefits, such as deducting employee benefits and operating expenses. These advantages make forming a professional corporation an attractive option for many professionals in Maryland.

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Who Can File Under Professional Corporation Laws

Under Maryland Professional Corporation laws, only certain licensed professionals are eligible to form a professional corporation. The specific professions allowed to form a P.C. may vary slightly by state, but in Maryland, the following professionals can typically form a professional corporation:

  • Physicians and Surgeons
  • Dentists
  • Chiropractors
  • Optometrists
  • Podiatrists
  • Certified Public Accountants
  • Architects
  • Engineers and Land Surveyors
  • Psychologists
  • Marriage and Family Therapists
  • Clinical Social Workers
  • Professional Clinical Counselors
  • Veterinarians
  • Attorneys
  • Speech-Language Pathologists
  • Pharmacists
  • Registered Nurses
  • Physical Therapists
  • Occupational Therapists
  • Acupuncturists

Each profession has its governing licensing board, which sets specific rules and regulations for forming and operating a professional corporation. It is essential to check with the relevant board and state laws to ensure that your profession is eligible to form a professional corporation and to understand the specific requirements associated with your profession.

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Structure of a Professional Corporation

  • Shareholders: Maryland Professional Corporation’s shareholders must be licensed professionals in the same field as the corporation’s purpose. For example, if a professional corporation is formed to offer legal services, all shareholders must be licensed attorneys. This requirement ensures that the professional corporation’s management comprises qualified individuals with relevant expertise.
  • Directors: The directors of a professional corporation in Maryland are responsible for overseeing the corporation’s operations and making high-level decisions. The directors must also be licensed professionals in the same field as the corporation’s purpose. The number of directors required depends on the specific licensing board’s regulations, but typically a minimum of one director is needed.
  • Officers: The officers of Maryland Professional Corporation manage the professional corporation. Officers typically include a President, Secretary, and Treasurer. However, additional officers can be appointed as needed. While not all officers must be licensed professionals, the President must hold a valid license in the same field as the corporation’s purpose.

Starting a Professional Corporation in Maryland: A Guide

Here is a detailed guide to starting a professional corporation in Maryland that you should follow.

Step 1: Appointment of Resident Agent

The first step in forming a Professional Corporation is appointing Resident Agent in Maryland. This individual or company will act on behalf of the corporation, receiving official notices and legal documents. The agent must have a physical address in Maryland and be available during regular business hours.

We compiled the list of the best registered agent services in Maryland to help you choose the one you can rely on.

Step 2: Choosing the Name of the Corporation

Selecting a name for your Maryland Professional Corporation is crucial. The name must be unique and appropriate, including the words “professional corporation” or the abbreviation “P.C.” It must also comply with the rules and regulations of the governing licensing board and should not be confusingly similar to an existing corporation’s name.

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Step 3: Drafting of By-laws

By-laws are the internal rules and regulations governing the management and operations of the professional corporation. These should include provisions related to the appointment of directors, issuance of shares, and any restrictions imposed by the licensing board.

Step 4: Appointment of Board of Directors

The board of directors oversees the management and operations of the Maryland Professional Corporation. Directors must be licensed professionals in the same field as the corporation’s purpose.

Step 5: Conduction of Board Meetings

Regular board meetings are essential for maintaining the proper functioning and compliance of the professional corporation. The by-laws should specify the frequency, notice requirements, and procedures for conducting these meetings.

Step 6: Issuance of Corporate Shares

Shares represent ownership in the corporation. The professional corporation must issue shares to its shareholders, who must be licensed professionals in the same field. Share issuance should comply with the by-laws and any restrictions imposed by the licensing board.

Step 7: Comply with State Requirements

Forming Maryland Professional Corporation requires compliance with specific state requirements, such as obtaining necessary permits and licenses, paying fees, and adhering to rules and regulations the governing licensing board sets forth.

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Step 8: Filing of Statement of Information

Maryland professional corporations must file an annual report with the Maryland Secretary of State. This document includes essential information about the corporation, including its name, address, Resident Agent, and directors.

