How to Start an LLC in Michigan? (Step by Step Guide)
Starting a limited liability company in Michigan is a straightforward process. There are specific guidelines you have to follow and comply with for the state to approve your business.
Since I’ve been in the business formation industry for over a decade, I’ll provide you with a step-by-step guide, so you can open your own company in the state.
After consulting LLC experts in Michigan, I gathered all pertinent information to keep you updated with state formation laws.
Furthermore, you may want to consider employing one of these Michigan professional LLC services to initiate an LLC for you.
- Starting an LLC in Michigan involves selecting a business name, appointing a registered agent, and filing the Articles of Organization.
- Subsequent steps include drafting an operating agreement, obtaining an EIN, setting up a business bank account, and acquiring necessary licenses.
- In the first month of 2024 alone, Michigan saw the formation of 11,446 new LLCs, as per Licensing and Regulatory Affairs stats, indicating a robust interest in the LLC structure within the state.
- Personally, I believe the robust surge in LLC formations and the substantial small business workforce underscore Michigan's vibrant entrepreneurial ecosystem and the LLC's appeal for providing flexibility and protection.
How to Form an LLC in Michigan?
To form your LLC in Michigan, and before you acquire an LLC license, you should choose an available business name, hire a registered agent, file Articles of Organization, create an operating agreement and fulfill employer obligations.
In just January 2024, Michigan experienced a significant surge in business formation, with Licensing and Regulatory Affairs reporting the establishment of 11,446 new LLCs .
This surge reflects the growing trend of entrepreneurs and businesses choosing the LLC structure for its flexibility and protection.
1. Choose the Type of Your LLC (Mandatory)
When forming an LLC in Michigan, selecting the right structure is crucial, as it impacts management, taxation, and legal responsibilities. The primary types include:
- Single-Member LLC: Ideal for solo entrepreneurs, offering personal asset protection and simpler operations. However, it may have limited growth potential and less appeal to investors.
- Multi-Member LLC: Suitable for partnerships, facilitating shared management and growth opportunities. Challenges include potential internal conflicts and the need for complex operating agreements.
- Professional LLC: Designed for licensed professionals, it provides liability protection while adhering to professional standards. However, it requires strict compliance with both business and professional regulations.
- Series LLC: Allows asset and liability segregation within a single LLC, beneficial for businesses with diverse asset groups but administratively complex and potentially confusing for creditors and courts.
Each structure has distinct advantages and challenges. As a seasoned business consultant, I recommend carefully evaluating your business objectives and operational needs to determine the most suitable LLC structure for your venture in Michigan.
2. Choose a Name for Your LLC (Mandatory)
There are many different elements that go into naming your LLC, such as branding factors.
You need to keep the name short and memorable while creating something unique to stand out from the competition.
Naming a Michigan LLC is no different than naming any other business entity; it’s just another business with products and services you provide for customers.
Keep in mind that you can change your Michigan LLC name at any time if you want.
The state requires businesses to follow certain guidelines when naming their LLCs:
- The name of the LLC must be distinguishable from that of other business entities.
- The name of your limited liability company should be followed by the abbreviation “LLC” or “L.L.C”
- You may not use the words “Corporation,” “Incorporation,” “Inc” or “Corp”.
- The business name should not include government-related terms, such as “Treasury,” “FBI” or “Federal”.
- The use of professional services requires declaration and licensing, as stated in the Licensing and Regulatory Affairs .
While there isn’t anything specific in terms of rules governing what makes a good business name (other than trademarks), we do have some suggestions on how to choose one:
- Keep it Short & Simple - Names should typically be four words long at most, while avoiding abbreviations since they tend to make them harder to remember.
- Avoid Trademark Issues - Make sure the name you choose isn’t already registered by another business or service in your respective industry, if possible. You don’t want to be caught off guard with legal issues later down the road because of such an oversight, so it is recommended that you run a quick search on Google for your desired business name before opting to use it.
- Find What Works Best For Your Business - The point behind naming conventions is not just about avoiding trademark infringement. They can also provide insight into what kind of business entity may work best for you, depending on how similar your chosen LLC is to other professional limited liability companies out there.
3. Select a Registered Agent (Mandatory)
A registered agent (or a resident agent) is essentially an individual or business entity registered with the Secretary of State to receive important legal documents on behalf of the LLC.
A registered agent in Michigan can be especially useful if you are not able to accept these legal papers yourself.
The state of Michigan requires you to have a resident agent, and you can search online for registered agent services in your area.
A resident agent in Michigan must be registered with the Office of the Michigan Secretary of State and be a resident of the state.
4. File Articles of Organization (Mandatory)
One of the crucial steps in forming your LLC is filing articles of organization with the Michigan Corporations Division.
