LLC vs. S Corp in Maryland 2024: A Comprehensive Comparison

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LLC vs. S Corp in Maryland: Understanding the Differences

Embarking on the entrepreneurial journey in Maryland, also known as The Old Line State, is an exciting and transformative experience. Maryland LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in Maryland and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in Maryland.

Compare LLC and S-Corp

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In Maryland, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in Maryland are required to pay an annual fee of $300 to maintain their legal status and stay compliant with the state regulations.

An LLC in Maryland offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in Maryland  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In Maryland, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in Maryland. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in Maryland

One of the main differences between LLCs and S-Corporations in Maryland lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in Maryland, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in Maryland benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in Maryland are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in Maryland opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in Maryland with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in Maryland, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • Maryland State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in Maryland, it costs $300, which can be paid to the MA Sec. of the Commonwealth. Additionally, before forming the LLC, you must pay $100.

On the other hand, if you form an S-Corporation in Maryland, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the MA Sec. of the Commonwealth to make these payments.

2. Liability Protection

LLCs and S-Corporations in Maryland provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in Maryland:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in Maryland is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your Maryland LLC or Maryland S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in Maryland have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in Maryland: LLCs or S-Corporations

While filing an LLC or S-Corporation in Maryland requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the Maryland Resident Agent.

To start an LLC in Maryland, you must submit the Articles of Organization to the Maryland Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your Maryland LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in Maryland to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in Maryland

Forming an LLC in Maryland involves several crucial steps. To start, you must file Articles of Organization with the Maryland Department of Assessments and Taxation and pay the associated filing fee of $100. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In Maryland, the S-Corporation filing fee is $120 for filing in person and by mail.

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The LLC formation and S-Corporation election processes can be completed through three ways, online, by mail and in-person. Online incorporation is available at 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. , while offline incorporation can be done at Send the form by mail to CoState Department of Assessments and Taxation, Charter Division 301 W. Preston Street; 8th Floor, Baltimore, MD 21201-2395. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in Maryland varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in Maryland.