Step 9: Getting Tax Permits from the State

The professional corporation must obtain the necessary tax permits from the Maryland Comptroller of Maryland, such as an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

Step 10: Opening of a Bank Account

Finally, open a separate bank account for the Maryland Professional Corporation to maintain proper accounting and financial records.

Fees Associated with Professional Corporation in Maryland

Here are some of the most common fees when starting a professional corporation in Maryland.

  • State Laws and Regulations: To form a professional corporation in Maryland, it is crucial to comply with the state laws and regulations governing professional corporations. The Maryland Code Corporations and Associations and the specific licensing board’s regulations for each profession outline the requirements and restrictions for professional corporation formation. Before starting the process, professionals should consult with their licensing board to ensure they meet the necessary qualifications.
  • Incorporation Process: Once the licensing requirements are met, the next step to form a professional corporation in Maryland is to draft and file the Articles of Incorporation with the Maryland Secretary of State. This document includes essential information about the corporation, such as its name, address, purpose, and number of authorized shares. Filing the Articles of Incorporation requires a filing fee currently $170 for most professions. However, it is essential to check with the Maryland Secretary of State for the specific fee associated with your profession.
  • Naming Requirements: You must follow specific rules when choosing a name for a Professional Corporation in Maryland. The name must include the words “Professional Corporation,” “P.C.,” or “Prof. Corp.” Additionally, the name cannot be misleading or too similar to an existing corporation’s name. Conducting a name search with the Maryland Secretary of State is recommended to ensure the chosen name is available. This search is free, but reserving a name before filing the Articles of Incorporation requires a reservation fee of $25 online and $25 mail.
  • Articles of Incorporation: The Articles of Incorporation is a critical document for forming a professional corporation in Maryland. It outlines the corporation’s essential information, such as the name, address, purpose, and number of authorized shares. The Articles must also include a statement that the corporation is a professional corporation and the specific profession it practices. Once completed, the Articles of Incorporation must be filed with the Maryland Secretary of State, accompanied by the appropriate filing fee.
  • Additional Fees and Costs: In addition to the filing fees mentioned above, forming Professional Corporation in Maryland may involve other costs, such as:
    • Annual Report: professional corporations must file an initial Statement of Information with the Maryland Secretary of State every April 15th of filing the Articles of Incorporation. The filing fee for this form is $300.
    • Licensing and Permit Fees: Depending on the specific profession, the governing licensing board may require additional licensing and permit fees.
    • Resident Agent Fee: Hiring of Resident Agent service will likely involve an annual fee of $50 – $200, which can vary depending on the service provider.
    • Legal and Accounting Fees: Forming a professional corporation may involve consulting with attorneys and accountants, which can result in additional professional fees.

Advantages of a Professional Corporation

  • Limited Liability Protection: One of the main benefits of a professional corporation is its limited liability protection to its shareholders. This means the shareholders’ assets are protected from the corporation’s debts and liabilities.
  • Tax Benefits: Professional Corporations enjoy specific tax benefits, such as deductions for business expenses and the ability to retain earnings within the corporation.
  • Business Credibility: Operating as a professional corporation can enhance the credibility and reputation of the professional services, demonstrating a commitment to compliance and professionalism.
  • Continuity of Operations: A professional corporation has a perpetual existence, ensuring the continuity of operations even if the shareholders or directors change.

Disadvantages of a Professional Corporation

  • Complexity and Cost of Formation: Forming a professional corporation can be more complex and costly than other business structures, such as sole proprietorships or partnerships.
  • Ongoing Compliance Requirements: professional corporations must adhere to ongoing compliance requirements, including regular board meetings, filing annual reports, and maintaining proper records.
  • Limited Flexibility in Management: professional corporations may need more flexibility in management, as the board of directors must consist of licensed professionals in the same field.

Taxation of Professional Corporations

Here are the taxes that your professional corporation must pay in Maryland:

Federal income tax

A professional corporation in Maryland is subject to federal income tax on its net earnings. However, a P.C. can elect to be taxed as an S corporation, which allows the corporation’s income, deductions, and credits to pass through to the shareholders. This can result in significant tax savings by avoiding double taxation.

