Corporation to LLC: Maryland Conversion Guide 2024

How to Convert Corporation to LLC in Maryland

The decision to convert a corporation to an LLC in Maryland can provide numerous benefits, including improved tax flexibility, simplified management, and reduced compliance burdens. If you’re considering this strategic move, our comprehensive guide will support you through the process of starting an LLC in Maryland, equipping you with the knowledge to successfully convert your corporation to an LLC in Maryland.

At LLCBase, we aim to make the transition as smooth as possible by providing a step-by-step guide that covers legal requirements, tax implications, and necessary paperwork. Let’s explore the exciting world of corporation-to-LLC conversions in the dynamic Maryland business landscape!

Convert Corporation to LLC

On this page, you’ll learn about the following:

What are a Corporation and an LLC
9 Steps to Convert From Corporation to LLC
Why Change from Corporation to LLC in Maryland
FAQs

What are a Corporation and an LLC

A corporation is a type of business structure that is a separate legal entity from its owners, known as shareholders. This legal distinction provides shareholders with limited liability protection, meaning their personal assets are not at risk in the event of the corporation’s debts or legal issues. Corporations are subject to more stringent regulations and requirements than other business structures, such as keeping detailed records, holding annual meetings, and filing separate tax returns. Corporations can also issue shares of stock to raise capital and can exist perpetually beyond the life of their owners.

On the other hand, an LLC, or Limited Liability Company, combines a corporation’s limited liability protection with the operational flexibility of a partnership or sole proprietorship. In an LLC, the business owner, known as a member, has personal liability protection, meaning their personal assets are not at risk in case of the business’s debts or legal issues. LLCs also have flexible tax options, as they can be taxed as a pass-through entity (like a sole proprietorship or partnership) or a corporation. This type of business structure is more straightforward to set up and manage than a corporation and offers legal and tax benefits for the owner.

Recommended: Smoothly transition from Corporation to LLC in Maryland – hire an LLC Formation Service for exceptional legal assistance. Streamline your metamorphosis today! We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

9 Steps to Convert From Corporation to LLC

Converting your corporation to an LLC in Maryland is made simple with our 9-step process. By following these steps, you’ll receive expert guidance through each conversion stage, ensuring a smooth and efficient transition for your business.

We’ve also compiled a list of the best business attorneys in Maryland who can provide valuable legal services when converting from a Corporation to an LLC. Browse through their expertise for the perfect assistance!

LLC Services	Rating & Pricing	Top Features	Learn More
#1 Editor's Choice	5/5 $39.09/month	Attorneys in all states Hire Business Attorneys Other legal services	Learn More
	3.5/5 $239.99/year	Single Package Business attorneys 30-min consultation	Learn More

Recommended: Upgrade your business effortlessly with your trusted LLC Service! Transition from one entity type to another confidently in Maryland. Embrace change with absolute confidence. We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

If you decide to do it yourself, just follow the following steps of converting a corporation to an LLC below:

Step 1: Research Maryland LLC Conversion Laws

Before starting the process, it’s essential to understand the specific laws and regulations governing LLC conversions in your state. To gather accurate information, visit your state’s Maryland Secretary of State website and other government resources, such as the Maryland Comptroller of Maryland and Maryland Department of Assessments and Taxation. These resources will provide the necessary guidelines, requirements, and forms for converting a corporation into an LLC in Maryland.

As you research, you must familiarize yourself with required fees, such as the $100, which may vary depending on the state. Additionally, take note of any relevant tax rates that may apply to your new LLC, including the 8.25% income tax and 6.00% sales tax. Understanding these tax rates will help you make informed decisions about your business structure and ensure that your conversion to an LLC in Maryland complies with all state-specific tax laws.

In some cases, additional requirements or regulations may apply to specific industries or business activities. Be sure to research industry-specific regulations and consult an attorney if you have questions about your situation.

Overall, thorough research is critical for successfully converting your corporation to an LLC in Maryland. By understanding the state-specific laws and requirements, you’ll be better prepared to navigate the conversion process and make the transition as seamless as possible.

Step 2: Determine the Type of Conversion

In some states, you can convert a corporation to an LLC using either statutory conversion or statutory merger. These two methods have distinct processes and requirements, so it’s crucial to research their differences and choose the best fit for your situation.

