Practical Steps To Forming an LLC in Maryland

Today I want to talk in more detail about how to form an LLC in Maryland. As a hard money lender in MD, I cannot emphasize enough the importance of protecting your profits and assets by not doing business in your personal name. You can read about all the detailed reasons in our previous blog “Hard Money Lenders Love LLCs. Here is Why You Should Too,” but here is a quick summary.

In business, like in life, bad stuff happens. It happens to people who are incompetent and to people who are careful. You can do your best to avoid bad stuff happening, but you can’t fully control it. What you can do, however, is to prepare for the eventuality of bad stuff happening to you. This is called managing your risk. It will help you minimize the impact of adversity on your business and on your life.

If someone sues you because they injure themselves while at your property, they can go after your assets. If the IRS wants to pursue you, they can attach liens against properties held in your name. That would prevent you from selling or refinancing them. Purchasing your Maryland rehab property in an LLC’s name limits your liability and protects your family’s wealth. But let’s get back to the practical steps of forming an LLC in Maryland.

As a hard money lender in MD, we prefer to make loans to an LLC and will ask you for three documents to prove your ownership in your business. Let’s tackle each of these documents separately.

LLC’s Articles of Organization

Article of Organizations are the LLC formation documents. They contain basic information about your LLC such as its name, its purpose and the name and address of its registered agent.

A couple of things to remember here:

Make sure that the name you’ve selected for your LLC is actually available. You can see if it is by first registering on the “State of Maryland Business Express Portal” and then searching the name you are interested in their search database.

You will be asked to select a registered agent for your LLC. The resident agent is an individual or entity designated to officially receive and send papers including annual state filings and court subpoenas. The agent must be either a Maryland citizen, a Maryland corporation or a Maryland LLC. An LLC itself cannot act as its own agent. However, any of its members residing in Maryland can act as an agent. That means that you can list yourself as a designated agent for your LLC.

You can start the process of creating your Maryland LLC by visiting the Maryland Business Express portal.

LLC’s Operating Agreement

The second document we will ask you for is called LLC Operating Agreement. An operating agreement is a legal document outlining the ownership and operating procedures of your LLC. In case of a multi-member LLC it helps prevent misunderstandings by setting clear expectations about partner roles and responsibilities.

Technically, an operating agreement is not required to form an LLC in Maryland, but it’s always is good practice to have one. However, if you are about to finance your investment property with a hard money lender, chances are they will require your LLC to have an operating agreement. It’s because it clearly shows the LLC ownership and determines who needs to sign documents at closing. There are plenty of free online resources on how to create an operating agreement on your own. Alternatively, you might want to consult a lawyer who specializes in this area.

Formation Letter from IRS with your LLC Tax or EIN Number

In order for you to maintain your LLC in good order and pay taxes, you need to request a Federal Tax ID number also known as an Employer Identification Number (EIN). It is easy to obtain online by visiting the IRS portal. Remember to apply only after you’ve received your LLC’s Articles of Organization.

Forming an LLC in Maryland costs less than $150 plus any expedited fees you choose to pay. You will also need to file an Annual Report, pay a small yearly fee and file Maryland taxes every year. However, the benefits, protections and the peace of mind you gain by doing business in Maryland in an LLC greatly outweigh any hassles to form and maintain it. As a hard money lender in MD we love the security of doing business as an LLC and so should you.