State taxes

Maryland Professional Corporation is also subject to state taxes, such as the Maryland franchise tax, which is based on the corporation’s annual net income. Additionally, depending on the nature of its operations, the professional corporation may be subject to other state and local taxes, such as payroll and sales taxes permit in Maryland.

Tax deductions and exemptions

A professional corporation in Maryland can take advantage of various tax deductions and exemptions, such as deductions for employee benefits, operating expenses, and depreciation. These deductions can help reduce the corporation’s taxable income, ultimately leading to tax savings for the P.C. and its shareholders.

Alternatives to Professional Corporations in Maryland

If you decide that a professional corporation is not for you, then you might consider the following alternatives.

  • Sole Proprietorships: A simpler business structure is where an individual operates the business under their name without limited liability protection.
  • Partnerships: Two or more individuals join to operate a business, sharing profits, losses, and responsibilities.
  • Limited Liability Companies (LLCs): A hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership.
  • S-corporations: Starting an S Corp in Maryland avoids double taxation by allowing income, losses, and deductions to pass through to the shareholders’ personal tax returns.

FAQs

What is a Professional Corporation (PC)?
A PC is a type of corporation that is formed to provide services that require a professional license, such as legal or medical services, in compliance with state laws in Maryland.
Why is forming a PC important?
Forming a PC can protect your personal assets from any liabilities arising out of the company’s operations.
What is the first step to form a PC in Maryland?
The first step is to choose a name for your PC and check if it is available with the Maryland State Department of Assessments and Taxation (SDAT).
What documents are required to form a PC in Maryland?
Articles of Incorporation, Form 9, and Certificate of Organization are required to form a PC in Maryland.
Can I form a PC without a professional license in Maryland?
No, you must have a professional license and comply with state laws to form a PC in Maryland.
Is an annual report required for a PC in Maryland?
Yes, an annual report is required for a PC in Maryland, and it must be filed with the SDAT.
What is the cost of forming a PC in Maryland?
The cost of forming a PC depends on various factors, such as the filing fees and legal fees, and can vary from $500 to $1,500 or more.
Are there any tax exemptions for a PC in Maryland?
No, there are no tax exemptions for a PC in Maryland, and it is subject to state and federal taxes.
How long does it take to form a PC in Maryland?
The processing time to form a PC in Maryland can take around 2-3 weeks, depending on various factors.
What is a registered agent, and why is it needed for a PC in Maryland?
A registered agent is a person or entity authorized to receive legal notices and official documents on behalf of the PC in Maryland.
Can I be my own registered agent for a PC in Maryland?
Yes, but it is recommended to hire a professional registered agent to ensure proper compliance with state laws in Maryland.
How can I dissolve the PC in Maryland?
You must file Articles of Dissolution with the SDAT and obtain tax clearance certificates from the Maryland comptroller to dissolve the PC in Maryland.
How can I change the name of the PC in Maryland?
You must file Articles of Amendment stating the new name with the SDAT and obtain a new Certificate of Organization.
Can I transfer my PC to another state from Maryland?
Yes, but you must follow the laws and regulations of the other state to transfer the PC and comply with state laws in Maryland.
Do I need a lawyer to form a PC in Maryland?
No, you can form a PC on your own, but it is recommended to consult a lawyer for legal advice and to help ensure proper compliance with state laws in Maryland.
Is there a residency requirement for directors or officers of a PC in Maryland?
No, there is no residency requirement for directors or officers of a PC in Maryland.
Is a shareholder agreement necessary for a PC in Maryland?
No, it is not legally required, but it is recommended to have a shareholder agreement to address various matters related to the PC’s operations and management.
Can an unlicensed person own a PC in Maryland?
Yes, an unlicensed person can own the PC but cannot provide the professional services or practice the licensed profession in Maryland.
Can a non-Maryland resident be a director or officer of a MD PC?
Yes, a non-Maryland resident can be a director and officer of a MD PC.
Can the name of the PC have any words in it in Maryland?
No, the name of a PC in Maryland should contain the words “Professional Corporation,” “PC,” or “Chartered.”
Can I start a PC with more than one licensed profession in Maryland?
No, a PC can only be formed to offer a professional service related to one licensed profession in Maryland.
Is a bank account necessary for a PC in Maryland?
Yes, a bank account is necessary for a PC in Maryland to maintain proper corporate records and financial accounts.
Can a PC in Maryland offer non-professional services?
Yes a PC can offer non-professional services in Maryland in accordance with state regulations.
Can a PC have more than one office in Maryland?
Yes, a PC can have more than one office in Maryland but must maintain proper records and compliance with state regulations.
Can a PC offer online services in Maryland?
Yes, a PC can offer online services in Maryland but must maintain proper records and compliance with state regulations.
Can a PC have shareholders who are not licensed to practice in Maryland and other states?
Yes, a PC can have shareholders who are not licensed to practice in Maryland or other states, but they cannot provide licensed professional services in Maryland.
What is a Circuit Court Judgment Liason (CCJL) in Maryland?
A Circuit Court Judgment Lien (CCJL) is a type of lien placed on a registered MD PC by the court, which can place restrictions on the company’s activities.
Can a PC in Maryland be sued for malpractice?
