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

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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Forming a Professional Corporation in Maryland

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-

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

What is a professional corporation (PC) in Maryland?
A PC in Maryland is a corporation formed by professionals—such as doctors, lawyers, architects, accountants, and other licensed individuals—that is licensed by the state to provide professional services.
Why create a professional corporation in Maryland?
There are several benefits to forming a PC in Maryland, such as reducing personal liability for professional misconduct and accessing potentially lower tax rates.
Is it difficult to form a professional corporation in Maryland?
The process of forming a professional corporation in Maryland can be slightly more complicated than forming a regular corporation, but it is not overly complicated.
What are the requirements for forming a professional corporation in Maryland?
Among other things, you must file Articles of Incorporation with the Maryland Department of Assessments and Taxation, include certain language in the Articles of Incorporation identifying the corporation as a PC, and obtain any necessary professional licenses.
How long does it typically take to form a professional corporation in Maryland?
The length of time it takes to form a professional corporation in Maryland can vary depending on the specific circumstances, but it typically takes a few weeks to a month or more.
Can non-professionals own a professional corporation in Maryland?
Usually, only licensed professionals can own stock in a PC in Maryland.
What is the tax rate for a professional corporation in Maryland?
The tax rate for professional corporations in Maryland is typically lower than the state’s general corporate tax rate.
What about federal taxes for professional corporations in Maryland?
Professional corporations in Maryland are generally taxed as regular corporations for federal tax purposes, unless the corporation specifically elects otherwise.
Who can be officers of a professional corporation in Maryland?
The officers of a professional corporation in Maryland can be individuals who are not licensed professionals, but they cannot control the professional services provided by the corporation.
Are there any unique filing or reporting requirements for professional corporations in Maryland?
Professional corporations in Maryland may have some unique filing or reporting requirements, such as providing certain disclosure documents to clients.
Can a professional corporation in Maryland offer non-professional services?
A professional corporation in Maryland can offer non-professional services if those services are related to the primary professional services that the corporation is organized to provide.
Can a professional corporation in Maryland have shareholders who are not licensed professionals?
Generally, only licensed professionals can own stock in a PC in Maryland.
Do professional corporations in Maryland have to carry insurance?
Some types of professional corporations in Maryland are required to obtain specific types of insurance, such as malpractice insurance.
What are the requirements for obtaining malpractice insurance for a professional corporation in Maryland?
The requirements for obtaining malpractice insurance for a professional corporation in Maryland can vary depending on the type of professional services provided.
Are all professional corporations in Maryland required to have a Board of Directors?
Not all professional corporations in Maryland are required to have a Board of Directors, but they must have an organizational structure that is appropriate for the licensed professional services being provided.
Can professional corporations in Maryland offer services in other states?
Professional corporations in Maryland can offer services in other states as long as the corporation meets the requirements for conducting business in those states.
Are there any ongoing reporting requirements for professional corporations in Maryland?
Yes, professional corporations in Maryland must file annual reports and pay annual fees to the Maryland Department of Assessments and Taxation.
Can someone with a background in business form a professional corporation in Maryland?
Yes, someone with a background in business can form a professional corporation in Maryland, but only licensed professionals can provide the licensed professional services.
What are the benefits of organizing a professional corporation in Maryland?
Some benefits of organizing a professional corporation in Maryland include obtaining tax benefits and limiting personal liability.
What happens if a professional corporation in Maryland doesn’t follow its state regulations?
If a professional corporation in Maryland does not follow its state regulations, the corporation may be subject to fines, penalties, or even losing its license.
What steps can I take to protect a professional corporation in Maryland from liability?
Among other things, you can obtain insurance, form the corporation properly, and make sure that the corporation is run ethically and in compliance with state regulations.
Can a professional corporation in Maryland have more than one profession in it?
Yes, a professional corporation in Maryland can house more than one profession, but that corporation is still subject to the licensing requirements of all named professions.
Can I hire unlicensed people in Maryland?
You may hire unlicensed people to fulfill support roles (such as a receptionist) but may not allow them to run or contribute to professional practice while having an active and ongoing regulative statute affecting your corporation.
What is a regulated consulting LLC and when would I use it?
A regulated consulting LLC is used in Maryland to provide consulting or marketing support for regulated industries, such as healthcare or finance.
Can a professional corporation be a nonprofit in Maryland?
In Maryland, there is no requirement that a corporation be a nonprofit to qualify as a professional corporation.
Can a professional corporation offer services to government entities in Maryland?
A professional corporation in Maryland can offer services to government entities as long as it holds the required licensing.
Is good standing listed online in Maryland?
Yes, the current standing, status, and level of granting’s (can be searched with company name) of professional corporations in Maryland are listed online on the state business entity database called ‘MDCRIS.’
Can I incorporate my business without going through an attorney in Maryland?
Yes. You may file articles of incorporation for a professional corporation in Maryland without an attorney. However, since there are formalities that your corporation may need to follow, getting a specialized attorney gets you expert organizational and regulatory assistance so you stay compliant.
What is a professional corporation in Maryland?
A professional corporation in Maryland is a special type of corporation that is designed for licensed professionals such as doctors, lawyers, accountants, architects, and engineers.
What advantages does a professional corporation in Maryland offer?
A professional corporation in Maryland offers liability protection for its shareholders, which means that their personal assets will be protected if the corporation is sued.
Can I form a professional corporation in Maryland with just one shareholder?
Yes, you can form a professional corporation in Maryland with just one shareholder.
Can the shareholders of a professional corporation in Maryland also be employees?
Yes, the shareholders of a professional corporation in Maryland can also be employees.
What types of professionals can form a professional corporation in Maryland?
Maryland allows professionals such as lawyers, doctors, and accountants to form professional corporations.
Must all shareholders in a professional corporation in Maryland be licensed professionals?
Yes, all of the shareholders in a professional corporation in Maryland must be licensed professionals.
Can a professional corporation in Maryland engage in any type of business activity?
No, a professional corporation in Maryland is limited to providing the services outlined in its articles of incorporation.
How do I form a professional corporation in Maryland?
You can form a professional corporation in Maryland by filing articles of incorporation with the Maryland State Department of Assessments and Taxation.
Are there any fees associated with forming a professional corporation in Maryland?
Yes, there are fees associated with forming a professional corporation in Maryland, including state filing fees and legal fees.
What is the minimum number of shareholders required to form a professional corporation in Maryland?
The minimum number of shareholders required to form a professional corporation in Maryland is one.
Are there age requirements for forming a professional corporation in Maryland?
No, there are no age requirements for forming a professional corporation in Maryland.
Do I need to hire a lawyer to form a professional corporation in Maryland?
While it is not required, it is recommended that you hire a lawyer to form a professional corporation in Maryland.
How long does it take to form a professional corporation in Maryland?
It generally takes 4-6 weeks to form a professional corporation in Maryland.
How much does it cost to form a professional corporation in Maryland?
The cost to form a professional corporation in Maryland varies depending on various factors such as legal fees, filing fees, etc.
Can I change the name of my professional corporation in Maryland after it has been formed?
Yes, you can change the name of your professional corporation in Maryland at any time by filing the appropriate documents with the Maryland State Department of Assessments and Taxation.
What is required in the articles of incorporation for a professional corporation in Maryland?
The articles of incorporation for a professional corporation in Maryland must include the name of the corporation, the purpose of the corporation, the professional services to be provided, the names and addresses of the initial shareholders, and the number of shares each shareholder is purchasing.
How much liability protection does a professional corporation in Maryland offer?
A professional corporation in Maryland offers the same liability protection as a traditional corporation.
Are there annual reporting requirements for professional corporations in Maryland?
Yes, professional corporations in Maryland are required to file an annual report with the Maryland State Department of Assessments and Taxation.
What is included in the annual report for a professional corporation in Maryland?
The annual report for a professional corporation in Maryland includes the name and address of the corporation, the names and addresses of the officers and directors, and the date of the annual meeting.
How do I dissolve a professional corporation in Maryland?
To dissolve a professional corporation in Maryland, you must file articles of dissolution with the Maryland State Department of Assessments and Taxation.
Can non-professionals invest in a professional corporation in Maryland?
No, only licensed professionals can invest in a professional corporation in Maryland.
Can a professional corporation in Maryland have a foreign shareholder?
Yes, a professional corporation in Maryland can have a foreign shareholder, provided they are a licensed professional.
Do I need to have insurance for my professional corporation in Maryland?
While there is no legal requirement to have insurance for a professional corporation in Maryland, it is highly recommended.
Can a professional corporation in Maryland have non-professional employees?
Yes, a professional corporation in Maryland can have non-professional employees, such as administrative staff.
Can a professional corporation in Maryland have multiple addresses?
Yes, a professional corporation in Maryland can have multiple addresses.
What happens if a shareholder of a professional corporation in Maryland dies or becomes incapacitated?
If a shareholder of a professional corporation in Maryland dies or becomes incapacitated, their shares can be transferred to another licensed professional.
Can an out-of-state professional form a professional corporation in Maryland?
Yes, an out-of-state professional can form a professional corporation in Maryland provided they meet the licensing requirements in Maryland.
Can professional corporations in Maryland be taxed as an S corporation?
Yes, professional corporations in Maryland can choose to be taxed as an S corporation.

