Starting a limited liability company in Michigan involves 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 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.
Quick Summary:
- To start an LLC in Michigan, follow the steps and submit all documents required by state laws.
- After registering your limited liability company, avail of an Employer Identification Number (EIN), open and fund a business bank account.
- To remain in compliance with the state, file annual reports and pay your yearly franchise taxes once the LLC is operating.
How To Start Your LLC in Michigan?
To start 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.
Step 1: Name Your Michigan LLC
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 your LLC:
- The name of the LLC must be distinguishable from 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 [1].
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. This will commit your brand to memory much easier.
- 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.
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Step 2: Find Yourself a Registered Agent
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.
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Step 3: File Articles of Organization
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
- Address
- Members
- 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 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.
Step 4: Draft a Michigan LLC Operating Agreement
The next step is drafting an operating agreement for your company according to Michigan law.
An LLC operating agreement is a written record of the internal rules and regulations that govern it.
The LLC 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 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/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.
Operating agreements help establish the rights and responsibilities of all LLC members.
Step 5: Fulfill Michigan LLC Employer Obligations
When you form your Michigan LLC, there are state and local taxes that come with it. The state tax is called the Business Tax, and it’s due annually on July 31st of each year.
You must withhold this for any employees who work in Michigan so they can pay their own state income taxes at the end of the year.
Then there’s also withholding federal income taxes, which means all LLC employers need to fill out Form W-11 for new hires within 20 days after they’re hired.
Also, remember that owners of an LLC aren’t considered employees, but every owner needs to report self-employment earnings on Schedule SE (Form 1040) of their individual tax return if net earnings from self-employment were $400 or more during the first two quarters.
The state and federal governments don’t really want unincorporated businesses to withhold state and local income taxes, but they do require it for LLCs who have employees in Michigan.
This means that owners need to know whether or not their LLC is classified as having one member or two members since this determines what tax forms an employer needs to fill out.
Next Steps After Your Michigan LLC Is Formed
Once you are done forming your Michigan LLC, you will need to obtain an EIN, open a business bank account and acquire licenses and permits before you can start doing business in the state.
1. Get an Employer Identification Number (EIN)
You need a federal employer identification number (EIN) to hire employees. An EIN is like a social security number for your business, and it’s used to identify the company by federal agencies such as the IRS.
The federal government automatically gives all LLCs an EIN just by filing formation documents with the state agency.
Once you have EIN, you can begin using it to file federal tax returns.
You can use 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.
2. Open an LLC Business Bank Account
You need to open a business bank account for your LLC. A dedicated LLC bank account is a must-have if you are 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.
3. Fund Your New Bank Account
Now that you have an account for business expenses, it’s time to fund it.
One option to fund your LLC is to use your personal bank account. You can do this by making the LLC a co-signer on your checking or savings account.
It depends on how much money you want to put in there for the expenses.
The other way is to set up an automatic transfer from another of your accounts into the new LLC banking account you just opened.
4. Obtain the Necessary Licenses that Apply to Your Company
You will need to register your company with the Michigan Department of Licensing and Regulatory Affairs or LARA for short.
In order to register with the Michigan Department of Licensing and Regulatory Affairs, you must have a Social Security number.
You should have one already, so that shouldn’t be a big problem for you. You should provide a Social Security number for every partner in your Michigan LLC.
Michigan Department of Licensing and Regulatory Affairs Corporations, Securities & Commercial Licensing Bureau (CSCL) supports transparent regulations and business growth, and they’re the ones that will be handling your Michigan LLC licensing.
Michigan business licenses are available even to people who don’t live in the state and want to open a foreign LLC, but you still have to register with the Michigan Department of Licensing and Regulatory Affairs.
File Michigan State Reports
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.
Paying Michigan LLC Taxes
LLCs in Michigan need to pay taxes. The LLC is taxed as a sole proprietorship if there is one owner or as a partnership if it has two or more owners.
The business must file Form 8832 to choose how it wants to be taxed for federal income tax purposes – single-member, multi-member, C-Corp or S-Corp.
Besides paying federal and state taxes, owners of Michigan LLCs might have to collect a sales tax as well and deliver it to the required parties.
A sales tax license is required for retailers, wholesalers, contractors, services, and out-of-state businesses.
The members of an LLC are not personally responsible for its debts, but they may be required to file an informational tax return (Michigan Form 4065) for tax purposes. It is similar to the federal form but simpler.
If you are using a professional limited liability company service, they should help with filing your Michigan LLC taxes every year.
Register with the Michigan Department of Licensing and Regulatory Affairs (LARA) “Michigan Business Tax Act” online or by mail. You must also register with the federal government to pay federal taxes or to pay self-employment taxes.
Maintain Your New Michigan LLC
Your limited liability company is all set up, but how do you keep it running?
The best way to maintain your Michigan LLC is by taking out loans. If the company takes in revenue, then they can repay their debts and likely come back stronger than ever.
You are not personally liable for these debts due to how an LLC works.
What Is a Limited Liability Company?
A limited liability company or LLC is a limited business structure incorporated in one of the states in the US.
The main benefit of forming an LLC is limited liability, which means if something goes wrong or you get sued, then only your company assets will be at risk and not your personal property.
This would also apply to any partners/owners, so they won’t lose any of their personal assets.
You need to meet several requirements before forming an LLC, so it is important you research all the necessary steps first and try not to skip any if possible because this can delay your application process.
What Are the Benefits of Forming an LLC in Michigan?
The benefits of forming an LLC in Michigan include:
- Minimal reporting requirements. One of the main reasons people form an LLC in Michigan is that there are very few reporting requirements to meet. You can avoid most of the requirements by forming your LLC as a single-member entity.
- A limited liability company is a pass-through entity. The business itself is not subject to taxation, as such, the members are required to pay taxes on their individual returns.
- Personal liability protection for members and managers. Members and managers of a Michigan LLC are not personally liable for the debts and obligations of the business. Personal asset protection is a crucial aspect of an LLC.
- Greater privacy than in a corporation. By forming an LLC in Michigan, members can avoid some of the formalities required by corporations, making it easier to maintain privacy.
FAQs
Does an LLC Have to Have “LLC” in the Name in Michigan?
An LLC has to have “LLC” in the name in Michigan. This is to differentiate it from other business entities like corporations.
How Much Does It Cost to Start an LLC in Michigan?
It costs $50 to start an LLC in Michigan, which covers the articles of organization. A $25 annual report fee is paid once a year to keep the business entity active.
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.
Starting an LLC in Michigan
Starting an LLC in Michigan can be accomplished by following the steps outlined above.
If you need assistance, there are many lawyers and incorporators services like ZenBusiness that specialize in starting LLCs in Michigan.
They can help you register your business the legal way and get you the business insurance you need to keep doing business safely.
Now is the time to get your business license. Start forming your Michigan LLC today.
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ZenBusiness
References:
- https://www.michigan.gov/lara/bureau-list/cscl/corps/limited-liability-co/filing/naming-a-limited-liability-company