Yes, a PC in Maryland can be sued for malpractice or any actions that cause harm to the client.
What is a professional corporation (PC) in Maryland?
It is a legal entity that provides certain licensed professionals, like lawyers, doctors, accountants, and engineers, with liability protection.
Who can form a professional corporation in Maryland?
Licensed professionals who are allowed to practice and provide their services in the state of Maryland.
What are the pros of forming a professional corporation in Maryland?
Personal asset protection, tax structure benefits, and credibility of a corporate entity.
What is each shareholder’s liability in a Maryland PC?
Shareholders’ personal assets cannot be seized to cover the corporation’s liabilities, except under certain circumstances.
How many shareholders can a Maryland professional corporation have?
A professional corporation in Maryland can have a maximum of 300 shareholders.
What is the professional practice-type of ownership restriction in Maryland?
In Maryland, non-professionals are prohibited from owning shares in a professional corporation.
What formalities must a Maryland PC follow?
Annual reports, Maryland taxes, corporate minutes, and agreements must be signed and kept up to date.
Does Maryland require a business plan to be submitted when starting a professional corporation?
No, there is not an explicit requirement for submission of a business plan.
How do I name my professional corporation in Maryland?
By ensuring that the name complies with the strict naming rules, including specifying the type of professionals involved.
Can I use abbreviations or acronyms in my corporation name in Maryland?
Yes, you can, but you should be careful that they don’t confuse the public misunderstanding what the professional corporation does.
Can the name of the shareholders be a part of the professional corporation’s name in Maryland?
Yes, if their name is that of the licensed professional practitioner, whose practice will be operated through the professional entity.
Is there a publication requirement to start a Maryland PC?
Yes, the required details about newly formed professional corporations are supposed to be published for two consecutive weeks in a newspaper permitted to publish legal notices in the county where the corporation has its registered address.
Is filing of articles of incorporation required for a Maryland PC?
Yes, articles of incorporation containing all the crucial information, including name, professional type, shares, and owner liabilities, must be submitted during the registration.
Can a Maryland professional corporation function as a small business corporation?
No, a professional corporation cannot be treated as a small business corporation due to the non-scoring status of professional practices in some tax codes.
How does the cost of incorporating a Maryland PC fit with other states?
Maryland ranks as an average state in terms of the expenses involved for corporation formation.
Is a registered agent required for a Maryland corporation?
Yes, a registered agent is mandatory for Maryland PC to process legal notifications and government communications at all times.
Can an existing LLC convert to a professional PC in Maryland?
Yes, as long as all the necessary laws associated with professional corporations are fulfilled.
What are the financial disclosure requirements for a Maryland PC?
There exist no particular financial disclosure requirements for Maryland’s professional corporations; however, detailed business records are required to be kept on record and updated regularly.
Can a Maryland professional corporation be treated as a nonprofit corporation?
No, not generally. For-profit and voting, shareholders/beneficiaries, are conveyed these professional corporations.
How long does it take to start a professional corporation in Maryland?
It typically takes around two to three weeks, depending on IF you want to make startup filings LLC swift in Maryland securely.
What is the minimum number of shareholders required for a professional corporation in Maryland?
There is no minimum number of shareholders required for a professional corporation in Maryland.
How should a Maryland professional corporation fulfill tax or employer detail needs?
Getting a business license, unloading a federal employer identity (EIN) number, or meeting the state, county/city for payroll reporting (Work Commissions and Coverage. employers’ obligation to display) their job works reports.
Is liability in Maryland professional corporations the same as limited liability?
No, liability protection in Maryland professional corporations is entirely unique and only provides protection from the corporation’s actions, not a shareholder’s involved accidents.
How do you cancel a professional corporation in Maryland?
Details of cancellations of corporations need submitting an application to the State concerned professionals, and abiding by the completion of regular agenda objects (to close any pending affairs).
Does Maryland impose any fees or taxes on professional corporations in the state?
Yes, renewals, reports, and various other fees apply.
How long can a Maryland professional corporation remain idle?
There are no legal provisions directly referring to how long a professional corporation can operate before, or without doing any form of business, however routine continuing documentation is supposed.
Can I be a shareholder of multiple professional corporations in Maryland?
Yes, It depends on the practice of law, engineering, medicine, dentistry, and other professions the entity works within criteria with, and eventual approval incorporating of another business enterprise we can commend to lessen any legal or liability concerns.
What will happen when two Maryland professional corporations are merged?
MD Corporations about specific contracting quantities at first since there are various interests regarding whether this particular way work is wise.
Can a Maryland PC own shares in another professional corporation?
Based on applicable laws and eligible actions related to professional practices we don’t endorse shared ownership arrangements among several PC practicing in one professional or regularly integrated industry in Maryland.

