Starting a Limited Liability Company (LLC) in Michigan can be an exciting journey for a business owner. From choosing a business name to grasping the costs and benefits involved this article will walk you through the process of forming an LLC in the Great Lakes State. Whether you're an experienced business owner or new to the entrepreneurial world, knowing how to navigate starting an LLC is crucial. When delving into the specifics of starting a business, remember that starting an LLC is about more than mere paperwork; it's about creating a successful business.
How to start an LLC in Michigan in 7 steps
01. Pick your business name
The first step in starting a business in Michigan as an LLC is to choose a name for your company. Your business name should be unique and not too similar to other names on record with the Michigan Secretary of State. Make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company" to meet state requirements. You should also consider your website and domain names by performing a domain name search if you plan to also focus on creating a website.
Tip: Consider using a business name generator to come up with a unique name.
02. Choose your registered agent
Every LLC in Michigan must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Michigan.
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03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in Michigan. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Check with local and state agencies to determine what permits you need.
Fill out all required paperwork accurately and submit them to the appropriate authorities.
Be prepared to pay any associated fees for obtaining your permits.
For example, if you want to start a dog walking business, you may need a business license from your local government, as well as liability insurance. You may also need permits or certifications if you plan to offer additional services such as pet grooming or training. It is important to research and comply with any regulations related to animal care in your area.
Learn more: How to get a business license
04. File Articles of Organization
Articles of Organization is a critical document that officially creates your LLC in Michigan. You'll file this with the Michigan Department of Licensing and Regulatory Affairs, either online or by mail, along with the required filing fee.
Filing involves these key actions:
Gather your business information: You'll need details like your LLC's name, registered agent information and management structure.
Fill out Form 700: This is the specific form used for filing an LLC's Articles of Organization in Michigan.
Submit and pay fees: Complete the submission process by paying the $50 fee to file an LLC.
05. Draft your LLC operating agreement
While not legally required in Michigan, creating an operating agreement is highly recommended for any LLC. This internal document outlines ownership percentages, profit distributions and management roles for your type of business.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is essentially a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes.
Securing an EIN means:
Applying online or via mail: The IRS provides free EIN registration through their website or via mail submission.
Understanding your business tax obligations: Learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Michigan for an LLC owner this means a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Michigan Comptroller's Office website.
07. Organize annual reports
To ensure you’re compliant with this make sure to legal requirement when starting and managing an LLC in Michigan:
Know due dates: Your Michigan Annual Report is required each year on February 15th.
Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
Submit and pay fees: Complete the submission process by paying the $25 filing fee.
How much does it cost to start an LLC in Michigan
When planning to start an LLC in Michigan, it's essential to budget for the various costs associated with the formation process. Here's a breakdown of the expenses you can expect:
Filing fee for Articles of Organization: The state of Michigan requires a fee to file your Articles of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $50.
Registered agent fee: If you choose to hire a professional registered agent service, you will need to pay for their services. Costs vary depending on the provider.
State business permits and licenses: The fees for necessary permits and licenses will differ based on your business type and location. Some industries may require multiple permits, each with its own cost.
Operating agreement preparation: If you decide to have a lawyer draft your operating agreement or if you purchase a template from a legal website, there will be associated costs.
Employer identification number (EIN): Obtaining an EIN from the IRS is free of charge, so there's no cost here unless you hire someone to complete the process for you.
Annual report filing fee: Michigan requires LLCs to file an annual report, which comes with a filing fee. This is an ongoing cost that must be paid yearly.
Who can start an LLC in Michigan
To form an LLC in Michigan, there are specific eligibility criteria that need to be met. It's crucial to understand who can start an LLC in the state before you begin the process.
You must be at least 18 years old to form an LLC in Michigan.
There is no residency requirement to start an LLC in Michigan. You don't have to live in the state or even in the United States to form an LLC here.
You must have the legal capacity to enter into a contract. This means you cannot be barred from doing so due to any legal reasons.
Certain professionals may need additional licenses or approvals before they can form an LLC for their practice. This is often the case for lawyers, doctors, and accountants.
Your LLC must be formed for a lawful business purpose. You cannot create an LLC for illegal activities.
Benefits of starting an LLC in Michigan
Forming an LLC in Michigan comes with several benefits that are appealing to business owners. These advantages include legal protections and tax breaks, making it a popular choice for enterprises.
Learn more: Benefits of an LLC
Limited personal liability
As an LLC owner, your personal assets are typically protected from business debts and lawsuits.
In short, LLCs have flexible tax options and protect owners from personal liability. Shylene D’Addario, VP and associate general counsel at LegalZoom
Tax flexibility
LLCs benefit from pass-through taxation, meaning the business itself isn't taxed. Instead, profits and losses pass through to your personal tax return.
Flexibility in management
Unlike corporations, LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Credibility
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can then choose an .llc domain for your website to reinforce this credibility.
Ease of formation
Compared to other business structures, forming an LLC in Michigan is relatively straightforward.
Potential disadvantages of starting an LLC in Michigan
When considering forming an LLC in Michigan, it's important to weigh the benefits and potential drawbacks. Understanding these will help you make an informed decision about whether an LLC is the right business structure for you.
Costs
There are initial formation fees and ongoing costs like annual report filing fees that you must pay to maintain your LLC.
Self-employment taxes
Members of an LLC are considered self-employed and must pay self-employment taxes on their share of the profits.
Limited growth potential
If you plan to take your company public or issue shares, an LLC might not be the best choice as it does not allow for stock issuance.
Transferability of ownership
Transferring ownership can be more complicated than with a corporation since operating agreements often need to be modified.
Why start an LLC over another business entity in Michigan?
Choosing the right business structure is crucial for all business owners. In Michigan, starting an LLC is often first choice due to its unique advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice for your venture.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages:
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
You've formed your LLC in Michigan, now what?
Once you've established your LLC in Michigan, the path to developing and expanding your business is just starting. To guarantee smooth operation and compliance with state laws, there are some important steps to follow after forming your LLC:
Open a business bank account
Keep your personal and business finances separate by opening a bank account solely for your LLC.
Obtain business insurance
Protect your LLC with the appropriate insurance policies. Common options include general liability insurance and professional liability insurance.
Comply with tax requirements
Stay on top of federal, state, and local tax requirements. This may include paying estimated taxes quarterly if you expect to owe tax of $1,000 or more when you file your return.
Understand employment laws
If you plan to hire employees, make sure you comply with employment laws regarding wages, benefits, and working conditions.
Additionally, focus on these areas to manage and grow your LLC:
Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
How to start an LLC in Michigan FAQ
How long does it take to form an LLC in Michigan?
The processing time can vary but typically, the state processes your LLC formation documents within a few business days, especially if filed online.