How to Start an LLC In Michigan
Are you thinking about starting an LLC in Michigan? Choice of Entity is one of the many steps you need to take when starting a new business. Choice of Entity, is lawyer speak for: "What is the legal structure of my entity." In Michigan, you have three options - Partnership, Corporation, Limited Liability Company, and Sole Proprietorship.
The type of entity you choose for formation is extremely important because It determines how you can raise capital, how much debt you can take and how it's allocated between the members or shareholders, how long you need to start a new business, and who can control the entity. One option for choosing a legal business structure is a limited liability company or LLC. There are serious benefits to starting an LLC, even if you are running a small business by yourself. This post covers how to start an LLC in Michigan and covers the steps for starting a new business within the Great Lakes.
Benefits and drawbacks
An LLC can serve as a critical business structure if you are starting a business. A limited liability corporation provides many advantages: its owners have no direct liability for any debts and liabilities incurred, property located within the LLC may be untouchable by personal creditors, LLC offers more tax alternatives and the members have a single layer of taxation.
However, there is no such thing as a free lunch and LLCs are no different. There are drawbacks to having an LLC compared to other business types. An LLC cannot hire the owners or members of the company as employees. As a result, all memberships are subject to a 15.3% Self-Employment tax on their personal income tax returns. Additionally, income from an LLC may be taxed at higher tax rates if the owner's income tax bracket is higher. This is in contrast to a C Corporation, where the corporate tax rate is currently 21%. Further, there can be significant start-up costs in an LLC is there is more than one member of the company. Lastly, an LLC may be a less attractive entity type is the business owner is looking to take on venture capital funding. Before deciding on starting an LLC, it is always advisable to talk through all the issues with an attorney to ensure you are choosing the best entity type for you.
LLC in Michigan: Basic Terminology
The article on how to set up an LLC is a good starting point for you to understand how to start an LLC in Michigan. It is important to cover the basic terms you may encounter.
Managers: Managers are people appointed to handle LLC affairs and maintain its daily operation. Choose one or more managers. The LLC members can control the LLC.
Members: The actual owners of the LLC
LARA: the Michigan Department of Licensing and Regulatory Affairs, the state agency where you manage your business
MCL-LLC: The Michigan Limited Liability Company Act
PLLC: Professional Limited Liability Company, a special type of LLC reserved for professional services
MDOT: Michigan Department of Treasury, the State agency responsible for all things Michigan taxes
Step 1: Run a name search
When you start your LLC, you should give the name of the entity some attention. Even if you've got a concept, you should never attach too much importance to LLC names unless you have run a name search first. Too many times have I worked with a client that secured a website URL, email address, and printed company names and logos, only to find out the entity name was already taken by someone else.
To get started, it is best to choose two or three names that you want to use for your company. Next, go to the Michigan Department of Licensing and Regulatory Affairs Website to conduct a name search. For a name to be accepted by LARA, it must be unique. The LLC name may not be the same as any other LLC, corporation, or registered assumed name already on file with the state of Michigan. If the LLC name is available, you can proceed to Step two. If not, try another name and search again.
Step 2: Prepare and File Articles of Organization
So the name you have chosen is available, great! The next step you need to file the articles of organization with LARA. Articles of Organization is the legal document that spells out who the company is, what it does, and other important LLC information.
To form a Michigan LLC you'll need the following information to fill out the Articles of Organization:
- LLC name and address
- The LLC's purpose
- The LLC's duration (if not perpetual)
- The names and addresses of the LLC's organizers
- Whether the LLC will be managed by
Once you have prepared all the necessary information, you can file your articles with LARA on their website and pay the filing fee. In Michigan, the filing fee to form your LLC is $50.
Step 3: Choose your registered agent.
Currently, Michigan requires that an incorporated company have an authorized representative and address in Michigan to do business in the state. The registered agent is the person authorized to sign legal documents for you or whose LLC you operate. A registered agent is the named individual who will be available during business hours at the LLC's registered address to accept the service of process on behalf of the LLC. The LLC's registered agent can also serve as a business address in the state.
There are a few options for LLCs when it comes to registered agents in Michigan. The first option is to choose an individual within the state of Michigan. If you are incorporated within the state and are a resident of Michigan, you can use yourself as the registered agent. If you are forming an LLC in another state and intend to operate as a foreign LLC in Michigan, you can either locate a agent and registered office in the State OR you can hire a professional company that provides a registered agent service.
Step 4: Apply for an EIN & DUNS number
The next step is to apply for an Employer Identification Number (EIN) from the Internal Revenue Service. An LLC will need an EIN if it has more than one member, if it will be taxed as a corporation, or if it will have employees. You can apply for your EIN online, by fax, or by mail through the IRS website.
An Employer Identification Number and Articles of Organization are also needed to acquire a DUNS number. A DUNS number is a unique nine-digit number assigned to business entities. It is used to track businesses and their financial information.
You can apply for a DUNS number through the Dun & Bradstreet website.
Without an EIN or DUNS number, you will be unable to open a business bank account, file income taxes, or acquire business credit. So it is very important not to skip this step.
Step 5: Comply with tax and regulatory requirements.
Before starting to run your business in Michigan, LLCs must take care of a few final steps to ensure they are in compliance with all state and federal regulations. If you sell goods and services in the state, you may be required to collect and remit sales tax. LLCs that have employees must comply with state and federal employment laws. LLCs must also file an annual report with the state of Michigan.
The final step is obtaining any necessary licenses or permits to operate your business in Michigan. Depending on your business type, there may be specific regulations you need to follow.
Step 6: Create an operating agreement
The operating agreement reflects how the LLC operates. An operating agreement can be essential for your business and is a necessary step when there is more than one member of the LLC.
Additionally, Michigan law requires that businesses have operating agreements when more than one member is involved. This LLC operating agreement will outline how decisions are made, how profits and losses are allocated, what happens if a member leaves the LLC, whether the company will be member-managed or manager-managed, and much more.
Step 7: Maintain Your LLC and Run Your Business
LLCs are more manageable because there are less formalities to operate than a corporation. To maintain your LLC in Michigan, you need to file an annual report with the department of regulatory affairs, LARA. The annual report has a $25 filing fee.
You should also keep your LLC in good standing by following all state laws and regulations, as well as keeping up with your LLC filings.
Operating an LLC can be a great way to protect your personal assets and run your business without many of the complicated rules and regulations that govern more formal corporations.
Is LLC Formation a good idea?
When deciding on starting a Michigan buinsess, a Michigan LLC is a common entity type for new owners. It is important to remember than LLC is not the right entity choice for everyone when starting a business in Michigan. LLCs do have some advantages and disadvantages that should be considered when making the LLC decision for the business. It is best to consult with an attorney who can help you consider all the angle, your short-term and long-term goals to help you make the best decision for you and your business partners.
We can help you
We have worked with multiple founders and small business owners to start their businesses successfully and without hassle. Our team can help you decide what business structure is best for your needs and get everything set up quickly so that you can focus on running your business. Our no-nonsense approach allows you to consider all angles of your business to ensure it will work when needed.
Don't put off starting your dream business any longer; call me today at 248-522-6772 to get started on protecting your business! Contact us today to get started!