Also Read

How to Save Money While Forming Maryland Professional Corporation

One of the key aspects to saving money when forming a Maryland professional corporation is to carefully evaluate the type and number of services that you actually require. It is essential to obtain the necessary legal advice to ensure compliance with Maryland state laws, but it is equally important not to overpay for services that your business does not need. By understanding the specific needs of your professional corporation, you can avoid unnecessary costs.

Another important consideration is to research different service providers in Maryland. Prices for legal services, corporate filing, and other necessary procedures can vary significantly. Check with different providers to compare costs and find the most cost-effective options. While price should not be the sole determining factor, selecting a service provider that offers good value for money is essential when trying to save expenses.

To further cut costs, consider utilizing online resources and tools. Some legal firms offer online platforms that allow businesses to complete the entire professional corporation formation process without the need for expensive face-to-face consultations. With the availability of user-friendly software and extensive guides, you may be able to navigate the entire process by yourself, thereby avoiding additional legal expenses.

Additionally, it is always wise to plan ahead and establish a realistic budget for your professional corporation formation. By setting clear financial goals at the outset, you can focus your efforts on the most important aspects and avoid unnecessary spending. A well-prepared budget can help you identify potential areas where costs can be minimized while still maintaining compliance with Maryland’s regulations.

Another strategy to save money is to carefully review any contracts or agreements before signing them. Some service providers may incorporate additional fees or services that are not essential to the formation process. By carefully examining the terms and conditions, you can identify any unnecessary costs and negotiate with the provider to remove or reduce them.

Lastly, forming a professional corporation in Maryland may require the involvement of multiple stakeholders, such as attorneys, accountants, and financial advisors. Instead of hiring separate professionals, consider working with a full-service firm that offers all the necessary expertise under one roof. This can help streamline the process and potentially reduce costs compared to engaging multiple individuals or firms.

In conclusion, while forming a professional corporation in Maryland comes with associated expenses, there are various strategies that can help you save money throughout the process. Conduct thorough research, compare service providers, make use of online resources, and budget your expenses to ensure a cost-effective formation. By keeping these considerations in mind, you can successfully establish your professional corporation while minimizing unnecessary expenditures.

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.

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