A statutory conversion is a more straightforward process wherein a corporation directly converts into an LLC. This method typically involves filing Articles of Conversion with the Maryland Secretary of State and paying the associated state incorporation fee.

On the other hand, a statutory merger involves merging the existing corporation with a newly formed LLC, effectively transferring the corporation’s assets and liabilities to the LLC. This process may require additional documentation, such as a Plan of Merger or Articles of Merger, and might be subject to a separate fee.

Factors to consider when choosing between these two methods include the complexity of the process and if the three ways, online, by mail and in-person is available in your state. Additionally, take note of the associated incorporation fee of$120 for filing in person and by mail, as this may impact your decision.

If you need more clarification or are trying to decide which conversion method is best for your situation, consult a business attorney. They can help you navigate the complexities of the process and ensure that you comply with all state-specific laws and regulations for converting a corporation to an LLC in Maryland.

Step 3: Hold a Shareholder Meeting

Notifying all corporation shareholders about your plans to convert to an LLC in Maryland is crucial in the conversion process. To do this, schedule a shareholder meeting to discuss the conversion, its benefits, and potential challenges. Ensure that you provide adequate notice to all shareholders as required by your corporation’s bylaws or state regulations.

During the meeting, present your case for converting the corporation to an LLC, addressing any concerns or questions from shareholders. Depending on your corporation’s bylaws and Maryland regulations, you may need to obtain approval from a specific percentage of shareholders (voting threshold) to proceed with the conversion.

It’s essential to document the meeting minutes accurately, including the details of discussions, any voting results, and the resolutions approving the conversion. These records may be required when filing the Certificate of Status and any necessary Articles of Amendment documents with the Maryland Secretary of State. Proper documentation can also help protect the company and its shareholders in case of any future disputes or legal issues related to the conversion.

Step 4: File the Necessary Documents

Once you have determined the type of conversion and obtained shareholder approval, the next step is to file the required documents with the Maryland Secretary of State. Depending on the conversion method you’ve chosen, the forms you need to submit may vary:

Statutory Conversion: If using this method, file the Articles of Conversion, which provide details about your corporation and the new LLC, including the name, principal address, and Resident Agent information.
Statutory Merger: In this case, you’ll need to submit a Certificate of Merger or similar document outlining the merging entities, the surviving LLC’s name and structure, and the terms and conditions of the merger.

Be sure to include all necessary information in these documents and double-check for accuracy to avoid any delays or issues during the filing process. When submitting your paperwork, pay the required fees, such as the $100.

In addition to the conversion documents, ensure you meet the state name reservation period of 30 days requirements for reserving your new LLC’s name. Depending on your state’s regulations, you may need to pay the $25 or $25 to reserve your desired name. Remember that some states may have specific naming conventions or restrictions for LLCs that you need to follow.

Step 5: Create an LLC Operating Agreement

Draft an operating agreement for your new Maryland LLC. This document outlines your LLC’s management structure, ownership, and operational rules. While not always legally required, having a well-drafted operating agreement is crucial for protecting your business, establishing clear guidelines, and avoiding future disputes among members.

When creating your LLC operating agreement, be sure to address the following items specific to your Maryland:

Annual report requirements: Detail the frequency and deadlines for filing an annual report in Maryland, if applicable. In Maryland, the annual report must be filed every 1 year (15th April). Clarify the information required for these reports and assign responsibility for their timely submission.
Annual fee obligations: Specify the $300 that your LLC must pay to maintain its good standing in Maryland. Outline the payment process, including relevant deadlines and the party responsible for payment.
Franchise tax: Your Maryland LLC is subject to an annual franchise tax of $300 minimum, including information about the tax rate, calculation method, filing deadlines, and payment procedures. Make it clear which member or manager is responsible for managing and submitting the franchise tax payments.
Franchise tax penalty: If your LLC fails to submit the annual franchise tax on time, outline the potential late filing fees and penalties that may apply. In Maryland, the penalty for late filing of franchise tax is $30 + 2% interest per month. Specify the procedure for addressing late payments and resolving any issues with the Maryland tax office.

