You want to start a Limited Liability Company (LLC) to get benefits like tax advantages, a simple business structure with little regulation, and personal asset protection but you don’t know where to start or how long it takes. Good thing you’re here! We’ll tell you everything you need to know about the formation process, business environment, and formation times in Michigan in our complete guide!
Discovering Michigan
Michigan borders four of the Great Lakes, giving it the nickname “the Great Lakes State”. It’s environment includes forests, hills, and Mount Arvon, as well as a stretch of shoreline that’s thousands of miles long. It’s actually home to the longest freshwater coastline in the country. 40% of the overall state is covered in water, which is the most in the nation.
Because of the high volume of water in the state, it’s of course known for fishing. It’s also involved with forestry and it makes iron oxide pigments which are important components in red, yellow, black and orange pigments that are used in makeup.
Economic Overview of Michigan
Michigan has a GSP (Gross State Product) of $493.2 billion and a growth rate of 21.7k% between 2018-2023. The biggest industries in Michigan according to revenue are Auto Parts Wholesaling, Automobile Wholesaling, Health & Medical Insurance, Automobile & Light Duty Motor Vehicle Manufacturing and Hospitals. The top companies by employment are General Motors Company, Ford Motor Co., the State of Michigan, Beaumont Health and Walmart Inc. The top-contributing industries that supply the Gross Domestic Product of the state are Manufacturing, Real Estate and Rental and Leasing, Professional, Scientific and Technical Services, Healthcare and Social Assistance and Wholesale Trade.
Since Ford Motor Company is headquartered in Michigan, it’s no wonder that the automotive and manufacturing industries thrive in this state.
Business Environment in Michigan
The business environment in Michigan has improved a lot over the past couple of decades. In 2023, it was ranked #10 on CSNBC’s list of the top states for business. On that same survey, it ranks 24 for Workforce, 26 for Infrastructure, 29 for Economy, 6 for Cost of Doing Business, 12 for Technology & Innovation, 15 for Business Friendliness, 10 for Access to Capital and 7 for Cost of Living.
On the Usnews.com list of the best states, it ranks #17 for Business Environment and #47 for Employment. They ranked it #24 in Affordability and #33 for Economic Opportunity. So, the two studies disagree about how affordable the state is to live and do business in.
The cost of living index in the state is 94.3, a few points down from the National number of 100.0. The median household income is $63,498, which is several thousand dollars less than the national average of $69,717, and the poverty rate is 13.1%, which is just a hair over the national average of 12.8%.
The unemployment rate in the state is 3.7%. As of last year, there are 4,440,000 jobs in the state, and labor force participation is 60.5%. This means that people are actively looking for jobs in the state and working, but there isn’t a large pool of unemployed people to choose from.
But all of this is a far cry from 2012, when Michigan gained the title of the fifth worst business climate in the nation according to CEOs. The state’s business environment is definitely making drastic improvements.
State-Specific Regulations and Incentives for Forming an LLC in Michigan
Here’s a look at the regulations, incentives and programs offered in Michigan for starting a business or forming an LLC.
- Michigan Business Development Program: This is a program to provide grants with the intent to attract business expansion projects that either create new jobs or involve capital investments. To qualify for the program based on new job creation, your business is required to create 50 new jobs, or 25 new jobs if they’re in a rural county or are in an Innovation Industry. And to qualify based on investment, the maximum funding provided for a project to qualify is $10 million.
- Critical Industry Program (CIP): This program can provide businesses with grants, loans or other financial assistance for the purposes of deal closing and gap financing so that they can create or maintain jobs in the state resulting from a tech shift in production or products, or making capital investments.
- Border County Incentives: There are 14 different counties in Michigan that border other states or Canada, and if your business locates there then it could receive either a full or partial tax abatement. Businesses that qualify can receive as much as a 100% abatement of business personal property taxes. Warehousing, logistics and distribution facilities could qualify for as much as 50% off of their real property taxes up to twelve years.
- Renaissance Zones: This program practically eliminates state and local taxes for businesses located in Renaissance Zones, which are located throughout the state. The businesses that qualify for this incentive still have to pay federal, sales and use, social security, as well as some property taxes, are responsible for both unemployment and workers’ compensation insurance, also water and sewer fees. These benefits are gradually phased out by 25% increments over the period of the last 3 years of the area’s designation period.
- Sales Tax Exemption: Pollution control equipment, electricity and natural gas used in production, and manufacturing machinery and equipment are exempt from sales taxes.
- PA 198 Property Tax Abatement: This abatement can cut property taxes for manufacturers and high-technology businesses by as much as 50% on their new investments. Abatements can be approved for between 1 and 12 years, and businesses that qualify can also qualify for a 6-mill State Education Tax exemption.
- State Education Tax Abatement: You can get an abatement of between 50%-100% of the 6-mill State Education Tax on new investments if your project potentially provides substantial economic benefits to the state. You also qualify for this abatement if your project has already been approved for a PA 198 abatement.
