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.
On this page, you’ll learn about the following:
- What is a Professional Corporation
- Starting a Professional Corporation in Maryland: A Guide
- Step 1: Appointment of Resident Agent
- Step 2: Choosing the Name of the Corporation
- Step 3: Drafting of By-laws
- Step 4: Appointment of Board of Directors
- Step 5: Conduction of Board Meetings
- Step 6: Issuance of Corporate Shares
- Step 7: Comply with State Requirements
- Step 8: Filing of Statement of Information
- Step 9: Getting Tax Permits from the State
- Step 10: Opening of a Bank Account
- Fees Associated with Professional Corporation in Maryland
- Taxation of Professional Corporations
- Alternatives to Professional Corporations in Maryland
- FAQs
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.
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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.
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
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- Start a Professional Corporation in Rhode Island
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- Start a Professional Corporation in Tennessee
- Start a Professional Corporation in Texas
- Start a Professional Corporation in Utah
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- Start a Professional Corporation in Wisconsin
- Start a Professional Corporation in Wyoming
How to Save Money While Forming Maryland Professional Corporation
One of the first steps to saving money is to do thorough research. Understanding the requirements and regulations for forming a professional corporation in Maryland can help you avoid costly mistakes. By familiarizing yourself with the necessary paperwork, filing fees, and ongoing obligations, you can ensure that you are prepared for each step of the process.
Another way to save money is to consider using online resources and tools. There are a variety of websites and software programs available that can help streamline the process of forming a professional corporation. These resources can offer guidance on filling out forms, submitting paperwork, and even providing templates for important documents. By utilizing these tools, you can save both time and money on the administrative tasks required to start your professional corporation.
When it comes to choosing a business entity, it is important to consider the long-term financial implications. While forming a professional corporation can offer certain benefits, such as liability protection and tax advantages, it is also important to weigh the costs associated with maintaining this type of entity. Depending on your specific needs and goals, it may be more cost-effective to choose a different business structure, such as a sole proprietorship or partnership.
Additionally, it is crucial to carefully review all expenses associated with forming a professional corporation. This includes legal fees, filing fees, and any other costs related to compliance and registration. By obtaining multiple quotes and negotiating with service providers, you may be able to lower these expenses and save money in the long run.
Furthermore, it can be beneficial to seek out resources and support from other professionals. Networking with attorneys, accountants, and other business owners can provide valuable insights and advice on how to save money while forming and running a professional corporation. By leveraging the expertise of others, you can avoid common pitfalls and make informed decisions that will benefit your business financially.
In conclusion, forming a Maryland professional corporation does not have to break the bank. By conducting thorough research, utilizing online resources, carefully considering your business entity options, reviewing expenses, and seeking out support from other professionals, you can save money and set your business up for success. With careful planning and a strategic approach, you can navigate the complexities of starting a professional corporation in Maryland while keeping costs in check.
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.