Addressing these critical aspects in your operating agreement ensures that your Maryland LLC remains compliant with all state regulations and requirements, minimizing the risk of penalties or disputes among members.

Recommended: We recommend hiring an LLC Formation Service to secure your LLC’s future: Create a flawless Operating Agreement today! We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

Step 6: Obtain New EIN

Apply for a new EIN from the IRS for your Maryland LLC. This unique nine-digit number is assigned to your business for tax, reporting purposes, and other essential functions. You can apply for an EIN online through the IRS website, which is often the fastest and most convenient method. Alternatively, you may apply via mail or fax by submitting Form SS-4, depending on your preference and the urgency of your application.

Once you have obtained your new EIN, updating all relevant tax and business documents with your new number is crucial. This includes updating the SUTEC 2022 Form filed with the Maryland Comptroller of Maryland to ensure accurate reporting and compliance with Maryland tax regulations. Additionally, update any other federal, state, and local tax forms or registrations that require your EIN, such as payroll tax filings, sales tax permits, and any required business licenses or permits.

Inform your bank, financial institutions, and other relevant parties of your new EIN to ensure all accounts, loans, and financial transactions are associated with your Maryland LLC’s correct tax identification number.

By obtaining a new EIN and updating all relevant documents and accounts, you can ensure a smooth transition of your business operations under your new Maryland LLC structure, maintaining compliance with all tax and reporting requirements.

Recommended: Don’t leave your EIN to chance! We recommend hiring a business expert for a speedy and stress-free process! We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

Step 7: Update Licenses and Permits

Notify all relevant federal, state, and local agencies of your business’s conversion to an LLC in Maryland. This includes but is not limited to, the Maryland Secretary of State, the Maryland Department of Labor, the Maryland Department of Assessments and Taxation, the Maryland Comptroller of Maryland, and any other regulatory bodies overseeing your industry or business activities. Informing these agencies of your new LLC structure ensures that your business remains compliant with all applicable regulations and maintains accurate records.

Update any Maryland licenses, permits, or registrations your business holds to reflect your new Maryland LLC structure and ownership. This may involve applying for new licenses or permits, transferring existing ones, or amending the information on file with the issuing agencies. Review the specific requirements and procedures for each license or permit, as these may vary between federal, state, and local levels.

In addition to updating your licenses and permits, you may need to update your information with the Maryland Secretary of State. This could include filing an amendment to your Articles of Organization or notifying the Maryland Secretary of State of changes to your Resident Agent or business address. Consult the Maryland Secretary of State website or contact their office for guidance on updating your business’s information following the conversion to an LLC.

Recommended: Stay compliant and confident! We highly recommend hiring a business legal expert when updating your business licenses and permits. Keep your business thriving effortlessly their expertise! We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

Step 8: Inform Creditors and Other Stakeholders

Notify all creditors, suppliers, customers, and other stakeholders of your corporation’s conversion to an Maryland LLC. This ensures they know the change and can update their records, contracts, and invoices accordingly. Be transparent and proactive in communicating this information to maintain trust and minimize potential disruptions to your business relationships.

Be prepared to provide these parties with any necessary documentation related to the conversion, such as your new EIN, updated operating agreement, or new licenses and permits. Providing this information on time can help facilitate a smooth transition and keep your business operations running smoothly.

Step 9: Close the Corporation

After completing the conversion process and successfully establishing your new Maryland LLC, you may be required to dissolve the corporation formally. Dissolving the corporation ensures that it is no longer considered a separate legal entity and releases you from any ongoing compliance obligations related to the corporation.

Follow your state’s guidelines for dissolving a corporation in Maryland, which can typically be found on the Maryland Secretary of State website or by contacting their office. The process may involve submitting a Certificate of Dissolution or similar document and any required fees.

As part of the dissolution process, you may need to file a final tax return for the corporation, settle any outstanding debts or liabilities, and distribute the remaining assets to shareholders by your corporation’s bylaws or state law. Consult with legal and financial advisors to ensure you complete all necessary steps to dissolve the corporation properly and comply with your state’s regulations.

By diligently informing all stakeholders of your corporation’s conversion to an Maryland LLC and formally dissolving the corporation, you can ensure a seamless transition and protect your business interests as you move forward under the new LLC structure.