- Personal Property Tax Reform: Michigan is currently transitioning to no longer collecting Personal Property Tax from most businesses in the state. A State Essential Services Assessment (SESA) must be completed for manufacturers who don’t pay personal property tax. If your project is located in a distressed area, you could get an exemption of $25 million or more on eligible personal property. If your project isn’t located in a distressed area but is considered to be a transformative project, then you could receive an Alternative SESA Incentive, which is an exemption of 50% for as many as 15 years.
- Michigan Community Revitalization Program: This is a program that provides gap financing in the form of loans, grants, loan participation or equity investments that promote private investment in revitalizing and redeveloping historic, contaminated, obsolete or blighted properties. Through this project, you typically won’t receive more than 25% of the total investment, unless you’re in a town that has a population of 15,000 or less. Then funds can be awarded up to 50% of the project’s investment. A grant isn’t allowed to exceed $1,500,000 for any given project, and a total MCRP incentive isn’t permitted to go over $10,000,000.
Pros and Cons of Establishing an LLC in Michigan
There are both benefits and advantages to doing business in the state of Michigan.
Taxes are relatively low in Michigan. They have a corporate income tax rate of only 6%, and the personal income tax (which is a flat tax) rate is 4.25%. Most LLCs will be taxed through personal income taxes as pass-through entities, so that low personal income tax rate is great for LLC owners. Their sales tax is only 6% on the state level, and they don’t have local sales tax.
The state has a low cost of living, which means that it won’t cost you an arm and a leg to live there. And since things like housing and electric costs are factored into the cost of living, those costs apply to your business as well. It means that utility costs and rental or retail costs aren’t likely to be sky-high in Michigan.
Michigan is centrally located and has a massive infrastructure that makes it accessible to many global locations. Around half of the total population of the United States and Canada is within 500 miles of Michigan. 25% of the United State’s trade between themselves and Canada is conducted across the Ambassador Bridge in Michigan, which is also the most-used border crossing in the country. Because of it being surrounded with so much water, it has 33 deep water ports, as well as 23 railroads, and 19 commercial airports. So not only can you get yourself and your company out to other places to raise awareness of it on a global scale from Michigan, you can also easily ship products to nearly anywhere from the state’s convenient location.
There are a few drawbacks to business in Michigan, as well.
Back in 2012 it was rated as one of the top 5 worst states for business in the United States by CEOs. This was primarily due to high taxes and strict regulations that made them feel it was difficult to do business in the state. While the government of the state has worked diligently to improve the business climate in the state, there are still some members of the old guard who remember the state’s difficult past. And when it comes to public opinion about a state’s viability, that’s important- especially for things like investment and collaboration.
In 2023, the United Auto Workers (UAW) staged a strike, which might not sound bad if you’re from another state but in Michigan that’s big (and bad) news because the automotive manufacturing industry is enormous there. The Detroit Regional Chamber held a statewide poll of 600 people and found out that the strike was seen as pretty bad, and four out of five voters in Michigan find the state to be economically competitive. According to members of the company responsible for running the study, The Glengariff Group, residents feel like the state’s approaches to economic growth and the public school systems in the state don’t compete with other states, and that they’re lagging behind.
When it comes to incentives for starting an LLC in Michigan, as you can read above, there aren’t as many in this state as there are in other states. Of course, this is a thing that’s been improved, but that incentive list leaves business owners with a lot to be desired.
Procedure of Establishing an LLC in Michigan
LLC formation can be a complicated process with many steps. Luckily for you, we’ve laid it all out for you in this guide, which will break down each step!
Necessary Documentation for Filing an LLC in Michigan
Before you form your Limited Liability Company, there are a number of documents you’ll need to gather.
- Articles Of Organization Form: This is both an application for your LLC, as well as a way to submit information about your business to the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities and Commercial Licensing Bureau. It will ask you to provide information such as your business name, its duration and purpose, business address, your registered agent’s information, a list of who owns your company and contact information for each owner, and the management structure of your LLC.
- Operating Agreement: Most states (Michigan included) don’t require you to have an Operating Agreement, but we highly advise that you draft one anyway as it’s a highly important business document. An Operating Agreement spells out in detail how your business will run, and it serves as an agreement between LLC members. Information that should be included in your Operating Agreement includes: your business name and address (of course), your registered agent’s information, the date of formation of your business and its duration, the roles, names and contact information of LLC members, as well as their contributions to the company and their ownership shares, a clear explanation of the way profits and losses will be distributed, the names of managers and their contact information, an explanation of the voting rights of each LLC member and a meeting schedule, and a plan for how to add and remove LLC members.
- Initial Report: LLCs and corporations are required to file what’s known as an “Annual Report” in Michigan. This is a form that asks for your business’s information (name, address, registered agent’s information, etc.), which might seem odd, but it’s a way to make sure that your information remains up-to-date with the Department of Licensing and Regulatory Affairs. You need to submit your first one, called an “Initial Report” with your Articles of Organization.