FAQs

What is an LLC in Maryland?
LLC stands for Limited Liability Company in Maryland, which is a type of business entity that combines the liability protection of a corporation with the flexibility and tax benefits of a partnership.
What is an S Corp in Maryland?
S Corporation is similar to an LLC from a tax and liability standpoint, but has a different structural setup.
Can LLCs and S Corps be formed in Maryland?
Yes, both LLCs and S Corporations can be formed and registered in Maryland.
Are there any differences in the formation process for LLCs and S Corps in Maryland?
Yes, there are different forms and filing fees required for LLCs versus S Corps in Maryland.
What are the tax implications of forming an LLC in Maryland?
LLCs in Maryland have the option to be taxed as a disregarded entity, partnership, S Corporation or C Corporation.
Can LLCs in Maryland have only one member?
Yes, LLCs in Maryland may be formed with only one member or multiple members.
What are the liability protections for LLCs versus S Corps in Maryland?
Both LLCs and S Corps in Maryland offer limited liability protections, but LLCs may have more.
What are the filing requirements for annual reports for LLCs and S Corps in Maryland?
LLCs and S Corps in Maryland are required to file annual reports by a certain due date.
Do LLCs and S Corps in Maryland have different management structures?
Yes, LLCs in Maryland can be either member-managed or manager-managed, while S Corporations typically have a designated board of directors and officers.
What is the process of forming an LLC in Maryland?
The process of forming an LLC in Maryland involves filing Articles of Organization and paying a filing fee.
Can an LLC in Maryland be converted into an S Corp?
Yes, an LLC in Maryland may elect to be treated as an S Corporation for tax purposes.
Can an S Corp in Maryland be converted into an LLC?
Yes, an S Corporation in Maryland can elect to convert to an LLC.
How are profits and losses split in LLCs versus S Corps in Maryland?
LLCs in Maryland have more flexibility than S Corps in determining how profits and losses are split among members.
Are Maryland LLCs required to have written operating agreements?
Although operating agreements are not required in Maryland, it is highly recommended that LLCs have written operating agreements to establish how the company will be managed.
Is there a limit to how many owners an LLC can have in Maryland?
No, there is no limit to the number of owners an LLC in Maryland can have.
Can LLC members be from out-of-state in Maryland?
Yes, LLC members can be from any state or country in Maryland.
What are the filing requirements for Maryland S Corps?
Maryland S Corps are required to file an annual report and have to file quarterly state taxes.
Can a business have both an LLC and an S Corp in Maryland?
While it is possible for a business in Maryland to be both an LLC and S Corporation, it is not usually necessary or recommended.
How are owners of S Corporations compensated in Maryland?
Owners of S Corporations in Maryland are typically compensated by paying themselves reasonable salaries from the earnings of the company.
Are employment taxes different for LLCs versus S Corps in Maryland?
Yes, there can be differences in employment taxes for LLCs versus S Corps in Maryland.
Can LLCs and S Corps have different fiscal year ends in Maryland?
Yes, LLCs and S Corps in Maryland can choose different fiscal year ends, but there may be tax implications for doing so.
Do Maryland LLC members have personal liability protection?
Like S Corp owners, LLC members typically have personal liability protection in Maryland.
Is it necessary to obtain a business license in Maryland to start an LLC or S Corp?
Yes, Maryland does require LLCs and S Corporations to obtain a business license.
How are taxes filed for LLCs in Maryland?
LLCs in Maryland can file taxes using Schedule C as a sole proprietorship or form 1065 as a partnership.
Can LLCs in Maryland be taxed as C Corporations?
Although it is less common, LLCs in Maryland have the option to be taxed as a C Corporation.
Is there a minimum capital requirement for LLCs and S Corps in Maryland?
No, there is no minimum capital requirement for LLCs and S Corporations in Maryland.
What types of businesses are suitable for forming LLCs versus S Corps in Maryland?
The type of business and number of owners are important considerations in determining whether an LLC or S Corp is the best choice for Maryland businesses.
Can non-residents own and operate LLCs and S Corps in Maryland?
Yes, non-residents can own and operate LLCs and S Corporations in Maryland.
Can LLCs and S Corps be dissolved in Maryland?
Yes, both LLCs and S Corporations in Maryland can be dissolved voluntarily or involuntarily.
How do I form an LLC in Maryland?
To form an LLC in Maryland, you must file Articles of Organization with the Maryland Department of Assessments and Taxation, and pay a filing fee.
How do I form an S Corp in Maryland?
To form an S Corporation in Maryland, you must first form a regular corporation by filing Articles of Incorporation with the Maryland Department of Assessments and Taxation, then file Form 2553 with the IRS to elect S Corporation status, and finally complete any other necessary state paperwork.
Is there a difference in the tax treatment between LLCs and S Corps in Maryland?
Yes, there are differences in tax treatment between LLCs and S Corps in Maryland. LLCs are typically taxed as either sole proprietorships or partnerships, while S Corps are taxed as pass-through entities.
Can LLCs and S Corps have different owners in Maryland?
Yes, both LLCs and S Corps in Maryland can have multiple owners.
What is the liability protection for LLCs in Maryland?
The liability protection for members of an LLC in Maryland means that their personal assets are typically protected from any lawsuits or debts incurred by the business.
What is the liability protection for shareholders of S Corps in Maryland?
The liability protection for shareholders of S Corps in Maryland is similar to that of members of LLCs. Their personal assets are generally protected from any lawsuits or debts incurred by the business.
Are there any residency requirements for owners of LLCs or S Corps in Maryland?
There are no residency requirements for owners of LLCs or S Corps in Maryland.
Can foreign entities form LLCs or S Corps in Maryland?
Yes, both foreign entities and individuals can form LLCs or S Corps in Maryland.
What are the annual fees for LLCs in Maryland?
The annual fee for an LLC in Maryland is $300.
What are the annual fees for S Corps in Maryland?
The annual fee for an S Corp in Maryland is $120.
How is income taxed for LLCs in Maryland?
Income for LLCs in Maryland is typically taxed as either sole proprietorships or partnerships, and the profits or losses pass through to the members to report on their individual taxes.
How is income taxed for S Corps in Maryland?
Income for S Corps in Maryland is taxed as pass-through income, with the profits or losses reported on the shareholders’ individual tax returns.
Do LLCs and S Corps have the same management structure in Maryland?
No, LLCs and S Corps in Maryland have different management structures. LLCs are typically managed by their members, while S Corps are managed by a board of directors and officers.
Are there filing requirements for LLCs in Maryland?
Yes, LLCs in Maryland must file annual reports with the Maryland Department of Assessments and Taxation.
Are there filing requirements for S Corps in Maryland?
Yes, S Corps in Maryland must file annual reports with the Maryland Department of Assessments and Taxation.
How are distributions taxed for LLCs and S Corps in Maryland?
Distributions for both LLCs and S Corps in Maryland are typically taxed as either regular income or capital gains.
What happens if a member or shareholder of an LLC or S Corp dies in Maryland?
In Maryland, the ownership interest of a member or shareholder of an LLC or S Corp typically passes to their heirs or beneficiaries upon their death.
Can LLCs and S Corps be taxed as C Corporations in Maryland?
Yes, both LLCs and S Corps in Maryland can elect to be taxed as C Corporations if they choose.
Can LLCs and S Corps convert to other types of business entities in Maryland?
Yes, LLCs and S Corps in Maryland can convert to other types of business entities as long as they follow all necessary legal and tax requirements.
What happens if an LLC or S Corp is dissolved in Maryland?
If an LLC or S Corp is dissolved in Maryland, its assets are typically sold and used to pay off any outstanding debts or liabilities before returning any funds to its owners or shareholders.
What is the process for dissolving an LLC or S Corp in Maryland?
To dissolve an LLC or S Corp in Maryland, you must usually file Articles of Dissolution with the Maryland Department of Assessments and Taxation.
Do LLCs and S Corps need to hold annual meetings in Maryland?
Yes, both LLCs and S Corps in Maryland are required to hold annual meetings and keep accurate records of these meetings.
Can LLCs and S Corps be sued in Maryland?
Yes, both LLCs and S Corps in Maryland can be sued in a court of law.
What is the statute of limitations for LLCs and S Corps in Maryland?
The statute of limitations for claims against LLCs and S Corps in Maryland is usually three years.
Are LLCs and S Corps required to have operating agreements or bylaws in Maryland?
Although no bylaws are required for an S Corp, it is recommended to have one in addition to for an LLC. An operating agreement is typically required for LLCs in Maryland.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in Maryland.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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