Are you looking to form a limited liability company (LLC) in the state of Michigan, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Michigan LLC that is compliant and able to do business in the state.
To do this, please see our 6-step guide below or hire an affordable online LLC formation service.
Why an Michigan LLC?
The Michigan LLC is one of the most popular business structures in state. It’s a more casual and flexible type of business than a corporation, but includes personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Michigan have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Start an LLC in Michigan in Few Steps
1-Name Your Michigan LLC
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Michigan, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
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2-Choose a Registered Agent in Michigan
Every LLC in Michigan is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Michigan Legislative Council,
The resident agent appointed by a limited liability company is an agent of the company upon whom any process, notice, or demand required or permitted by law to be served upon the company may be served.”
Without a registered agent, you could lose your good standing with the state of Michigan, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
3-File Formation Documents with State
Once you are ready to form your Michigan limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of Michigan charges a $50 fee to form an LLC.
Processing Time: It takes 10-15 business days for the state to process your Michigan LLC formation paperwork and get your finalized documents in the mail to you if you file by mail. However, most filings that are completed online are finalized within three business days. If you expedite for an additional $50, your filings will be completed in one business day. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
4-Create Your Michigan LLC Operating Agreement
After you register an LLC in Michigan, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
5-Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Michigan levies these taxes based on the nature of your business. The most important of these is income taxes. If your LLC is considered a pass-through entity—usually a sole proprietorship or partnership—you’ll pay income taxes on your individual tax returns. However, LLCs which choose to be taxed as corporations will be subject to the state’s corporate income taxes. The current corporate income tax rate is 6%; you can learn more about Michigan’s corporate income taxes here.
Michigan’s Business Tax is levied on all types of business, regardless of structure. This tax has two parts: the business income tax and the gross receipts tax, at 4.95% and 0.8% respectively. You can learn more about this tax here. Michigan businesses in retail sales also are responsible to pay sales taxes. The current rate is 6%; you can consult these General Sales and Use Tax Rules to learn more.
Michigan employers are also subject to pay a few different taxes. The first of these is withholding taxes; essentially, you’ll hold back a portion of each employee’s wages and forward that portion to the state. However, since 2016, Michigan flow-through or pass-through entities are not required to pay the tax—only LLCs taxed as corporations must file withholding taxes. You can learn more about Michigan’s withholding taxes here. Second, all employers are required to pay taxes for unemployment insurance. The rate ranges from 0.06 to 10.3%; learn more at the Michigan Unemployment Insurance Agency.
In addition, you may be subject to some industry-specific taxes. Some of these include alcohol taxes, tobacco taxes, and more. You can learn more about Michigan’s different taxes here.
Depending on where in Michigan your business is located, you could also need to pay some local taxes. In particular, Detroit has some taxes that business are required to pay. If you’ll be working in the Motor City, you’ll want to check here before you get started.
6-Obtain Business Licenses and Permits
The state of Michigan does not have a general business license that each LLC needs to acquire in order to do business.
However, Michigan upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the state has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. Michigan has a long list of these licenses, so there’s a good chance at least one of them applies to your LLC.
We recommend that every LLC owner search through the state database of occupational permits and licenses, and don’t forget that your local government may require licenses or permits as well. We recommend that you contact your local government office to determine if you’ll need any locally specific licenses.
What is Next
What to do After Creating an Michigan LLC?
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Michigan business with employees is strictly required to acquire workers’ compensation insurance. For more information on either of this policy, check out the Workers’ Compensation Agency. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The state of Michigan has several forms based on how your business is set up that you can access here, as well as instructions on how to report.
Understand annual reporting
Michigan requires that all LLCs file an annual report. You can file it online here. Your annual report will essentially serve to update the state on any pertinent information regarding your business that has changed over the course of the year.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.