- Tax Registration: You’ll need to contact the Department of Treasury to register your business to collect sales tax, or to find out if you aren’t required to collect them.
- Business Permits and Licenses: Your business will be required not only to obtain licenses and permits from the state government, but also for city and county government agencies, as well. You can find which licenses you need by running a license search.
- IRS Form SS-4: You’ll need an Employer Identification Number (EIN) to open a business bank account, qualify for certain permits and incentives, or hire employees. An EIN is also used to identify your business, and can be used instead of your Social Security Number on IRS forms to protect your identity. You can go to the IRS website and apply for an EIN for free.
Legal Requirements for Starting an LLC in Michigan
Here are step-by-step instructions for how to start an LLC in Michigan.
- Get an Articles of Organization Form: You need to submit this form to get an LLC, so the first step to start an LLC is getting an Articles of Organization form.
- Choose an Available Business Name: Your business name has to be unique and no other business in West Virginia can be using it. So run a business name search to make sure it’s available. Once you find one that’s available and meets all of the rules for LLC names, you also need to file a Reservation of Name form.
- Specify a Registered Agent: Every LLC in Michigan is required to have a registered agent. A registered agent is someone who receives service of process, legal notices and mail from government agencies (like the Department of Treasury or Department of Licensing and Regulatory Affairs) on your company’s behalf. As long as they meet all of the legal requirements, like having a physical address, you can designate someone you know and trust, or hire a professional registered agent service for peace of mind.
- Decide on Your Business Address: There are a lot of good reasons not to use your home address as your business address, but the main one is that your company’s business address is listed on the public record so that government agencies, law firms, and customers can contact your business. And if your home address is public information, that’s not only a privacy and security issue, it’s kind of creepy. Alternatives include using your registered agent’s address, or buying a virtual office or virtual address.
- Sign and File Your Formation Documents: Make sure the information on your Articles of Organization is accurate, but then the last step is to sign and file the form with the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities and Commercial Licensing Bureau Corporations Division.
Time Frame for Establishing an LLC in Michigan
Now that you know how to start a Limited Liability Company, it’s time you learned how long it takes to get one!
How Long Does the Initial Paperwork Take in Michigan?
Approval times in Michigan can be up to 4 weeks if you file by mail, or 2 weeks if you file online. These times include processing times.
Processing Times in the State of Michigan
Processing times for mail filing, as well as online filing, are 10 business days.
Common Delays in the LLC Formation Process in Michigan
Here are some common things that could impede the formation of your LLC.
- Technical Issues: Sometimes a technical issue on the Department of Licensing and Regulatory Affairs’ side could cause a lag in your formation time. This could be an internet or power outage, server issues, or computer or machinery issues.
- Timing: You’ll want to avoid filing near the weekend, on holidays, or the beginning or end of the year. The Department of Licensing and Regulatory Affairs will only process your documents on business days, and holidays and weekends don’t count. And since the beginning and end of the year tend to be high volume filing periods, filing during these times will cause a delay in the processing time.
- Human Error: You can’t have typos on your documents, list the wrong information, or leave information off of your form. You will also be required to have two copies of your Articles of Organization. Failure to provide 100% accurate information or to provide the correct number of forms could get your application thrown out.
Expedited Processing for LLC Formation in Michigan
If you didn’t know, expedited processing is the fastest way to get an LLC in Michigan. Here’s everything you need to know.
What Are the Expedited Options Available?
There are 24-hour, same day, 2-hour and 1-hour expedited processing options available in Michigan.
Additional Costs for Expedited Services in Michigan
When you choose expedited processing, you must pay a fee in addition to your filing fee for speedy service. Here are the expedited processing fees in Michigan:
24- hour processing: $50 extra
Same day processing: $100 extra
2- hour processing: $500 extra
1- hour processing: $1,000 extra
Comparing LLC Formation Time Frame in Michigan with Other States
In this section, we’ll include the formation times of other states so you can compare them with Michigan’s.
Brief Comparison with Key States
To recap, Michigan has processing times of 10 business days on both mail and online filing, as well as expediting processing options as fast as 1 hour.
For comparison, Maryland has an expedited processing option of 7 days, and Arizona has 5 day expedited processing. Washington has online filing times of 12-14 days, Texas has 13-15 day filing times, and Arizona has times of 14-16 days. When it comes to slow mail filing, New York takes the cake with processing times of 8 months.
You can’t really get faster than 1-hour expedited processing. But there is faster processing for online filing, as several states offer immediate processing for online filings. And mail filings in Kentucky and Ohio are processed in 1 day.
Why is Michigan a Favorable Place for Forming an LLC?
Michigan is a good place to form an LLC thanks to its low taxes, low cost of living, infrastructure, and its prime location.
