First off, if you are reading this, congratulations are in order! Thinking about starting an LLC is a brave step into the future. To help you move along this journey, we have covered why Michigan could be the right place to start your business. Also, we have included all the steps required to fully establish your business as per the law. Are you ready? We won’t keep you any further:
Is Michigan the right state for your business?
When starting a business, LLC or otherwise, location often comes to mind. People spend hours agonizing over where to locate their operations and how this affects their delivery of services or products. Investing in Michigan is not different. If you are familiar with the state’s history, you know that it took a bad hit during the ’08 crisis. And this might have you thinking that the economy might not be strong enough to support your business. But is this the case?
Well, Michigan is on a steady rise. Property prices are affordable without having that off-putting exorbitant pricing that is present in other spaces. And this applies to both homes and office spaces. Also, the cost of living is low and business seems to be doing much better than before.
So, should you invest in Michigan?
Michigan is going through somewhat a recovery period. After the ’08 crisis, businesses and authorities have worked hard to put things back in motion. And these efforts have resulted in the following advantages:
Small Business Growth
At this point, more people are getting into business, starting small and building from there. You would thus enjoy the support of other small business owners. Unemployment is on the decline and incomes are on the rise, contributing to increased disposable income in the state. Besides, many non-profit organizations are coming up to help businesses with training, funding, and other resources.
A Growing Economy
People living in Michigan are also enjoying an increase in their incomes. The unemployment rate keeps falling, having registered 8.6% in the 3rd quarter of 2020. Compared to other states, Michigan falls among the top 20 largest economies in the United States. More workers keep joining the labor force and there are no indications of the contrary in the future. If anything, projections show that the economy is set to get better.
With any recovery period, rental and sale prices go down. This, therefore, would be an ideal time to grab office space at an affordable price. By the time the price goes up, you will have likely broken even and will afford the new rates.
Low Cost of Living
You may wonder why this is a factor. Well, with affordable living, you will have an easier time convincing employees to come work for you in Michigan. It turns out that a wage of $10 per hour is enough to meet an adult’s individual needs in this state. However, this applies to people without dependents.
We can go on and on about the beauty of starting a business. But one thing is for sure- it is a lucrative idea. And here is how you can get started:
Filing Registration Documents
Now, we come to the part where you question what you need to start an LLC in Michigan. We will get into all these details later, including why an LLC could be the best business type for you. But for now, you need to note that you must file Articles of Organization. Without this legal document, you cannot establish your business. The filing costs $50 and you can do it online, in-person, or by mail. Now, let’s get into the individual steps that form the foundation for your company:
How to Get Your LLC in Michigan: Steps in Creating
Step 1: Choose a business structure
When we speak of business type, we refer to how you organize your business operations. This structure affects legal and tax considerations. There are many business entities you can start in Michigan, with all having their upsides and downsides. It can thus get confusing regarding which entity is best for you. Here are some considerations you should keep in mind:
- How many people will own the business?
- Do you need real estate to run the business?
- Would you like to deduct medical insurance premiums for people in the business?
- How do you want to share the income generated from the operations?
- Do you have any preferences when it comes to control?
These are some of the key considerations to use when considering the following business entities:
- Sole Proprietorship – this entity falls under one owner and has no liability protection. Did you know that you can operate a single-member LLC? That’s something to consider.
- Partnership – here, partners can have a general or limited partnership. Limited partners can protect themselves from personal liability by not taking on management roles. Instead of this, you could consider a multi-member LLC.
- Limited Liability Company (LLC) – these allow for pass-through tax treatments and share the personal liability protection offered to corporations. Additionally, they have flexibility in their management.
- S-Corporation – while this entity offers tax benefits and personal liability protection, limitations come in regarding ownership.
- C-Corporation – this entity works for small businesses and offers pass-through tax treatment for owners.
Why Open an LLC in Michigan?
Compared to other business entities, why would one opt for an LLC? Here are some key considerations:
- Tax Flexibility – as an LLC, you can file your taxes as another entity e.g. sole proprietorship, which allows you to reduce your tax burden.
- Personal Liability Protection – the premise of an LLC is to limit the personal liability of business owners. If someone sues you, they will not get hold of your personal assets.
