Incorporation Attorney in Annapolis, Maryland

C Corporation vs. S Corporation: Choosing the Right Tax Structure

All corporations formed in Maryland are C corporations by default. A C corporation is taxed as a separate entity, and shareholders also pay tax on dividends received, creating what’s commonly called double taxation. For many closely held businesses, that’s a significant consideration.

An S corporation is a federal tax election made through IRS Form 2553 that allows corporate income, losses, deductions, and credits to pass through to shareholders’ personal tax returns, avoiding the second layer of taxation. Maryland recognizes the federal S election for state income tax purposes, so the election is made with the IRS rather than with SDAT. The S election comes with eligibility restrictions, including limits on the number and type of shareholders.

Which Structure Fits Your Business?

C corporations are typically preferred by venture-backed startups and businesses seeking institutional investment. They can issue multiple classes of stock and carry no shareholder eligibility restrictions, which can make them more attractive to outside investors. S corporations tend to suit closely held and family-owned businesses that want pass-through taxation within a formal corporate structure. In both cases, shareholders generally benefit from limited liability protection, meaning personal assets aren’t directly exposed to corporate debts and liabilities, though that protection depends on maintaining proper corporate formalities.

The choice between C and S status carries long-term tax and structural implications. We can help you evaluate which election fits your ownership group, financing plans, and growth timeline before you file.

Corporate Bylaws & Shareholder Agreements

Bylaws and shareholder agreements serve distinct but complementary roles. Bylaws govern the corporation’s internal operations: board structure, officer roles, how meetings are run, and voting procedures. A shareholder agreement governs the relationship among individual shareholders and addresses issues the bylaws don’t reach.

A well-drafted shareholder agreement typically covers transfer restrictions such as right of first refusal and co-sale rights, buy-sell provisions triggered by death, disability, or a shareholder’s departure, voting arrangements, and dispute resolution mechanisms. In closely held corporations with a small ownership group, a shareholder agreement is one of the most important documents for helping prevent disputes from becoming litigation. Maryland courts will generally enforce shareholder agreements that are properly executed and consistent with the Maryland General Corporation Law.

Because our firm handles shareholder disputes, we understand the governance gaps that create them. We draft bylaws and shareholder agreements with that experience in view, building in provisions that clarify rights and obligations before a conflict arises.