*Please note that the information provided in this article is based on the regulations for forming a professional corporation in Maryland as of 2023. It is always advisable to consult with a legal professional or the Maryland State Department of Assessments and Taxation for the most up-to-date guidelines and requirements.*
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Introduction
Forming a professional corporation (PC) in Maryland can provide many benefits to professionals in fields such as medicine, law, accounting, and engineering. A professional corporation allows professionals to form a business entity that limits their personal liability while maintaining their professional status.
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Requirements for Forming a Professional Corporation
To form a professional corporation in Maryland, you need to meet the following requirements:
1. Suitable Professional Purpose
A professional corporation can only be formed for specific professional services. Examples of professions that qualify for professional corporation status in Maryland include attorneys, doctors, accountants, architects, and engineers.
2. Proper Licensing
All individuals involved in the professional corporation must hold the proper licenses to practice their respective professions. It is essential to ensure that all necessary licenses are obtained and maintained throughout the operation of the professional corporation.
3. Certificate of Incorporation
To start the process, you must file Articles of Incorporation with the Maryland State Department of Assessments and Taxation. This document includes basic information about the corporation, such as the proposed name, the purpose of the corporation, and the registered agent's contact information.
Additionally, the Articles of Incorporation should include a statement indicating that the corporation is established as a professional corporation under Maryland law.
4. Name Reservation
You have the option to reserve your desired corporation name for up to 60 days prior to filing the Articles of Incorporation. This step ensures that another entity does not claim the name during the application process. You can reserve the corporation's name by filing an Application for Reservation or Renewal of Name with the Maryland State Department of Assessments and Taxation.
5. Bylaws and Shareholders Agreement
Every professional corporation should have written bylaws that outline how the corporation will be managed. Bylaws typically cover items like the roles and responsibilities of shareholders, the company's purpose, voting procedures, and other governance matters.
Additionally, it is recommended to have a shareholders agreement to establish rules on share ownership, transfers, rights, and responsibilities. This document provides clarity and protects the interests of the shareholders.
6. Compliance with Professional Regulations
Each profession has its own set of regulations and requirements imposed by the professional licensing board. It is crucial to ensure that the professional corporation complies with all applicable regulations, including those related to advertising, professional ethics, supervision, and continuing education.
7. Separate Bank Account and Financial Statements
To maintain the integrity of the professional corporation, it is essential to keep separate bank accounts for the corporation's funds. This segregation helps demonstrate the entity's separate legal and financial existence. Also, professional corporations should maintain accurate financial records and prepare regular financial statements as required by law.
Benefits of Forming a Professional Corporation in Maryland
There are several advantages to forming a professional corporation in Maryland:
1. Limited Liability: The main benefit of a professional corporation is that shareholders are generally protected from personal liability for professional negligence or malpractice claims against the Corporation. Personal assets are shielded from the financial risks of corporate liabilities.
2. Business Continuity: Professional corporations offer continuity by allowing professionals to bring in new shareholders/employees without significantly affecting the corporation's structure. Even if a shareholder retires or leaves, the corporation can continue its operations.
3. Tax Flexibility: Professional corporations can elect to be treated as an S Corporation, which allows the business's profits and losses to flow through to the shareholders' individual tax returns. This can lead to potential tax savings compared to other business structures.
4. Enhanced Credibility: Operating through a professional corporation can enhance credibility and professionalism in the eyes of potential clients and business partners.
Conclusion
Forming a professional corporation in Maryland can be an excellent choice for professionals looking to protect their personal assets, establish credibility, and ensure business continuity. However, the process involves several essential steps and compliance with various regulations.
It is vital to consult with an attorney or a qualified professional to guide you through the process and ensure full compliance with Maryland state laws and regulations. By following the necessary requirements and seeking professional advice, you can properly form a professional corporation in Maryland and fully leverage the benefits it offers in the year 2023 and beyond.
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