Structure your business

Determine the best structure for your business

Sole proprietorship

Report business activities on personal income tax returns. If you risk substantial liability in your business, consider some form of incorporation, LLC, or LLP to protect your personal assets.

Business partnership

also avoid corporate double taxation and usually allow more flexibility in distributions than either a C or S corporation. Family limited partnerships (FLPs) offer many benefits: You can split income with your children and realize estate tax savings, while continuing to control assets transferred to the partnership. However, it is important to ensure that the FLP is carefully structured, as the IRS monitors FLPs closely.

Limited Liability company

LLCs and LLPs offer pass-through taxation and limited liability. They have a flexible structure, which allows any entity to be an owner, including a corporation; investments in other entities are not limited. Special allocations of income and losses are possible.

Incorporated business

• C Corporations are taxed as entities separate from their shareholders. The corporation pays taxes, and you pay taxes as an employee. Investors are taxed on the dividends they receive. Salary paid to you and other shareholders must be reasonable, or a portion of it may be reclassified as a nondeductible dividend payment. If earnings are accumulated beyond the corporation’s reasonable needs, an additional tax may be imposed on these earnings
• S Corporations may have between 1 and 100 shareholders, which can include individuals, estates, certain trusts, and tax-exempt organizations. Income and losses are passed through to shareholders, thus avoiding the double taxation inherent in a C corporation. However, S Corporations are governed by strict rules.
  

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Federal Employer Identification Number (FEIN)

If you hire employees, you must apply for a Federal Employer Identification Number. If your business is a sole proprietorship, a FEIN may be helpful, but is not necessary.

You may need to register your business with the state of Maryland as well. Visit the Maryland Business Express page to learn more about the business registration process. For filing and business-related questions, contact:

                 Maryland Department of Assessments & Taxation
                  410-767-1184
                  Outside the Baltimore Metro Area: 888-246-5941
                  Maryland Relay: 800-735-2258

                 Office of the Secretary of State
                 Walk-in address: 16 Francis Street, Wineland Building, Annapolis, MD 21401
                         8:30 - 12:00 and 12:30 - 4:00 (the office is closed for lunch 12:00 - 12:30)

                 Mailing address: 16 Francis Street, Annapolis, MD 21401

                 Telephone: 410-974-5521
                 Email: Craig.Jackson@Maryland.gov

After registering your business and deciding on a name, you need to open a business account to manage your cash flow.