Chances are that if you’re reading this, you’re already pretty sure that you want to start an LLC in Michigan.
Congratulations! Developing a new business or starting a business in a new state is always exciting, and so is starting a Limited Liability Company (LLC).
In this article I’ll tell you everything you need to know about how to start an LLC in Michigan, but first I’ll explain what a Limited Liability Company (LLC) is and the benefits of LLCs.
(If you want to skip to the “How to Form an LLC” section, click here.)
What Is a Michigan LLC?
A Michigan LLC is a Limited Liability Company formed in the state of Michigan that is governed by the laws, regulations and statutes of the state of Michigan.
Why Choose an LLC?
You’re probably wondering why a person would choose a Michigan LLC rather than another business structure like a sole proprietorship, partnership, sole trader, S corporation or C corporation. Here are the three main benefits to choosing an LLC in Michigan over another business structure.
1. Limited Liability and Asset Protection
The first benefit to starting an LLC in Michigan instead of a sole proprietorship or other business type is that owners of LLCs can’t be held responsible for the liabilities and debts of the LLC on a personal level, granting LLC owners personal liability protection.
In the event that your Michigan LLC were to go bankrupt or be sued, the creditors of your LLC can’t legally go after your personal assets like your house, car or the funds in your bank account. The only financial compensation they can seek is directly related to the LLC and its assets, not yours.
The whole nation has recently been made aware that any company can be financially crippled by an unexpected event (a worldwide pandemic, for instance), no matter how successful or prepared the company is. Because of this fact, any small business owner is typically happy to receive any bit of protection they can get and LLCs provide that with personal liability protection.
LLCs are a good idea for any person who is proud of the hard work that they’ve put into creating and establishing their business. Asset protection can mean the difference between a temporary and small business setback or total business failure if you don’t have the personal liability protection that LLCs provide.
The next benefit that LLCs provide and other business types (like a sole proprietorship) don’t is the protection of your personal information.
These days hackers, scam artists, and criminals are better at what they do than ever. You’d be surprised what they can do and how quickly they can do it. With the smallest bit of personal information they can easily steal your identity and add up thousands of dollars worth of debt in your name.
If you choose certain business structures (like a partnership or sole trader) you have to register your personal information with the Michigan Department of Licensing and Regulatory Affairs Corporations Division and it’s put on public record for anyone to access.
But Michigan LLC owners don’t have this worry because their information can remain safe and secure.
In order to ensure that your personal information stays off the public record is to hire an LLC formation service in Michigan. They enter their name and address to be registered with the Michigan Department of Licensing and Regulatory Affairs Corporations Division rather than yours, so your information is kept safe. And, of course, you’ll maintain ownership of your Michigan LLC even though they list their information on the public record on behalf of your Limited Liability Company (LLC).
The two LLC formation services that I recommend to LLCs the most are Northwest Registered Agent and ZenBusiness because they do an excellent job of maintaining personal privacy for owners of Michigan LLCs.
The final benefit we’ll discuss here (but definitely not the last one you’ll notice over the years) that you’ll enjoy as the owner of a Michigan LLC is the tax benefits that are exclusive to LLCs.
If you own a corporation you’ll experience what is known as “double taxation.”
Here is how double taxation works: profits made by a corporation are taxed at corporate rates, then distributed to shareholders as dividends which are also taxed differently from personal income. So, you’re effectively taxed twice, thus the term “double taxation.”
However, LLCs are exempt from double taxation.
Here’s how taxation works for the profits of a Michigan LLC: profits earned by an LLC in Michigan are taxed at company rates (not corporate rates) and then dispersed among LLC members as personal income (not dividends). So an LLC’s profits are only taxed once.
But wait, there’s more!
LLCs enjoy additional tax benefits, thanks to the Tax Cuts and Jobs Act of 2017. This act created a tax benefit exclusively for LLCs known as the Qualified Business Income Deduction (QBID). QBID provides a 20% tax break for LLC owners, which is a good reason to choose a Michigan LLC over another type of business entity.