Recommended: For your business dissolution, we recommend hiring a legal service. Effortlessly dissolve your corporation in Maryland with their expertise – peace of mind, guaranteed! We recommend –
Our #1 Pick: LegalZoom – ($0 + State Fees) Online LLC Setup

Why Change from Corporation to LLC in Maryland

While both entities offer limited liability protection to their owners, there are several reasons why converting to an LLC may be beneficial. Let’s explore why business owners may change from a corporation to an LLC in Maryland.

Tax Flexibility: One of the most significant advantages of an LLC over a corporation is its tax flexibility. By default, LLCs are considered pass-through entities for tax purposes, meaning that the company’s profits and losses are passed through to its members, who report them on their personal income tax returns. This avoids the double taxation faced by corporations, where profits are taxed at the corporate level and again at the individual level when dividends are distributed to shareholders. By converting to an LLC in Maryland, business owners can take advantage of pass-through taxation, potentially resulting in significant tax savings. Also, LLCs can be taxed as a corporation if it becomes more advantageous.
Simplified Management Structure: LLCs offer a more flexible and straightforward management structure than corporations. While corporations require a board of directors to oversee the company’s operations and make major decisions, LLCs can be managed directly by their members (member-managed) or appoint managers to oversee business operations (manager-managed). By converting to an LLC in Maryland, business owners can streamline their company’s management structure and reduce the administrative burden associated with maintaining a board of directors, holding shareholder meetings, and keeping minutes of all corporate meetings.
Fewer Compliance Requirements: LLCs typically have fewer compliance requirements than corporations, making them easier to maintain and manage. For example, LLCs can hold annual meetings, maintain a board of directors, or adhere to corporations’ formalities. By converting to an LLC in Maryland, business owners can reduce the time and resources spent on meeting various compliance requirements, allowing them to focus more on their core business operations.
Increased Asset Protection: LLCs may offer additional asset protection benefits in some states than corporations. For example, some states provide charging order protection for LLCs, which limits a creditor’s ability to seize a member’s ownership interest in the LLC. This can be particularly important for business owners concerned about protecting their personal assets from potential business liabilities. By converting to an LLC in Maryland, business owners may be able to take advantage of these additional asset protection benefits, depending on the specific regulations in Maryland.
Customizable Operating Agreement: LLCs can create a customized operating agreement that outlines the company’s management structure, ownership, and operational rules. This allows business owners to tailor the agreement to suit their specific needs and preferences instead of the more rigid bylaws required by corporations. By converting to an LLC in Maryland, business owners can create an operating agreement that better aligns with their business goals and desired management structure.

FAQs

What is the cost of filing the Articles of Conversion in Maryland?

The cost of filing the Articles of Conversion in Maryland is $100.

What is the turnaround time for approval after filing the Articles of Conversion in Maryland?

The turnaround time for approval after filing the Articles of Conversion in Maryland is typically within 7-10 business days.

What information is required for the Articles of Conversion filing in Maryland?

The information required for the Articles of Conversion filing in Maryland includes the name of the corporation, the name of the LLC, the registered agent information for the LLC, and the effective date of the conversion.

Is there a specific form to be used for the Articles of Conversion filing in Maryland?

Yes, there is a specific form to be used for the Articles of Conversion filing in Maryland, which is available on the SDAT website.

Can the conversion to an LLC in Maryland be done online?

Yes, the conversion can be done online through the Maryland Business Express portal on the SDAT website.

Will the corporation in Maryland need to obtain a new Employer Identification Number (EIN) after the conversion to an LLC?

Yes, the LLC will need to obtain a new EIN after the conversion to an LLC in Maryland.

Are there any tax implications for the conversion to an LLC in Maryland?

There may be tax implications, and it is recommended to consult with a tax professional for guidance on the specific situation.

Will the corporation have to file any final tax returns after the conversion to an LLC in Maryland?

Yes, the corporation may need to file final tax returns in Maryland based on its specific tax situation.

Can the shares of the corporation be transferred to the LLC during the conversion to an LLC in Maryland?

Yes, the shares of the corporation can be transferred to the LLC during the conversion to an LLC in Maryland.

