How to Start an LLC in Michigan
The varied landscapes and climates throughout Michigan are reflected in its economy, which includes everything from General Motors to Detroit in tiny shops along its many lakes. However, over 99% of the businesses in Michigan are small businesses, which means that entrepreneurship is the backbone of the Mitten State. Many of these businesses will be structured as LLCs, or limited liability companies, a popular structure that sits between a sole proprietorship and a corporation.
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The governing body of Michigan’s businesses is the Corporations Division of the Michigan Department of Licensing and Regulatory Affairs. This will be the central agency you communicate with when starting an LLC, though you need to take a variety of requirements into consideration.
If you are forming an LLC in Michigan, read this step-by-step guide to understand everything required of you during the process.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
Some people will have a solid name as a part of their business plan or vision, while others will struggle to choose the right name. It is an important piece of branding- a name should convey practical information about your business while creating a strong feeling as well. But this is not just a creative endeavor, since names are regulated as a part of the LLC formation process.
Michigan naming requirements
Within Michigan, no two businesses can share the same name or have names that are so similar they are not distinguishable from one another. The Michigan Business Entity Name Search allows you to conduct a name search to see if a name is available to use. Keep in mind that this rule only applies to Michigan, so the name can be taken in another state and is still available for your use. Still, name availability can prove challenging.
Michigan law says an LLC’s name must also include a designator for the business structure. This can be the phrase “limited liability company” or an abbreviation like “LLC,” “L.L.C.”, “LC” or “L.C.” No words in the name can suggest that the business is a corporation.
Additional rules ensure that the business’s name is accurate and does not imply it is unlawful, a government organization, or in a business that it is not.
Name reservation in Michigan
Filing to form an LLC is the primary way of claiming your name and ensuring that no other business will be able to use it. But if you are not ready to take that step, Michigan allows for a name to be reserved for six months. This is done by completing an Application of Reservation of Name and paying a $25 fee.
Naming best practices
Outside of the legal requirements for your name, you will want to think about the branding of your business as well. Because most clients will find you online, the best way to do this is to see what happens when you type the name into a search engine. You can look for businesses that may be competition, as well as learn if your domain name and usernames are available.
You can reserve a business name in Michigan for 180 days.
Select a registered agent
Your Michigan LLC needs to name a resident agent as a part of the formation process. A resident agent, or a registered agent as it is called in many states, is an individual or entity that receives legal documents (like service of process) and official government correspondence on behalf of the business. This can include tax notices, legal information, or even notice of lawsuits and services of process.
Individual resident agents
Any Michigan resident who is over 18 years old and has a street address (not a P.O. box) in Michigan can serve as a resident agent. This means you can be your own business’s registered agent, use an employee, or appoint any person you trust for the role. Using an individual agent comes at no cost and can be convenient, but remember that the agent needs to be available during all regular business hours.
Resident agent services
To avoid the availability requirements, and even to prevent an embarrassing situation like being served with a lawsuit in front of clients, some businesses will use a resident agent. Any company doing business as an LLC in the state of Michigan can serve as your resident agent, and there are dedicated resident agent services, like ZenBusiness, that act on your behalf for an annual fee. Using a service can ensure all documents are received and passed along in a compliant manner. The companies also perform other formation services too.
File Articles of Organization
The official step necessary to form your Michigan LLC is to file the Articles of Organization with Michigan. This is done by completing the form and submitting it via mail, phone, or in person at the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities, and Commercial Licensing Bureau, Corporations Division, not the Secretary of State as you would in other states.
When filling out the Articles of Organization, you will need to provide the following information:
- The legal name you have chosen
- The LLC’s business purpose and type of business
- Duration of the LLC, if it is not perpetual
- Resident agent’s name and mailing address
- Any additional provisions you would like to include
- Name and signatures of each organizer
- The effective date of the LLC
The Articles of Organization will last for the life of your LLC, though you can amend it if information changes. Michigan will keep a version on record at all times so that they can reference it as needed.
You can fill out and submit your LLC formation documents here.
When submitting your Articles of Organization, there is a $50 filing fee due that is payable to the Michigan Department of Licensing and Regulatory Affairs.
Michigan processing time
If you file online, Articles of Organization can be approved in 24 hours. Mail filings can take 3 to 5 business days, though this can be expedited for an additional fee.
Create an LLC operating agreement
There is no requirement for an LLC in Michigan to complete any guiding documents like an operating agreement, so this step can be considered optional. However, an operating agreement is typically simple to draft using online templates and is extremely beneficial to every business.
The goal of an operating agreement is to outline the ownership and operating procedures of an LLC so that they cannot be refuted at a later date. You can choose what exactly to include, but typical provisions will be:
- Financial interest of each member, including their ownership shares, profit and loss allocation, compensation, and capital contribution.
- Corporate governance outline, including who manages the business and how decisions are made.
- What happens if a member chooses to leave the company, goes bankrupt, dies, or otherwise cannot continue their role in the LLC.
- The process for bringing a new member into the business.
- How votes will be conducted, who can vote and what their vote weight is, and whether votes must be unanimous or a majority.
- What the management structure is, be it manager-managed, member-managed, or a single-member LLC.
- A plan for the event that the business is dissolved.
If there are ever any questions about these topics, the operating agreement can help resolve them easily. Without such an agreement in place, the state will use its default rules, regardless of whether they are the best thing for your business.
The operating agreement should be signed by all members and kept on record somewhere safe. It does not need to be submitted to any Michigan agency.