How to Start an LLC in Michigan
If you’ve read this far (or skipped ahead) then you already know what a Michigan LLC is and the benefits of choosing an LLC rather than other business types. If you’re still certain that forming an LLC is the right move for your business in Michigan, here are the five steps to start an LLC in Michigan.
IMPORTANT: If you want help to form an LLC in Michigan, there is a type of professional service that will guide you through the red tape and form filing, while also keeping your personal information secure. It’s called an LLC formation service.
An LLC formation service will help you form an LLC in Michigan and establish it. Rates for an LLC formation service in Michigan start as low as $0 plus the state filing fee. However, my personal favorite LLC formation service is ZenBusiness and they charge $49 plus the state filing fee.
If you feel that you’d benefit from the guidance and help with form filing that an LLC formation service would provide you along your journey to form an LLC, check out my guide on the best LLC service.
1. Obtain Articles of Organization Form
The first step in forming an LLC in Michigan is to get your hands on a Michigan LLC Articles of Organization form from the Michigan Department of Licensing and Regulatory Affairs Corporations, Securities and Commercial Licensing Bureau.
You can get your Michigan LLC Articles of Organization in PDF form here.
The Michigan Department of Licensing and Regulatory Affairs Corporations, Securities and Commercial Licensing Bureau allows you to file your Articles of Organization by mail or file online.
Because the Articles of Organization are the main form you’ll file when forming an LLC, the remaining four steps will refer back to this form.
2. Choose Your Business Name
The first bit of information you’ll need to fill out on your Articles of Organization form is your LLC name. This is a very important bit of information and you’ll need to think about your business name carefully.
You can’t just write in the first LLC name that you think of. The Michigan Department of Licensing and Regulatory Affairs requires that every business in Michigan must have a different name. So you’ll have to check to see that another business entity hasn’t already been using the business name that you want to use.
Luckily, it’s fairly easy to check whether a business name has been taken. Just perform a business name search on the Michigan Department of Licensing and Regulatory Affairs website.
If you’ve performed the name search and found that the LLC name that you want has already been taken, don’t worry. You can add suffixes to the end of the name like “LLC,” “L.L.C.,” “Limited Liability,” “Ltd.,” or “Co.” Using these suffixes is a bit like tacking numbers to the end of an online screen name once you’ve discovered that the screen name you originally chose wasn’t available.
Once you’ve chosen an LLC name, you’ll need to file an LLC Reservation of Name form with the Michigan Department of Licensing and Regulatory Affairs Corporations, Securities and Commercial Licensing Bureau. Filing the Reservation of Name form is simple because you can file it online (with this link) or send it through the mail along with the payment for the state filing fee.
If you don’t love the LLC name that you’re left with after you’ve tacked on a suffix, you can register for an assumed name which is also known as a trade name or a DBA (Doing Business As) name. This is the name that your Michigan LLC will present to the world on advertisements, signs and in other media.
All you have to do to get a trade name is file a Certificate of Assumed Name form with the Michigan Department of Licensing and Regulatory Affairs Corporations, Securities and Commercial Licensing Bureau. You can file the Certificate of Assumed Name by sending it through the mail along with a payment for the filing fee.
3. Choose a Michigan Registered Agent
LLCs in Michigan are required to name a registered agent or resident agent. So, choosing a registered agent or resident agent is the next step on your journey to forming an LLC.
What exactly is a registered agent? A registered agent or resident agent is a person who makes themself available during normal business hours to receive mail and legal documents (like service of process) from government agencies (like the Michigan Department of Licensing and Regulatory Affairs Corporations Division and the Michigan Department of Treasury) on behalf of your Limited Liability Company (LLC) in Michigan.
You have two options when it comes to choosing a registered agent or resident agent: you can either decide to take on the role of registered agent yourself, or you can choose to use a registered agent or resident agent service.