- Easy Dissolution – ending an LLC’s operations is swift as the sharing of profits follows a clear pattern.
Want to learn more? Read our full Choose a business structure in Michigan
Step 2: Name for your LLC
Now that you have decided on an LLC, you might want to dive right into submitting legal documents. However, starting an LLC begins with the basics- naming. What would you like to name your business? How will your customers identify you? These are some of the questions you must answer when naming your business. While doing this, you also have to consider the naming guidelines:
- The name must include ‘Limited Liability Company.’ You can also show this by using suffixes such as LLC or L.L.C.
- The name should not have similarities with government agencies which can confuse the public. An example would be a name that alluded relation with a state department
- The name should not include restricted words such as university or attorney. If you must include such names, you will need a licensed professional to join your LLC and file documentation for the same.
While it may seem like you have come up with a new idea, you might be surprised to find that someone else had thought of your ideal name. To make sure that the name is unique to your business, you need to do a name search. Use the name without suffixes such as LLC to see what is available at the time.
It also helps to do a URL search of the name. At the moment, opening a website might not be a priority. However, when the time comes for this, it would be great to have a URL that matches your business name.
You should also do a social media search to see if any other businesses could be using the name. If other businesses have the same or similar name, you will not enjoy unrestricted use of the identifier.
Want to learn more? Read our full Unique Business Name For LLC
Step 3: Assign a Registered Agent for Service of Process in Michigan
Once you have your LLC up and running, you will need a Michigan registered agent who will be your point of contact with the state. The agent will receive correspondence on your behalf, doing away with the need for law enforcement officers to show up at your place of work. Additionally, the agent also accepts service of process, hence the term ‘for service of process’. What does this mean? Well, if you get sued, the agent will receive legal summons on your behalf.
Who can be an agent?
Generally, even you can be an agent for your LLC. An agent should meet the following conditions:
- Aged 18 years or older
- Has a physical address in Michigan where the business is conducted.
- Works during normal business hours
That means that you, a friend, or any other person can be an agent for your LLC.
Hiring Professional Services
While anyone can be a registered agent, many people opt to hire a professional Michigan registered agent service . This technique enables you to avoid falling into legal trouble or incurring fees that you can otherwise avoid. Also, as much as it costs you money, you will realize that you save a lot of time and money in the long run. However, these savings are only evident if you work with professionals. Here are some benefits to consider:
- Privacy – if you work from home, you can avoid listing your home address for public viewing. The agent’s address will be on public records, thus affording you privacy. Additionally, if you get sued, law enforcement officers will not show up at your place of work, allowing for discretionary operations.
- Accessibility – if your work address receives correspondence, you cannot up and go at any time as you have to be available during normal working hours. But with an agent, you do not have to stick to a normal schedule as they take care of the rest.
- Expansion – right now, your focus may be on Michigan. But in the future, you may want to operate in other states. Having a national registered agent allows you to expand into other territories without having to change addresses.
Reputable Agents for getting an LLC in Michigan
- ZenBusiness – if you are looking for a low-cost option with a fast turnaround, this agent is the way to go. Additionally, it features technical support and top-of-the-range services.
- IncFile – for the first year, you do not part with any cash. This agent features round the clock technical support and a wide range of services.
- Northwest Registered Agent – the first year is free and subsequent years are subject to affordable pricing. It also helps to note that the agent works under strict ethical codes.
- Swyft Filings – services start at $149 a year, allowing you to access reports, real-time reminders, and secure document storage.
- LegalZoom – this option is more costly, with an annual charge of $299. It comes with additional legal services.
Points to Note
Generally, you should expect to pay a range of $50-$150 on average for a good registered agent in the state. Please note that under Michigan laws, you need to elect your agent after filing the Articles of Organization. You can do this online or by mail.
Want to learn more? Read our full Assign a Registered Agent
Step 4: File the Articles of Organization
The Articles of Organization is a legal document needed to establish your LLC with the Department of Licensing and Regulatory Affairs. Without filling and submitting this document, your LLC remains in the works. Below are the steps needed to complete this process:
Finding the forms
The forms are available online on the Michigan Department of Licensing and Regulatory Affairs website. You can choose to make the application online or download, fill, and mail in the forms. For online formation, head to the sign-in page and choose the ‘new entity’ option. If you would like to file by mail, find the PDF of the Articles of Organization.