Officially forming your LLC is the first and biggest step in starting a business, but it is not the only thing you are responsible for as a business owner. A series of other tasks need to be completed when you begin, as well as some on an ongoing basis.
Get your EIN
Having an Employer Identification Number (EIN) is one of the first things you can do to make your life as a business owner simpler. This nine-digit tax identifier is issued by the Internal Revenue Service in order to better track tax filings from businesses, in the same way, they use your personal Social Security Number for your own taxes.
Businesses with no employees and no excise taxes are not required to have an EIN, though all other businesses are. However, the number is easy and free, so it is beneficial to have one even if it is not necessary.
It is common to be asked for a tax ID on paperwork. Sometimes, you could use your personal SSN, though this is a security risk for your personal information. But in some instances, like when you are applying for bank accounts, an EIN might be required.
You can get your EIN by visiting the IRS website.
Get Michigan business licenses
It is critical to have the proper licensing for your business before you can engage in any transactions. Improper licensing can lead to a business being shut down and even legal issues, so you should thoroughly research the licensing you need at the federal, state, and local levels.
Federal licensing is only necessary for a handful of industries that are regulated by the United States government, like agriculture and fishing.
Michigan state business licensing
There is no general business license required at the state level in Michigan. However, the sales tax license is required statewide for any business that intends to sell or lease tangible personal property that is subject to sales tax. This license, also known as a seller’s permit, can be obtained through the Michigan Treasury Online website for no cost.
Some professions will need to obtain licensing related to their field as well. This is managed through the Bureau of Professional Licensing, which offers a search tool for new businesses.
Local Michigan business licenses
Cities and counties in Michigan can also set their own requirements for licensing businesses located in their jurisdiction. Depending on where your LLC operates, you may need to obtain local licensing to meet state laws and regulations. The best way to determine this is to contact local government offices to gather information.
Open business bank accounts
When you and your business are the same legal entity, it is simple to use your personal bank account for all income and expenses. But because an LLC is a separate entity designed to shield your assets, it’s important to have a separate bank account for the LLC.
This is true for practical reasons, like making accounting simpler, but more importantly to protect your assets. If you are found to be mingling personal and business finances, it could be determined that you violated the terms of an LLC and your personal assets can become fair game again. This is known as piercing the corporate veil and can be a major financial blow.
A business checking account is enough to avoid this issue. You can also choose to have credit cards and savings accounts in your business’s name.
Review LLC tax rules in Michigan
One of the defining features of an LLC is its tax treatment and status as a pass-through entity. This means that for tax purposes, the LLC itself is not taxed, but profits and losses are passed through and onto the members, who claim them on personal tax returns. Under this default arrangement, there is no income tax paid by the LLC itself and Michigan does not impose any additional taxes like a franchise tax.
State taxes and federal taxes are paid by the owner via their personal tax returns too.
LLC owners can choose to have their business treated like a corporation for tax purposes if they’d like. In this instance, they will need to file separate tax returns and pay Michigan’s 6% corporate income tax rate.
No matter how they are taxed, all LLCs and startups in Michigan need to file an annual statement (sometimes called a Statement of Information) by February 15th of each year. If an LLC is formed after September 30th, they do not need to file in the next year.
A pre-printed annual statement is sent to your resident agent about three months before the due date each year. You can either use that form or subsequently file online, along with the $25 filing fee. Filing this document keeps your business in good standing.
Get insurance for your LLC
Michigan requires that any business with one or more employees, including LLC members, must have workers’ compensation insurance in place. This coverage is designed to protect employees and offer compensation if they are injured or made ill by their work.
There is no insurance required to protect your business’s assets, but it is wise to have at least basic coverage in place. Most LLCs will be able to use simple general liability insurance, which is used for lawsuits. Another option is professional liability insurance, which is mostly used by professional services where malpractice or business error could be a concern.
Additional resources to help you set up a business in Michigan
As a part of the state’s effort to support small businesses, Michigan offers a number of resources to make the process of starting an LLC easier. Some resources on the state website include:
- Free small business consulting through the Michigan Small Business Development Center
- User manual for the online filing system
- Contact forms for the Corporation Division if any further help is needed
Do I need a domestic or foreign LLC in Michigan?
If entrepreneurs are conducting business in Michigan and your LLC is formed there, this is considered a domestic LLC. Most of the time when someone says something is an LLC, this is what they mean. You can also have a foreign LLC, which is when an existing LLC formed elsewhere chooses to expand to Michigan.
Do I need a state EIN in Michigan?
The IRS issues EINs to businesses, so they are always done at the federal level. However, Michigan also issues an entity ID number that serves a similar purpose. This number will be used to access things like your annual statement, as well as tax returns and other state-regulated activities.
What taxes does an LLC pay in Michigan?
Most LLCs will not pay additional taxes in Michigan, as profits and losses are reflected on the owners’ personal tax returns. However, if your LLC has employees, it will still have to pay Unemployment Tax Insurance and Employee Withholding tax, as well as sales tax that all businesses must pay.
How much does it cost to start an LLC in Michigan?
The fee to file Articles of Organization in Michigan is $50, which is the main thing needed to form an LLC. There are additional state fees to obtain business licenses, and there are optional costs like registered agent services and expedition of filing fees. The exact cost will depend on your business and how you choose to start it.
When is Michigan’s annual report due for LLCs?
The annual statement, which is Michigan’s version of the annual report, must be completed each year for all LLCs. The due date is February 15th for all businesses, except those that were formed after September 30th of the previous year. Those businesses will not have to submit an annual statement until the year following the first February 15th after filing.
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