If you opt to function as your LLC’s registered agent, then you need to know that you’re choosing to put your personal information on the public record. This will put your information at risk, even though starting an LLC guarantees you a certain level of liability protection.
It’s also going to take up a lot of your time. You’ll have to make yourself available to receive your LLC’s mail and service of process during normal business hours and, since most LLCs do business during normal business hours as well, you can’t be in two places at once. The only upside of being your LLC’s registered agent is not having to pay any registered agent fees.
If you choose to hire a registered agent service, your personal information will be secure and you’ll never have to worry about missing a piece of mail or important service of process because you’ve hired a professional service to complete these tasks for you. Registered agent fees typically cost between $99–$299 per year.
Because you could miss important legal notifications if you decide to become your LLC’s registered agent, it’s worth paying the fees of a professional registered agent service simply to have peace of mind and a lighter workload. I always recommend that new LLCs hire a registered agent service.
If you’d like to hire a registered agent service for your Michigan LLC to keep your personal information safe and make sure you never miss important official correspondence, check out my guide on the best Michigan registered agents.
Whether you choose to be your LLC’s registered agent or you choose to hire a registered agent service, you’ll need to file a Certificate of Change of Registered Office and/or Change of Registered Agent form.
4. Choose Your LLC Address
Your LLC’s name isn’t the only important bit of information you’ll need to fill in on your Articles of Organization form. You’ll also need to register a business address for your Michigan LLC to be listed on the public record on the Michigan Licensing and Regulatory Affairs Corporations Division website.
LLC owners who aren’t using a professional registered agent service will have to register the physical street address of the business. If the business doesn’t have a physical street address and you aren’t using a registered agent for your Michigan LLC, you’re left with only one option: registering your own home or office address to be displayed on the public record.
If you are using a registered agent service, they’ll provide you with an address to put on the public record. It won’t be an address that anyone can trace to you or your business’s physical street address (if it even has one).
5. Sign and File Your Articles of Organization
Once you’re sure you’ve filled in all of the necessary information and checked to make sure that everything you’ve written on the form is accurate, it’s time to sign and file your Articles of Organization form.
If you’re okay with your personal information being listed on the public record, you can sign and file your LLC’s Articles of Organization yourself. However, if you’re using an LLC formation service, they’ll sign and file your LLC’s Articles of Organization on your behalf and register their information instead of your own.
Filing the Articles of Organization for your LLC is made easy because you can send them by mail or file them online. If you’re filing by mail, simply print and fill out the PDF form and then send it along with the filing fee to:
Michigan Department of Licensing and Regulatory Affairs
Corporations, Securities and Commercial Licensing Bureau
P. O. Box 30054
Lansing, MI 48909
If you’re filing your LLC’s Articles of Organization online, just head over to the Michigan Department of Licensing and Regulatory Affairs website and submit the form along with a payment for the filing fee.
Once you’ve filed, the Department of Licensing and Regulatory Affairs Corporation Division will contact you either by mail or by email once they have processed your forms. It generally takes between 10–15 days for the Corporation Division to process all of the forms.
There are several Michigan LLC formation services that offer expedited processing along with their other services. The Department of Licensing and Regulatory Affairs offers an array of expedited processing options too, so you can technically have your forms processed in an hour as long as you file them before 4 p.m. Monday–Friday but it will cost you.
Other LLC Activities
Once your LLC is established there are several activities you’ll have to take part in that have nothing to do with forming an LLC but they still have to be done to remain in good standing.
You may need to register for a business license on both local and state levels so that your LLC can conduct business in the state of Michigan. Check with your town or city’s clerk to find out about local business license requirements. For state licensing, check out this state license search.
There are several instances where you’ll need to register your LLC with the Michigan Department of Treasury. If you intend to hire employees for your LLC or collect sales tax, you’ll definitely need to register. Even if your LLC doesn’t collect sales tax, it’s not a bad idea to check with the Department of Treasury anyway because you’ll want to do everything in accordance with state law to remain in good standing.
