The Maryland LLC operating agreement is a document that details company's financial and functional decisions. These decisions include provisions, rules, and regulations. An operating agreement is not necessary, but it is recommended for LLCs with more than one member. 

What Is an Operating Agreement?

In the state of Maryland, business owners can enter an operating agreement to establish or regulate LLC's affairs or relations of its members. The following provisions can be established:

  • Control, management, and operation of LLC's affairs and business
  • Sharing of LLC's assets and earnings among its members
  • Rights of the owners to assign a portion or all of their membership interest
  • Rules and requirements for accepting an individual as a new owner of an LLC

What Is a Limited Liability Company?

A limited liability company (LLC) is a distinct business structure. In the state of Maryland, the LLC Act contains a detailed list of requirements for creation or formation of an LLC.

An LLC is able to conduct any activities that are related to lawful purpose, activity, business, or investment. It doesn't matter whether an LLC is conducting these activities for profit or not. The only exception to this rule is if a business is acting as an insurer. 

The law also outlines the requirements for operating an LLC that already exists in the state of Maryland. Fortunately, the law is fairly flexible when it comes to the powers of an LLC. Owners and members can set up their LLC to exist indefinitely or in a way that its activities automatically come to an end after a certain period of time. Members of an LLC are in charge of the ability of an LLC to enter contracts or perform other business activities. LLC members usually have a lot of freedom in setting up their company in a manner that works well for them.

Should My Company Be Formed As An LLC?

In most cases, members are not personally liable for LLC's business debts or acts. If an LLC faces a lawsuit, the assets and money owned personally by the members will be protected. This means that your house and savings accounts cannot be used for the purpose of satisfying a judgment that the court makes against your LLC. However, there are a few exceptions to this rule. For example, if fraud has been committed, the members may be held personally liable. 

Though hard to measure, one advantage of an LLC is credibility, which is crucial in selling goods or services successfully. Prospective customers will be more willing to do business with your company because you have gone through the process of filing your business with the state of Maryland. In the eyes of many clients, forming a company with the state creates a perception of credibility that partnerships and sole proprietorships often do not enjoy.

LLC members only face taxes on a personal level. This means that all company's income is treated as the income earned by its owners. This income is only taxed on the personal income tax filings of the owners. This is different in comparison to the general rules for corporations. Corporations usually pay income taxes on a business level, meaning that the owners have to pay taxes on the profits or dividends that are distributed to them by the corporation. Make sure to speak to a tax professional to discuss any issues related to taxes. 

Though with a few provisions, the law grants LLC members flexibility in determining how their LLC will function. 

It is not required to create a written agreement for operating procedures. However, it is incredibly helpful for LLCs that have more than one owner.

Unlike corporations, LLCs do not need to create a separate Board of Directors for making business decisions. An LLC also doesn't need officers for managing the business's daily operations. LLC members have the authority to make business decisions and manage daily operations of the LLC.

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