Will the existing contracts and agreements of the corporation in Maryland carry over to the LLC after the conversion?

It depends on the specific language in each contract and agreement. Reviewing each document is recommended to determine if they will carry over.

Can the owners of the corporation participate in the LLC after the conversion without having to go through a separate transfer process?

Yes, the owners of the corporation will automatically become members of the LLC after the conversion without having to go through a separate transfer process.

Will the corporation have to file any termination or dissolution paperwork with the SDAT after the conversion to an LLC in Maryland?

The corporation may need to file termination or dissolution paperwork with the SDAT after the conversion to an LLC in Maryland based on its specific situation.

Will the corporation need to apply for any new licenses or permits after the conversion to an LLC in Maryland?

The LLC may need to apply for new licenses or permits based on its specific business activities.

Can the LLC give retroactive effect to any transactions, contracts, or other actions of the corporation in Maryland?

No, the LLC cannot give retroactive effect to any transactions, contracts, or other actions of the corporation in Maryland.

Is there a deadline for filing the Articles of Conversion in Maryland?

There is no specific deadline, but it is recommended to file as soon as possible after making the decision to convert to an LLC in Maryland.

Can a corporation converted to an LLC in Maryland be converted back to a corporation in the future?

Yes, it is possible to convert an LLC back to a corporation in Maryland but is only available through a legal process, not simply by filing with the state.

Will the LLC have the same liability protections as the corporation had in Maryland?

Yes, the LLC will have limited liability protections, similar to the corporation in Maryland.

Can the LLC waive liability protections in Maryland?

The LLC cannot waive liability protections in Maryland by statute, but the members may be able to create certain liabilities in their operating agreement.

Will the LLC be subject to the same annual maintenance requirements as the corporation was in Maryland?

The LLC will be subject to different annual maintenance requirements than the corporation was in Maryland, including filing both a Personal Property Return and maintaining Registered Agent status.

Will the LLC be considered a separate legal entity from the corporation in Maryland?

Yes, the LLC will be considered a separate legal entity from the corporation in Maryland.

Will the LLC have to file an annual report with the SDAT in Maryland?

Yes, the LLC will have to file an Annual Report with the SDAT in Maryland.

Can the LLC have multiple members in Maryland?

Yes, the LLC can have multiple members in Maryland.

Can the LLC have a single member in Maryland?

Yes, the LLC can have a single member in Maryland.

Can foreign entities convert corporations to LLCs in Maryland?

Yes, foreign entities can convert corporations to LLCs in Maryland.

Will the LLC have to obtain a new bank account after the conversion to an LLC in Maryland?

Yes, it is recommended that the LLC obtain a new bank account after the conversion to an LLC in Maryland.

Can the LLC change its name after the conversion to an LLC in Maryland?

The LLC can change its name after the conversion to an LLC in Maryland, but it will need to file the appropriate paperwork to do so.

Can the conversion from a Maryland corporation to an LLC affect the company’s credit score or standing?

The conversion can affect the company’s credit score or standing by changing its legal entity status, but the impact will depend on a range of unique factors.

Can a corporation convert to an LLC in Maryland?

Yes, a corporation can convert to an LLC in Maryland.

What is the process for converting a corporation to an LLC in Maryland?

The process for converting a corporation to an LLC in Maryland involves filing articles of organization with the state.

Is there a fee for converting a corporation to an LLC in Maryland?

Yes, there is a fee for converting a corporation to an LLC in Maryland. The fee is typically several hundred dollars.

Can a corporation convert to an LLC without dissolving the corporation in Maryland?

Yes, a corporation can convert to an LLC without dissolving the corporation in Maryland.

Is there a waiting period for converting a corporation to an LLC in Maryland?

There is no waiting period for converting a corporation to an LLC in Maryland.

What are the benefits of converting a corporation to an LLC in Maryland?

The benefits of converting a corporation to an LLC in Maryland include liability protection for owners, flexibility in management and ownership, and taxation advantages.

Can a single owner corporation convert to an LLC in Maryland?

Yes, a single owner corporation can convert to an LLC in Maryland.

Will the corporation’s existing contracts be affected by the conversion to an LLC in Maryland?