Every LLC in Michigan must file an annual statement or annual report. Your LLC must file the annual statement or annual report before February 15th every year to maintain good standing unless you form your LLC after September 30th. You can file your annual statement online here along with a $25 state filing fee.
Other than filing your annual statement or annual report, you have to pay both a state and federal tax for your LLC in Michigan, obtain an EIN (more on that later), apply for licenses and permits, obtain a Certificate of Good Standing, as well as perform other activities for your LLC.
If this seems like a lot to remember and a lot of things to file, that’s because it is. If you’d like some help with the mountain of forms (like your annual statement) and activities that every Michigan LLC must take part in to maintain good standing, you could consider hiring a Michigan PEO company as well as an online legal service.
Michigan LLC Fee Summary
How much does it cost to form an LLC in the state of Michigan? It doesn’t matter whether you decide to form your LLC on your own or if you use an LLC formation service, you’re going to encounter state filing fees along with various other fees and taxes. Here’s a list of some of the fees you’ll encounter when forming an LLC in the state of Michigan:
Articles of Organization filing fee: $50
Name reservation filing fee: $25
Registered agent fee: $99–$299 per year
Annual statement filing fee: $25
State personal income tax: 4.25%
State corporate income tax: 6%
After Starting Your Michigan LLC
Starting your LLC is the most important step and you’ve just finished it, so congratulations! Take a break and relax for a bit to celebrate. Go out and enjoy a fancy dinner, buy yourself something special, have some champagne or wine, or even take a weekend trip.
But don’t relax for too long. You’ve still got work to do to make sure that your business in Michigan has the proper foundations to function properly!
Step 1. Create an Operating Agreement
It’s not a requirement for LLCs in Michigan to create an Operating Agreement but I highly recommend that you create an LLC Operating Agreement for your company anyway.
Your LLC Operating Agreement is an internal document for your business that not only functions as a contract between your LLC members but also provides explicit instructions about how the company should be run. Operating Agreements should list each LLC member and then continue to describe and establish the financial, operational, structural and managerial aspects of your business.
*IMPORTANT* Before drafting the Operating Agreement for your business you should decide what sort of managerial system you want to use. There are many one-member LLCs or single-member LLCs, but you can also have a multimember LLC. This decides who will make important decisions.
In the case of one member or single-member LLCs, one LLC member makes all of the important decisions. Multimember LLCs allow several LLC members to make decisions, usually by creating a board who votes on the decisions. You’ll need to include instructions about whether your LLC is managed by a single member or multiple members in your Operating Agreement.
Your business Operating Agreement should name each LLC member, explain which members should make high-level decisions for your business and go on to describe the percentages of ownership and the percentages of profits and losses allotted to each member. Operating Agreements should also carefully define the roles of individual LLC members and also describe their interactions and relationships with other LLC members and departments. Writing the LLC Operating Agreement this way should ensure that your LLC members know what their jobs are and who they should work closely with, as well as which LLC member or department should handle which task, which should prevent a lot of squabbles.
Your Operating Agreement should include instructions about what happens when an LLC member either leaves or joins the business but this is a section that many people leave out or neglect in their Agreement. However, if you do add this section to your Operating Agreement then your business will have vital instructions on how to proceed if there’s a disagreement or falling out between LLC members. These logical rules are important and helpful to have whenever tempers are running high.
The Operating Agreement for your LLC is one of the most important documents that you’ll create during the infancy of your business. It tells LLC members what their jobs are and provides exhaustive instructions about how the business should run.
Simply put, the instructions and rules in the Operating Agreement for your business provide the parameters for your business operation and your business will be required to function according to them, so if you draft your Agreement poorly it could significantly hinder the growth of your business. You can easily screw up the Operating Agreement by not allowing room in the instructions for things like innovation, growth and change. But if you get it right, you’ll be able to sit back and watch as your company prospers and grows without being held back by faulty instructions in a poorly drafted Operating Agreement.