This is usually done via the Michigan Department of Licensing and Regulatory Affairs Corporations Division online service, but you can also file by mail.
Michigan LLC articles of organization must include the following:
- Business name
- Registered agent’s name & address
- Registration number
- Business tenure
To file articles of organization, you’ll need:
- An active email address.
- A valid credit or debit card is required for payment processing.
It’s free to file Michigan articles of organization if your business name does not require a filing fee. If it does, there will be a small filing fee attached.
LARA will examine your LLC articles to make sure they are complete and accurate.
If your filing is incomplete, you will receive a letter from the Department noting what additional information about your Michigan articles needs to be provided before processing can continue.
If you file online, LARA will email you when your submission has been accepted or rejected due to errors. Regardless of how you file your articles, expect to pay a filing fee of $50.
Here is further information on how much a Michigan LLC will cost.
Steps to Take After Forming an LLC in Michigan
Once you are done forming your Michigan LLC, you will need to draft an operating agreement, obtain an EIN, open a business bank account, and acquire licenses and permits before you can start doing business in the state.
5. Create an LLC Operating Agreement (Optional, but Recommended)
An operating agreement should include all necessary information regarding how the LLC will be governed so there are no misunderstandings later on among its members or between any outside parties involved with it.
An LLC operating agreement is a written record of the internal rules and regulations that govern it.
An operating agreement helps keep everything organized within your small business. It also defines:
- How the LLC is managed
- Member voting rights
- Percentage of ownership for each member
- Distribution of profits and dividends to members
- Procedures for dissolving the LLC
- Manager elections.
Every member of the LLC must sign the operating agreement.
One of the provisions of an operating agreement is that all members of an LLC are required to vote on changes made to its articles or bylaws unless the changes are minor enough that they do not require a vote.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
Obtaining an EIN is a crucial step for Michigan LLCs, especially if they plan to hire employees or open a business bank account. Even single-member LLCs, often treated as sole proprietorships, benefit from an EIN.
The federal government automatically gives all LLCs an EIN just by filing formation documents with the state agency.
Once you have an EIN, you can begin using it to file federal tax returns.
You can use an EIN with the IRS when you want to open a business bank account for your LLC and apply for federal grants or loans.
Even if you plan on hiring only independent contractors (and not employees), you should still get an EIN for future use.
7. Open an LLC Bank Account (Optional, but Recommended)
You need to open a business bank account for your LLC. A dedicated LLC bank account is a must-have if you want to have a clear separation of business finances and personal assets.
If possible, you should try opening an online business checking account because it’s typically the cheapest option and offers convenient features such as check writing, ACH transfers, direct deposit, etc.
In addition to this, many banks also offer free checks that you can use to cover the initial deposit.
However, if you are unable to open an online business checking account for whatever reason, then you can go ahead and get a regular personal bank account instead.
Just make sure the name of your LLC is listed as one of the owners on this account so that it becomes eligible for business expenses.
8. File Your Michigan LLC Annual Report (Mandatory)
LLC owners in Michigan are required to file annual state reports with the Secretary of State. The annual statement is due within six months after the end of your LLC’s fiscal year.
This LLC annual report in Michigan includes information about how many members and managers your LLC has, any changes in management or contact info for the company, as well as changes regarding the registered agent and registered office.
You can file this statement online on the Secretary of State’s website using their e-filing system.
Note that if your LLC is ran by managers, you must list all manager names and addresses, as well as your registered agent contact information.
9. Obtain Business Licenses and Permits
In Michigan, obtaining the correct business licenses and permits is a vital step in legitimizing your venture. The specific requirements vary based on your business type, location, and industry regulations. Here are some common examples:
- General Business License: Issued by the city or county where your business operates. For instance, Detroit requires a business license for most businesses operating within city limits.
- Professional Licenses: Certain professions need state-specific licenses. For example, accountants, architects, and barbers must obtain licenses from their respective Michigan state boards.
- Sales Tax License: If you're selling goods or certain services, you'll need to apply for a Sales Tax License through the Michigan Department of Treasury.
- Environmental Permits: Businesses that could impact the environment, like manufacturing plants, must obtain permits from the Michigan Department of Environmental Quality.
- Building and Zoning Permits: Required if you plan to construct a new building or alter an existing one, especially in urban areas like Grand Rapids or Lansing.
- Health Department Permits: Necessary for businesses involved in food preparation or handling, regulated by the Michigan Department of Agriculture & Rural Development.
- Special State-Issued Business Licenses: For specific business activities like liquor sales, lottery ticket sales, or operating a fishing charter, you must obtain appropriate licenses from the state of Michigan.
"If your enterprise engages in taxable transactions within Michigan, it is mandated to obtain a Sales Tax License from the Michigan Department of Treasury, enabling the collection and remittance of sales tax to the state on its behalf."