No, the corporation’s existing contracts will not be affected by the conversion to an LLC in Maryland.

What happens to the corporation’s assets and liabilities during the conversion to an LLC in Maryland?

The corporation’s assets and liabilities are generally transferred to the new LLC during the conversion process in Maryland.

Do I need to obtain new licenses and permits when converting from a corporation to an LLC in Maryland?

It depends on the type of business and the specific licenses and permits required by Maryland. Consult with an attorney or a business advisor to get specific guidance.

Are there any tax implications of converting a corporation to an LLC in Maryland?

There may be tax implications of converting a corporation to an LLC in Maryland. Consult with an accountant or a business advisor to understand how this impacts your taxes.

Can the former corporation’s shareholders become members of the new LLC in Maryland?

Yes, the former corporation’s shareholders can become members of the new LLC in Maryland.

Can the new LLC have a different name than the former corporation in Maryland?

Yes, the new LLC can have a different name than the former corporation in Maryland.

What are the steps involved in converting a corporation to an LLC in Maryland?

The steps involved in converting a corporation to an LLC in Maryland include filing articles of organization, creating a new LLC operating agreement, and transferring the corporation’s assets and liabilities to the new LLC.

Do I need to notify the corporation’s shareholders and creditors in Maryland when converting to an LLC?

Yes, you should notify the corporation’s shareholders and creditors in Maryland of the conversion to an LLC.

Can the former corporation’s board of directors become managers of the new LLC in Maryland?

Yes, the former corporation’s board of directors can become managers of the new LLC in Maryland.

Do I need to revise the corporation’s bylaws during the conversion to an LLC in Maryland?

No, revising the corporation’s bylaws is not necessary during the conversion to an LLC in Maryland.

Can the former corporation issue new equity in the new LLC in Maryland?

Yes, the former corporation can issue new equity in the new LLC in Maryland.

Do I need to file documents with the IRS when converting a corporation to an LLC in Maryland?

It depends on the corporation’s tax status and the specific requirements of the IRS. Consult with an accountant or a business advisor to understand the specific filing requirements.

What happens to the corporation’s federal tax ID number during the conversion to an LLC in Maryland?

The corporation’s federal tax ID number typically remains the same for the new LLC during the conversion process in Maryland.

Will the conversion to an LLC affect the corporation’s trade name in Maryland?

Yes, the conversion to an LLC will affect the corporation’s trade name in Maryland. The new LLC may need to register its trade name with the state.

Can the former corporation’s employees continue working for the new LLC in Maryland?

Yes, the former corporation’s employees can continue working for the new LLC in Maryland.

Will the conversion to an LLC affect the corporation’s bank accounts in Maryland?

Yes, the bank accounts will need to be revised to reflect the new LLC structure in Maryland.

How do I determine the most appropriate state to form my new LLC?

Consult with an attorney or a business advisor to determine the most appropriate state to form your new LLC based on your specific business goals and tax considerations.

What are the ongoing compliance requirements for a Maryland LLC?

The ongoing compliance requirements for a Maryland LLC typically include filing annual reports, maintaining accurate financial records, and paying state taxes and fees.

Can a foreign corporation convert to a Maryland LLC?

Yes, a foreign corporation can convert to a Maryland LLC. Consult with an attorney or a business advisor on the specific requirements for foreign corporations.

What happens to any existing contracts after conversion to an LLC in Maryland?

The existing contracts may need to be assigned or novated to the new LLC or it may just see the LLC enter as a party to the contract to take over its obligation.

Does an LLC in Maryland require the same insurance coverage as a corporation?

An LLC in Maryland may require different or additional insurance coverage depending on the specific nature of the business and the risk factors involved, so consultations with your advisor on insurance coverage pricing.

Conclusion

Converting a corporation to an LLC in Maryland can offer numerous advantages, including tax flexibility, simplified management, and reduced compliance requirements. By following the steps outlined in this article, you can successfully navigate the conversion process and unlock the full potential of your new Maryland LLC. To learn more about LLC formation, compliance, and other essential business topics, visit LLCBase and explore our resources to help you build a thriving and compliant business. Don’t miss out on the benefits of an Maryland LLC – take the first step in your business transformation journey today!