In Maryland, you can establish a sole proprietorship without filing any legal documents with the Maryland state government. There are four simple steps you should take:
- Choose a business name.
- File an application to register a trade name with the Department of Assessments and Taxation.
- Obtain licenses, permits, and zoning clearance.
- Obtain an Employer Identification Number.
To find out how to establish a sole proprietorship in any other state, see Nolo’s 50-State Guide to Establishing a Sole Proprietorship.
1. Choose a Business Name
In Maryland, a sole proprietor may use his or her own given name or may use a trade name. If you plan to use a trade name, state law requires that the name be distinguishable from the name of another company currently on record. It is also a good idea to choose a name that is not too similar to another registered business because of common and federal law trademark protections. To make sure your business name is available, run a search in the following government databases:
- Maryland Department of Assessments and Taxation
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
2. File a Trade Name
If you use a business name that is different from your legal name, Maryland requires you to file an application for a trade name. This is a mandatory requirement in Maryland. To file your trade name you must fill out the application and submit it to the Maryland Department of Assessments and Taxation. The filing fee is $25.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain business licenses or professional licenses depending on its business activities. Maryland provides a comprehensive database of every profession and occupation that requires a license by any sole proprietorship. A business can obtain this information by going to the Maryland Business License Information System provided by the Maryland Department of Business and Economic Development. In addition, local regulations, including licenses, building permits, and zoning clearances, may apply to your business. You will need to check with your city and county governments for more information.
4. Obtain an Employer Identification Number
Sole proprietors who wish to have employees need to obtain an Employer Identification Number, or EIN. This is a nine-digit number issued by the IRS to keep track of businesses. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website.
Even though sole proprietors without employees are not required to have an EIN, you may want to obtain one anyway. Some banks require one to open a bank account and it can reduce the risk of identity theft.
In Maryland, businesses are required to report taxes and file various employee reports. You may need to use your EIN when registering your business to report taxes through the Maryland Comptroller of Treasury. If you have employees, you must report and pay employment taxes on a periodic basis. You will also be able to report and pay all employment related taxes by registering through the Maryland Comptroller of Treasury.
It is important to consider doing the following once you have established your sole proprietorship:
- Open a business bank account. Using your fictitious business name and EIN, you should set up a bank account to keep your business and personal finances separate.
- Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy may be the only form of financial protection against unforeseen events.
- Report and pay taxes. Depending on your specific business activities, you may be required to report such items as sales tax and use tax. You will need to register with the Maryland Comptroller of Treasury.