-Jon Morgan, Co-Founder & Chief Editor of Venture Smarter
It's essential to conduct thorough research or consult with a local business advisor to ensure compliance with all relevant Michigan laws and regulations. Failure to obtain the necessary licenses and permits can result in fines or business closure.
10. Choosing Your Tax Structure
Selecting the right tax structure for your Michigan LLC is vital for financial efficiency and legal compliance. Typically, an LLC can be taxed as a disregarded entity (like a sole proprietorship), a partnership, or elect to be taxed as a corporation (S-Corp or C-Corp).
- Disregarded Entity/Partnership: Offers pass-through taxation, avoiding corporate taxes. Ideal for small businesses, but members pay self-employment taxes on profits.
- S-Corporation: Avoids double taxation on dividends and reduces self-employment taxes. However, it faces stricter IRS regulations and shareholder limitations.
- C-Corporation: Suitable for larger businesses, allowing for reinvestment and easier capital raising. But, it incurs double taxation (corporate and personal dividends).
Based on my experience, many small to mid-sized LLCs benefit from S-Corp taxation due to tax savings. Changing your tax structure requires filing IRS Form 8832 or 2553, ideally before the tax year begins or within 2.5 months after the start of the tax year, to be effective for that year.
Always consult a tax professional to align your choice with your business goals and financial situation.
Benefits and Drawbacks of an LLC in Michigan
- Personal Asset Protection: Like other states, Michigan LLCs provide a shield for personal assets against business liabilities and debts.
- Flexibility in Taxation: LLCs can choose how they are taxed, potentially reducing the tax burden.
- Minimal Compliance Requirements: Compared to corporations, Michigan LLCs face fewer annual requirements and formalities, such as no mandatory annual meetings.
- Access to Business Incentives: Michigan offers various incentives for businesses, including grants, loans, and tax credits, especially for businesses in revitalization areas or certain industries.
The state of Michigan is home to 1.9 million small business employees, who constitute 47.9% of the state's workforce, according to the U.S. Small Business Administration, showcasing the critical role of small businesses in Michigan's economy .
This statistic highlights the importance of small businesses to the state's economic health and the potential benefits of forming an LLC to support these vital entities.
- Self-Employment Tax: LLC earnings are subject to self-employment taxes, which can be higher than corporate tax rates.
- Limited Growth Potential: For businesses looking to go public or raise significant venture capital, the LLC structure might be limiting.
- Variable State Fees: Michigan's LLC formation and annual fees are modest, but they can vary depending on the specifics of your business.
- Regional Variances: Depending on the location within Michigan, businesses may face different local regulations and economic climates, which can be a challenge for uniform business expansion.
DIY vs. Professional LLC Formation
When forming an LLC, you have two primary options: Do-It-Yourself (DIY) or hire a professional service. Understanding the pros and cons of each can help you make an informed decision based on your specific needs.
DIY LLC Formation
- Cost-Effective: Typically less expensive as you're not paying for professional services.
- Direct Control: Complete control over the formation process, allowing for a deeper understanding of your business's legal structure.
- Learning Experience: Provides valuable insights into the legal aspects of running a business.
- Time-Consuming: Requires significant time to research and understand state-specific regulations.
- Risk of Errors: Without legal expertise, there's a higher risk of mistakes in filing or compliance, which can lead to future legal or financial issues.
- Limited Legal Guidance: Lack of professional advice might lead to missing out on beneficial structures or tax options.
Professional LLC Formation
- Expertise and Experience: Professionals are well-versed in state laws and can navigate complex legal waters efficiently.
- Time-Saving: Frees up your time to focus on other aspects of your business.
- Compliance and Peace of Mind: Ensures all legalities are correctly handled, reducing the risk of future legal problems.
- Cost: More expensive than the DIY route, which might be a significant factor for startups with limited budgets.
- Less Hands-On Experience: You may miss out on learning the intricacies of the formation process.
- Generic Solutions: Some services may offer a one-size-fits-all approach, lacking customization for your specific business needs.
The choice between DIY and professional LLC formation depends on individual requirements and circumstances.
Can a Non-Resident Form an LLC in Michigan?
Yes, a non-resident can form an LLC in Michigan. There are no residency or citizenship requirements for the owners (members) of an LLC in the state. However, the LLC must have a registered agent with a physical address in Michigan for legal correspondence.
Can I Operate Multiple Businesses Under One LLC in Michigan?
Yes, you can operate multiple businesses under one LLC in Michigan. However, keep in mind that this means all businesses will be legally and financially linked under the same entity, sharing liabilities and assets
How Long Does It Take to Get an LLC in Michigan?
It takes at least 2 weeks to get an LLC in Michigan, and 4 weeks if you file your articles of organization by mail.