If you’ve never written an Operating Agreement or you’re inexperienced with drafting this document and you’re worried that you won’t get it right (which is definitely something to be concerned about), you have a few options to make sure you’ll get it right.
The first option is the free Operating Agreement template that Northwest Registered Agent provides for LLCs. The second option is using an LLC formation service that will draft the Operating Agreement for your business as part of its services. But if you want to draft the Articles yourself, your third option is to use an online legal service to walk you through it and give you legal advice.
Step 2. Apply For an Employer Identification Number
You’ll need to apply for an Employer Identification Number (EIN) if you plan to hire employees or open a bank account for your business. An EIN will qualify your business for certain licenses and permits as well. Of course your business isn’t required to hire employees to register for an EIN—it’s simply a number that will identify your Michigan LLC.
An Employer Identification Number (EIN) is a number that serves to identify a business in much the same way that a Social Security Number is a number that identifies individual people. You can apply for an EIN through the Internal Revenue Service (IRS), and applying for an EIN is easier than you’d think.
A lot of LLC formation services in Michigan will apply for an EIN on behalf of your business as part of their services which makes the application process quite easy. You can also apply online for an EIN on your own. Simply go to the IRS website between 7 a.m. and 10 p.m. Monday–Friday and fill out the application for an EIN for your business.
Step 3. Open a Business Bank Account
The final step you’ll need to complete in the pursuit of strong business foundations and proper business function is to open a bank account specifically for your Michigan LLC.
It’s easy to undervalue this step but it’s an important one. Many small business owners choose to use their personal account for both their personal and business transactions, then try to decipher the difference between the two transaction types for federal tax purposes later. It’s easy to see that the logic here is that one bank account for everything will be simpler in the long run, but there are two very important reasons not to do this.
The first reason is that it’s easy to determine when only business transitions are made from your business bank account because that is its dedicated purpose. Sure you may think that you’ll be able to tell the difference between a personal and a business transaction when you go through your statements at the end of the year. However, when it’s time to file your federal tax paperwork these purchases were often made months before tax season rolls around and it becomes a lot more difficult to remember which transactions were for what reason for tax purposes when you add time to the equation. So it’s important that you have a bank account that’s specifically for your business to make tax filing a breeze.
The next reason is this: if you use your personal account for business transactions then you won’t have personal liability and asset protection even though you formed an LLC in Michigan. This is because if you conduct business transactions through your personal account, your personal bank account becomes fair game for any creditor or person who sues your LLC. So if you want to keep your personal assets and information protected then just open another bank account for your business and keep your personal and business transactions separate.
You’re going to need a “bank kit” to open a bank account for your Michigan LLC. This kit will include things such as your LLC’s Articles of Organization, Certificate of Good Standing, EIN and many of the documents you’ve been filing and obtaining while forming your Michigan LLC. A lot of LLC formation services in the state will put together a bank kit for your business as part of their services which makes it a lot easier.
Forming an LLC is a major decision and it’s one that forges the path for your business journey.
If you’ve chosen to use an LLC formation service then you’ll likely pay a fee as low as $0 plus the state filing fee. LLC formation services can take a lot of the paperwork burden off your shoulders and make forming an LLC easy and painless.
If you’ve chosen to take control of your business destiny and form your LLC on your own, here are the five steps you need to take:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your registered agent
- Choose your LLC address
- Complete, sign, and file your Articles of Organization
Forming an LLC can be a really frustrating and confusing process because of all of the form filing, registration, legal jargon, and red tape that you have to wade through. But if you do it on your own without the assistance of an LLC formation service, nothing compares to the sense of reward and satisfaction you will feel once you’ve succeeded.
This is likely one of many first steps you’ll take as your business evolves and grows. So congratulations on forming an LLC in Michigan and good luck on your business journey!