Business Formation

Thinking about starting a new business, or growing your existing business? Do you need to protect yourself against liability? You want to provide legitimacy, security, and a range of tax benefits, but it can be difficult to determine which structure offers the most when you are looking to incorporate your business in Maryland. Should you form an C-Corp, S-Corp, LLC or business partnership? Read on to learn which one will best suit your business and how A.Y. Gross Law can help you through the formation process!

Setting Up A C-Corporation

If you are looking to incorporate your business in Maryland, a C-Corporation offers a range of tax benefits while allowing for vast potential growth. Here are some of the distinctive elements of a C-Corporation:

• Legally independent from its owners

• Does not qualify as a personal tax liability

• A more complex structure than limited liability companies, including shareholders and a board of directors

• Unlimited stock growth potential, even if the owner leaves the company

The main advantage of a C-Corporation is the potential tax benefits. Most importantly, both owner and employee salaries are tax deductible. C-Corporations are also entitled to a range of highly beneficial tax deductions, including those for depreciation, charity donations, repairs and maintenance, and employee benefit plans (such as pensions and insurance policies). In addition, the owners of a C-Corporation are not personally liable for any of the company’s financial losses, beyond any financial risks that they incur as a result of their investments in the company.

It is important to remember that the owners of a C-Corporation incur a tax burden called “double taxation.” This means that all company revenue is taxed at the company level and again as shareholder dividends. The fees associated with incorporation can also make the process expensive. In most cases, however, setting up a C-Corporation is still profitable.

To set up a C-Corporation, owners must file a certificate of incorporation, register a business name, draft corporate bylaws, and convene a board of directors. A qualified business attorney can help with each stage of this process, ensuring that every document is written and filed properly and that every legal requirement is fulfilled.

Setting Up An S-Corporation

If the decreased liabilities of incorporation sound attractive but the “double taxation” does not, then creating an S-Corporation might be the right option to incorporate your business in Maryland. This classification provides the same protection against personal liability as a C-Corporation while allowing the owner to pay income taxes based only on their individual returns. This allows owners to avoid the two-tiered taxation that comes with a C-Corporation.

However, there are a few significant downsides to setting up an S-Corporation. The most essential obstacle is that an S-Corporation is limited to only 100 shareholders. Here are a few more of the limitations that come with an S-Corporation:

• Must be a domestic business

• Must include only eligible shareholders (includes only U.S. citizens and residents, only allows natural persons)

• Must have only one class of stock

The process of setting up an S-Corporation is very similar to creating a C-Corporation. You will need to register the name of the business, prepare articles of incorporation and corporate bylaws, and seek out the appropriate permits and licenses in order to operate in your state.  An experienced business law attorney can streamline this process and get you back to business.

Setting Up An LLC

An LLC (short for Limited Liability Company) is the easiest corporation to create. It can provide a more limited range of benefits, including:

• Allows owners to report profits and losses on their individual tax returns, avoiding double taxation

• Does not require owners to be a U.S. citizen or permanent resident

• Limits liability for business finances

Although setting up an LLC is one of the easiest options, it may not be the best for every company. An LLC cannot issue stocks or attract shareholders, and owners may also incur a self-employment tax. In addition, states are not required to treat LLCs uniformly, as they are required to treat S and C Corporations. LLCs also do not receive the same tax deductions and benefits as a corporation.  

Setting Up A Partnership

A business partnership is different from the three other types of incorporation described above. It is simply an agreement between two individuals to share business management responsibilities and profits. There are two types of partnerships:

• In a general partnership, the owners manage the company and assume responsibility for any debts and financial obligations

• In a limited partnership, the general partners manage responsibilities and take on liability for the business, while limited partners serve only as investors and have no control over company operations

Both structures have distinct benefits and drawbacks, depending on how much control the general partners wish to have over the day-to-day operation of the business. An experienced attorney can help you decide which type best suits your business.

Contact Us

At A.Y. Gross Law, we understand how invested you are in the continued success and growth of your business. Our attorneys have helped business owners across the state incorporate their companies and unlock new potential. If you want to incorporate your business in Maryland, please call us at (443) 990-0001 or reach out to us here. We are committed to finding the best solution for your situation and to getting your business up and running as quickly as possible.