Also Read

How to Save Money While Forming Maryland Professional Corporation

One of the first steps towards saving money while forming a professional corporation in Maryland is to do thorough research. Understanding the legal requirements and regulations surrounding the formation of a professional corporation is essential to avoiding unnecessary expenses. By familiarizing yourself with the necessary paperwork and procedures, you can ensure that you are not blindsided by unexpected costs or delays.

It is also important to carefully consider the structure of your professional corporation. Choosing the right legal structure can have a significant impact on the cost of formation and ongoing operation of your business. For example, forming a limited liability company (LLC) may be a more cost-effective option than forming a traditional corporation. By consulting with a qualified legal professional, you can determine the best structure for your specific needs while keeping costs in check.

When it comes to hiring professionals to assist with the formation of your professional corporation, it is important to shop around and compare quotes. While it may be tempting to hire the first attorney or accountant you come across, taking the time to research different options can save you money in the long run. Look for professionals who offer competitive rates and are willing to work with you to find cost-effective solutions.

Another way to save money while forming a Maryland professional corporation is to take advantage of online resources and self-help tools. There are a variety of online services that can help guide you through the process of forming a professional corporation, often at a fraction of the cost of hiring a traditional attorney. While using online resources may not be suitable for every situation, they can be a valuable option for professionals on a tight budget.

Finally, it is important to prioritize your expenses and only spend money on things that are absolutely necessary. While it may be tempting to splurge on fancy office furniture or expensive technology, focusing on the essentials can help you keep costs down while getting your professional corporation up and running. By carefully considering each expense and evaluating whether it is truly necessary, you can avoid overspending and stay within your budget.

Forming a Maryland professional corporation can be a complex and costly process, but with careful planning and strategic decision-making, it is possible to save money while still meeting all necessary legal requirements. By thoroughly researching the legal requirements, choosing the right structure, shopping around for professionals, utilizing online resources, and prioritizing expenses, professionals can form a professional corporation in Maryland without breaking the bank.

Conclusion

Maryland Professional Corporation can offer several benefits for licensed professionals. However, it is essential to carefully consider the proper structure and compliance requirements before proceeding. Seeking professional guidance in forming a professional corporation can help ensure a smooth process and enable professionals to focus on providing their services. Visit LLCBase for more information about starting a professional corporation in Maryland.

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