Many people think that forming an LLC in Michigan is difficult. However, it is not as hard as most people have come to believe.
This article will describe how to form an LLC step-by-step so you can open your own company.
There are different types of companies that you can form in Michigan: general partnerships, limited liability companies (LLCs), and corporations.
An LLC has the least amount of regulations and requirements for filing articles of organization, so it may be best for you if you’re just starting out.
If this sounds like what you want to do, keep reading about forming an LLC in Michigan.
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 that you own.
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 of the necessary steps first and try not to skip any if possible because this can delay your application process.
Forming an LLC in Michigan is Easy
It takes very little effort to form a Michigan LLC — anyone can do it. First, you need to research the necessary steps that need to be taken first before applying for your LLC license. After that, you should have no problems establishing one.
Once you know what the steps are, the process is pretty straightforward, and there are usually no complications that come along with it.
In fact, people can have their own Michigan LLCs up and running in as little as a day or two if they do everything properly from start to finish.
People who form an LLC don’t need any prior experience either because all you really need to know about the process can be found online. All you need is a physical street address in Michigan, i.e., a registered office address.
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.
- 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.
Steps to Forming Your Michigan LLC
Step 1: Register Your Company with LARA
You will need to register your company with the Michigan Department of Licensing and Regulatory Affairs or LARA for short.
That is the first step you will need to take in the formation of your LLC.
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.
Step 2: Name Your Michigan LLC
Picking out a name for your LLC can be a difficult and confusing task. There are many different elements that go into naming your business, 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.
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.
Step 3: 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 another.
A registered agent can be especially useful if you are not able to physically accept these forms yourself.
If you can’t get your LLC forms yourself, then you’re in need of a Michigan resident agent. However, even if you can, the state of Michigan still requires you to have a resident agent, and the same goes for any foreign LLC.
Even though a registered agent does cost money (generally around $35 a year), they are extremely easy to find, and you can search online for registered agent services in your area.
Some registered agents will even offer registered agent service, which saves their clients the trouble of having to hire another registered agent if they move or change addresses.
A registered agent service will save you a lot of trouble down the line.
A resident agent in Michigan must be registered with the Office of the Michigan Secretary of State and be a citizen of the state.
It’s highly advisable for you to find your own registered agent service that will help connect you with a resident agent when you need one.
Step 4: 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 your business name, address, county location(s), initial agent’s name & address, registration number, and the duration of the LLC (up to five years).
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.
Step 5: Formulate a Michigan LLC Operating Agreement
The next step is drafting an operating agreement for your company according to Michigan law.
An LLC’s “operating agreement” is a written record of the internal rules and regulations that govern it.
An LLC operating agreement includes each member’s capital contributions, management rights, voting power in business decisions, profit sharing percentages and distribution, etc.
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.
It may seem relatively unimportant now- just another piece of paper to sign- but this documentation can save you headaches down the line when things get tough (and they always do).
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, which makes them almost as important as having a business license.
Step 6: 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 31 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 take care of a couple more things before you can start doing business.
There are still a couple of important steps you need to take, such as obtaining an Employer Identification Number.
Get 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 with 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.
Open an LLC Business Bank Account
Next up, 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 overview of business finances and expenditures.
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.
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.
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 annual report 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 managed by managers, you must list all manager names and addresses in the annual report as well as a name and address for someone who lives in Michigan to accept legal papers for your LLC.
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.
Besides paying federal and state taxes, owners of Michigan LLCs might have to collect a sales tax as well. Members need to collect sales tax 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 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.
How Much Does It Cost to Form an LLC in Michigan?
The state of Michigan allows you to form an LLC for as little as $50. However, there are a number of additional costs that will likely need to be paid in order to complete the process fully.
How Long Does It Take for an LLC to Be Approved in Michigan?
It takes approximately 10-14 days for an LLC to be approved in Michigan.
How Do I Check if an LLC Name Is Available?
You can check if an LLC name is available by typing it into the business entity search on the Michigan Department of Licensing and Regulatory Affairs website.
Does an LLC Have to Have “LLC” in the Name in Michigan?
No, an LLC in Michigan does not need to have an “LLC” in its name.
However, if you do include it in the company’s name, make sure that your business is registered with the state; otherwise, people might take advantage of your lack of registration and steal trade secrets or open accounts under your business’ name without permission.
As you can see, it wasn’t difficult learning how to form an LLC in Michigan. All you need is a little patience and the willingness to learn how everything works, and soon enough, your business will be up and running.
Don’t forget that if you need assistance, there are many lawyers and incorporators 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.