Filling the forms
You need to understand what information you should include in the forms for the LLC application to go through. Else, you will be back to square one in no time. Ensure that the following details are shown:
- LLC name – the name you decided on and reserved as per ‘step 1’ guidelines.
- Business purpose – the LLC should only engage in legal activities. Also, ensure that you get a professional license where necessary.
- How long the LLC will be in business – if you do not plan on running the business in perpetuity, you should show how long it will run.
- Registered Agent Address – remember step 2? Now is the time to show where you will receive correspondence as to your business.
- Governing authority – who will manage the business? Is it member or manager-managed?
Filing the Forms
The last step involves filing the document in the following ways: online, in-person, or by mail.
You can file this form through the Department of Licensing and Regulatory Affairs ( link ).
Download and fill a hard copy of the Articles of Organization Application ( link ). If you are in a rush, you can include an expedited service form. Mail the form to:
Michigan Department of Licensing and Regulatory Affairs
Corporations, Securities & Commercial Licensing Bureau
P.O. Box 30054
Lansing, MI 48909
· In-Person- you need to download and fill the form as you would when mailing and deliver it to the following location:
2501 Woodlake Circle
The standard application fee is $50; though expedited services will set you back more. If no issues arise, the LLC formation should be complete in three to five business days.
Want to learn more? Read our full File LLC Articles of Organization
Step 5: Get an Employer Identification Number (EIN)
What is an EIN? Well, EIN stands for employer identification number, as well as federal employer identification number. It can also stand for federal tax identification number. The best way to think about it is as a 9-digit number that is the equivalent of a social security number. It allows the IRS to track your tax reports.
Please note that you need to form an LLC first before getting this number. During your EIN request, it will be necessary to provide formation details. Thus, once the Articles of Organization get processed, you can start thinking of getting an EIN as follows:
Do you need it?
As an LLC, you will require an EIN if you:
- Are a single-member LLC with employees
- Are a multi-member LLC
Benefits of getting an EIN
Having an EIN avails you the following benefits:
- Ease of opening a bank account which helps you track business expenses and borrow loans
- Ability to hire employees to allow them to file their taxes separately as per the law
- Enjoyment of personal liability protection
- Increased privacy by reducing your SSN’s exposure
You need to fill in the following details:
- Type of business entity, which in this case would be an LLC
- Number of business owners
- State of LLC incorporation
- Why you need the identification
- Who is the principal officer in the business?
Getting an EIN
If you meet the EIN criteria, how should you go about getting the identification? Well, you can do it by making an application at the IRS online, by fax, or by mail. The application process is free, which is a plus.
This application is the fastest and calls for a valid individual taxpayer number, such as a Social Security number, is required. You can make an online application from Monday to Friday, from 7:00 to 22:00. EST.
For a fax application, you need to fill in Form SS-4 and send it by fax to number 855-641-6935. Fax applications take place 7 days a week, and your EIN will be ready in 4 business days.
You need to file the Form SS-4 and mail it to:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Want to learn more? Read our full Get an EIN For LLC
Step 6: Create an LLC Operating Agreement
An operating agreement is a legal document in place to protect your business operations. Note that while the state does not require this agreement, having it would be in your best interests. Not only does it set out the expectations of the business but it also adds to the credibility of your entity.
So, what is an operating agreement?
This agreement shows the LLC’s ownership structure, how it will operate in the present, and how you will approach it in the future. It should contain the following components:
Structure – you should show who the members are and their level of ownership. If members have different ownership levels, you should show this.
- Leadership – who has the reins? If members will head the organization, you should show this. The same goes for where managers will take over.
- Voting Rights – how will members arrive at decisions? The agreement should stipulate how members vote, how many votes they have, and if anyone can exercise more power than the other.
- Contributions – in this case, you need to indicate how much money the current members have raised and how much money future members need to raise to join the business.
- Profit and Loss Sharing – the agreement should also indicate how members will share profits and losses. If the sharing is not equal, you should show this.
- Amendments – what will happen in the event of a loss of departure of a member? How will their ownership move to another person?
