How to Form a Professional Corporation in Maryland (2024 Guide)

If you would like to start and learn how to form a corporation in Maryland, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in Maryland are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in Maryland or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in Maryland?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the Maryland. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in Maryland, if you changed your mind.

– WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in Maryland

To form a Professional Corporation in Maryland for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Resident Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Maryland, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

• Doctors
• Architects
• Accountants
• Lawyers and others

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in Maryland

After you have decided to form a professional corporation in Maryland, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

• The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
• Limit of restricted words that need a license.
• A unique name is needed with no match
• No confusion with a government entity name.

In Maryland, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 30 days. You must file a name reservation application in the Maryland Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for Maryland DBA (doing business as). This way, you can run a clinic or law firm under your name.

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Step 3: Choose the Maryland Resident Agent

The next step in forming a professional corporation is hiring a Resident Agent, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Maryland. Forming a professional corporation for your service will be easier if you have Resident Agent in Maryland.

Alternatively, you can serve as your own Resident Agent if you have the time. Usually, in Maryland, a Resident Agent costs is ranging from $50 – $200. To make it easier, you can hire Maryland Resident Agent Services for your professional corporation.

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Step 4: File the Articles of Incorporation in Maryland

After you hire a Resident Agent to form a professional corporation, the next step is to file the Maryland Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Resident Agent contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Articles of Incorporation in Maryland may be done with three ways, online, by mail and in-person. The Articles of Incorporation fee may vary from different state. However, in Maryland, it costs $120 for filing in person and by mail. 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. . For offline filing, Send the form by mail to CoState Department of Assessments and Taxation, Charter Division 301 W. Preston Street; 8th Floor, Baltimore, MD 21201-2395.

Step 5: Write an Operating Agreement in Maryland

An operating agreement in Maryland is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

• About Business
• Members and management
• Capital contribution
• Profit Distribution
• Change of membership
• Dissolution

Step 6: Designate the PC Board of Directors in Maryland

The next step is to form the first board of directors for your PC in Maryland. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the Maryland Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In Maryland, you must have One directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with Maryland Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

• Name and Purpose of the Corporation
• Registered Office and Agent
• Shareholders
• Board of Directors
• Officers
• Committees
• Indemnification and Insurance
• Conflict of Interest
• Records and Reports
• Amendments
• Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in Maryland.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in Maryland. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

The application of an EIN in Maryland can be through the following:

• Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
• Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in Maryland for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in Maryland easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in Maryland

Before your professional corporation operates in Maryland, you must have Maryland Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in Maryland ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in Maryland

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the Maryland tax classification for the taxes that an LLC in Maryland must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in Maryland.

• Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
• Maryland Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
• Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
• Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
• Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
• Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in Maryland

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Annual Report in Maryland

In Maryland, you must submit a report. The owners’ and Resident Agent’s names and contact details are listed in the Annual Report. Also, it should include all of your yearly financial activity. You must submit the report every 1 year (15th April) in the Maryland Secretary of State.

FAQs

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How to Save Money While Forming Maryland Professional Corporation

One of the first steps to saving money when forming a professional corporation in Maryland is to do your research. Before diving headfirst into the formation process, take the time to understand the state’s requirements for professional corporations. Knowing what is expected of you in terms of filing paperwork, obtaining licenses, and adhering to regulations can help you avoid costly mistakes and unnecessary expenses down the road. By educating yourself on the process, you can make informed decisions that will ultimately save you time and money.

Another cost-saving tip is to DIY as much of the formation process as possible. While hiring professionals such as attorneys and accountants can be beneficial, it can also be expensive. By taking the time to complete tasks like filing paperwork, drafting bylaws, and applying for licenses yourself, you can save money on professional fees. There are many resources available online that can guide you through the process, making it easier and more affordable to handle certain tasks on your own.

Additionally, consider using online formation services to help streamline the process and save money. These services can assist you in filing paperwork, obtaining necessary licenses, and meeting compliance requirements, all at a fraction of the cost of hiring professionals. Online formation services are efficient and cost-effective, making them a great option for businesses looking to save money during the formation process.

When it comes to legal and financial matters, consider seeking out free or low-cost resources for guidance. Many organizations offer pro bono legal services for entrepreneurs, while financial management classes and workshops can provide valuable insight into managing your business finances. By taking advantage of these resources, you can get the help you need without breaking the bank.

As you navigate the formation process, always keep your budget in mind. Create a detailed budget that outlines all expected expenses, from filing fees to professional services, and stick to it as closely as possible. By being mindful of your spending and staying within your means, you can avoid unnecessary costs and ensure that your professional corporation is set up in a financially sustainable way.

By following these tips and being proactive in your approach, you can successfully form a professional corporation in Maryland without breaking the bank. With careful planning, research, and budgeting, you can save money during the formation process and set your business up for success in the long run.

Conclusion

In conclusion, forming a professional corporation in Maryland is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.