Getting it right from the start: Business formation in Maryland

When it comes to the fostering of new businesses and economic development, few states are as dedicated or as successful as Maryland. In fact, in a 2013 annual report issued by the Maryland Department of Business and Economic Development, Governor Martin O'Malley made note of the fact that Maryland was ranked first in the country for entrepreneurship and innovation for the second year in a row by the U.S. Chamber of Commerce.

However, while innovation and advancement is certainly crucial when promoting the development of business, it is also important to not forget some of the nitty-gritty details to go into making a successful Maryland business - such as ensuring a business is properly formed from the onset.

It cannot be overstated how important business formation in Maryland can be. It is during this infancy period that a business not only selects the type of entity it will form - such as a limited liability company (LLC), partnership or corporation - but it is also the time in which a business typically lays out how it will be operated and managed.

In fact, many of the rights, obligations and responsibilities of business owners are determined and established during this period, which is often completed through drafting of business governing documents such as corporate bylaws and shareholder agreements.

In the case of LLCs, which is one of the most popular business entities in Maryland, the prime governing document is known as an operating agreement. It is in this document that owners of an LLC - otherwise called members - can dictate a wide variety of business operations and procedures, including:

  • The way in which the business of the LLC will be controlled and managed
  • The way in which members will share earnings and assets of the LLC
  • The rights of the members to assign their membership interests
  • The circumstances in which another person may become a member of the LLC
  • The procedures that will govern meetings as well as member voting

Assistance may be needed when executing governing agreements

Ultimately, a well drafted business governing document - such as an LLC's operating agreement - will not only lay out how a business is to be ran but, if done correctly, can also head off disputes before they ever arise. For example, as mentioned above, an operating agreement can prescribe how members (owners) can leave or otherwise assign their membership interests in an LLC. Without these procedures expressly established, disputes can easily arise regarding a member's exit.

Accordingly, if you are currently considering a business start-up in Maryland, it is typically best to seek the counsel of an experienced business formation attorney. A knowledgeable attorney can help examine you business needs and assist in determining which type of business entity will serve you best.