DISCLAIMER: I’m not a lawyer and this obviously isn’t legal advice. This article is about our experiences on incorporating in the State of Maryland.
A smaller disclaimer: We incorporated Jumptree back in 2007—so the procedures might have changed a bit since then.
Also, we worked on Jumptree Project for a long time before we actually incorporated.
In fact, we already had a working alpha version before we decided to start up. Basically we wanted to be sure there was something tangible and not waste money starting something we couldn’t complete.
1. Decide on a corporate structure
There are several corporate structures to choose from—such as a regular corporation, an LLC, a partnership, etc…
If you have no idea what you’re doing then you really should talk to a lawyer or accountant. Or at the very least get one of those legal books or something.
This article deals with how to start a C corporation.
NOTE: There are two types of corporations, C and S. This designation determines how your company is taxed.
Basically in a C corporation, the company is taxed at a corporate rate. While in an S corporation, the profit (or loss) is passed through to the shareholders who then report the income or loss on their own individual tax returns.
By default, when you incorporate you are a C corporation (i.e. a regular corporation). To become an S corporation, you must elect the S status using Form 2553.
Please note there are other limitations to an S corporation and not every company can elect the S status. The laws regularly change on this so be sure you’re up to date.
Also note that you have to elect the S status soon after you incorporate because there’s a deadline for it.
2. The Maryland Checklist for New Businesses
Every state should have an online resource of what’s needed to incorporate. Here’s the Maryland Checklist for New Businesses.
This will give you a basic overview of the requirements for starting a business in Maryland.
NOTE: The Blood Tax (i.e. Personal Property Tax)
Before you startup, please realize this: Every Maryland stock corporation must pay a $300 fee regardless of whether it made a profit or loss—and you have to pay this every year.
So just be prepared to have enough money to pay this fee, or else you forfeit your company.
Some states might not have this tax, while others (e.g. California) has a much higher tax.
3. Check if the name is available.
The first thing is to see if your domain name is available. If example.com is taken, you could try examplecorp.com or example.net but you’ll probably always be upset that someone has the real domain. So take your time on this and find something memorable.
Once you’re sure, call 410-767-1340 to check if the name is available.
Also be aware that this name check only tells you if the name is available in the State of Maryland. It’s entirely possible that another company has this name in another state.
4. Decide how fast you want to apply
As of March 28, 2008 the total cost to startup in Maryland is $120 (a $100 fee + $20 organization & capitalization fee).
NOTE: The aggregate par value of stock (i.e. how much you’re putting into your company) must be under $100,000 or else the fees increase.
Of course if you have that much to invest then you probably don’t need to read this article and should ask your lawyer to handle it!
The regular application process takes 7-8 weeks while the expedited service is done within 7 days but costs $50 more. If you’re in a super-hurry you can go in person and get it done that day for $70 more.
If you go in person, be sure to bring checks as that’s the only way to pay. Since we were in a hurry we decided to just go.
5. Prepare the Articles of Incorporation
Go to Maryland’s State Department of Assessments and Taxation Forms and Applications page to download this form:
Follow the instructions and fill out the form.
TIP: For “THIRD: The purposes for which the corporation is formed are as follows.”
We put a “…and anything else allowable by law” at the end of the statement as catchall in case we forgot anything.
TIP: For “SIXTH: The corporation has authority to issue _____ shares at $_____ par value per share.”
The par value is basically the lowest amount for which a share can be sold. To make things simple, we issued no-par value stocks. Also, we stuck to 5000 shares or else the filing fee would increase.
And just because you have the authority to issue 5000 shares doesn’t mean you have to do it at once—we only issued out 200 shares.
DISCLAIMER AGAIN: Seriously, these tips might not suit your business. So if you’re totally unsure what to do, please consult a lawyer or an accountant.
6. The actual day we went to file the papers
The directions are:State Department of Assessments and Taxation
Corporate Charter Division
301 W. Preston St. Room 801
Baltimore, MD 21201
TIP: Bring quarters for parking.
Stuff to bring:
- Photo ID
- Checks (or cash) — And just to be safe, bring several checks because you don’t want to mess up and only have one check on hand.
When you get there, you’ll have to first get a name tag by signing in, showing the guard a photo ID, and telling them you’re going to incorporate a business.
Then go to the eighth floor and wait in line to see the receptionist. As I was waiting, I leaned against the wall and accidentally turned off the lights…yeah, that was embarrassing. So just be careful…
Next tell the receptionist what you want to do:
- Incorporate a business
- Get a certified copy of the articles of incorporation
TIP: Getting a certified copy of the Articles of Incorporation will cost $22 more but banks will need this to setup a corporate checking account.
The receptionist will then give you some forms to fill and tell you to wait in another line.
One form is the expedited application form and the other is an order form. Both of them ask for the mailing address and who’s applying.
Once you wait your turn, an inspector will examine your Articles of Incorporation and tell you how much you need to pay.
In total we paid:
- Base Fee — $100
- Org. & Cap Fee — $20
- Expedite Fee — $70
- Copy Fee — $22
Then you just wait until they call your company’s name. We only waited about 20 minutes and we were done!
So that’s it. Now you’re legally incorporated!
Stay tuned because in my next series of articles I’ll discuss how to open a corporate checking account, applying for your Employer’s Identification Number, and some other stuff that we learned along the way.
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