- Dissolution Procedures – the agreement should also delve into how the members will dissolve the business, including who gets what and why.
Do you need one?
You do not have to get an operating agreement. However, there are benefits to drafting this document as follows:
- Legal Recommendation – while the state will not ask you to have this document, it is advisable under Section 450.4102(r).
- Future Disagreements – the document allows you to know what to do in the event of a conflict between the members by indicating people’s roles and responsibilities.
- Limited Liability Protection – the agreement adds to the credibility of your business and increases your protection regarding the seizure of your personal assets.
Here is a sample agreement for your reference – link
Want to learn more? Read our full Create an LLC Operating Agreement
Step 7: Open a bank account for your LLC
The main reason for opening an LLC is for personal liability protection. It thus follows that you would need a business bank account. Saving business profits in your individual bank account means that you do not have any separation. If you get sued, your personal assets can be attached to help clear the debt. It would thus not suffice to have an LLC only for you to have your bank account as a loophole. Opening a bank account for your LLC operations is thus of the essence.
Benefits of a business bank account
- Separation of business and personal funds
- Efficient record-keeping
- Fast tax calculations and payments
- Prevention of audits
- Ease of tracking business expenses
- Exuding professionalism in your dealings
Finding a Suitable Bank
When getting a bank, you need to look at the overall reputation of the institution. From this, narrow down to a few choices and use factors such as required documents, monthly fees, initial deposits, and balance requirements as determinants.
Generally, you will need the following details:
- Articles of organization
- EIN confirmation/ verification letter
- Your ID
- Operating agreement
- A declaration of beneficial ownership
Please note that banks differ regarding the documents they need to start the business account. In some cases, all members of the LLC will need to be physically present to sign the paperwork. It is thus best that you call ahead before showing up without all the requirements.
Want to learn more? Read our full Open a bank account for your LLC
Step 8: Registration for Tax Obligations
On the plus side, Michigan does not require LLCs to pay a franchise or privilege tax. However, your business is subject to various taxes:
The IRS will determine the tax obligations of the business based on the number of members and elections. Your LLC can get treated as a partnership, sole proprietorship, or corporation.
The IRS will once again determine the tax obligations for your business based on the number of members. The options are single-owner and multi-owner.
Distributive Share Taxes
The IRS determines the amount payable in taxes based on distributive shares in the business. Even if members leave money in the business, they will still pay income tax based on the profits they make.
LLC members are seen as business owners instead of employees of the business. As such, the business is not obligated to pay employment tax withholding. Instead, members of the business need to pay self-employment taxes on their distributive share profits.
As an LLC owner, you will need to pay taxes to Michigan State based on your personal tax returns. Note though, that the business is not subject to state tax.
To pay the above taxes, you need to file form 518 which you will find online. This form enables you to choose your tax obligations for future payments.
Additionally, you will need to file an annual report for your business on the 15th of February each year. The report allows the state to stay up to date with your business records. It also makes it possible for other parties to find relevant information as to your business. This application should accompany a fee of $25.
90 days before the report is due, the state sends a pre-printed form to the address listed on your Articles of Organization. You can then fill the form and submit it online through the Michigan Department of Licensing and Regulatory Affairs website.
Want to learn more? Read our full Taxes and license fees
Frequently Asked Question
If you want to protect the privacy of your address, you should hire a professional agent for service processes. The agent will receive correspondence on your behalf, enabling your address to remain hidden.
Generally, filing the Articles of Organization should set you back $50. However, if you would like to expedite the process, you can spend an additional amount on it, ranging from $50-$1000. Please note that the more expedited the process is, the more it will cost.
You need the following documents to establish your LLC in the state:
· Form CSCL/CD-700: Articles of Organization, which is a legal document for use by Domestic Limited Liability Companies
· Operating Agreement that sets out the structure and ownership of the business
· IRS Form SS-4: EIN for tax purposes
· Form 518: Registration for Business Taxes
LegalZoom offers LLC formation services in three packages: economy, standard, and express gold. Their prices start at $79, $329 and $349, respectively. For the first two, the additional filing fees are 50 while for the third option, the additional fees are $100. The express gold is the fastest package, featuring expedited processing.