Forming a Michigan LLC
Many Michigan small businesses operate as limited liability companies (LLCs) because the structure offers owners both limits on personal liability and tax benefits.
As the name entails, LLC owners are not held liable for the debts and obligations of their business entity because they operate as entities independent of their owners. That allows you to manage your business without worrying you will lose your cars, house, or other personal assets if the company goes broke or is sued.
Corporations also offer their owners personal liability protection. Still, their owners are often subjected to double-taxation because profits are taxed when the company earns them and when they are distributed to their shareholders. LLC owners can opt to have their businesses taxed as partnerships where the company pays no federal income tax, and business profits are treated as personal income to the owners.
If you think that your business can benefit from being structured as an LLC, you will be happy to learn that forming an LLC is straightforward in the state of Michigan. Follow the steps below to launch your business as a Michigan LLC.
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Step 1: Name Your Business
Finding a memorable business name that resonates with customers is an essential first step in setting up your Michigan LLC. If you plan to register your LLC in Michigan, you also need a unique name. That means it can't have been claimed by any other business in the state. The best way to ensure your preferred name has not been chosen is to do a name search on the database maintained by the Michigan Department of Licensing and Regulatory Affairs (LARA).
Any name you choose will have to meet the state's naming guidelines, which mandate that a name can't include words or phrases:
- Implying the LLC is a corporation
- Indicating the LLC is associated with a government agency
- Suggesting the LLC was formed for a reason other than those included in the articles of organization
- Words indicating that the LLC is a professional organization like a law firm or a doctor's office without meeting additional criteria
- Words stating that the LLC is a bank unless it meets specific criteria
Additionally, it is usually good to check whether another business has trademarked the name you have chosen. While there are no rules against using a trademarked name, your business may be sued for trademark infringement if the trademark holder believes your use of the word has damaged its business. A quick check of the trademark database maintained by the U.S. Patent and Trademark Office (USPTO) should tell you whether your name has already been trademarked.
Reserving Your Name
Often a business owner settles on a name before they are ready to file their registration paperwork with the state. If you have picked out your name but still need more time to file, you can file for a six-month name reservation. No other business will be allowed to register in Michigan with that name during that time. LARA charges a $25 fee for name reservations.
Step 2: Name Your Resident Agent
Each Michigan LLC must appoint a resident agent to file its registration paperwork. The resident agent (known as a "registered agent" in some states) maintains a registered office and is responsible for accepting government notices and service of process on behalf of the LLC. The registered agent must be physically located in Michigan and available during typical business hours.
You can name yourself or someone else with your LLC as your registered agent or contract with a registered agent service that will accept documents on your behalf.
Step 3: File Your Michigan Articles of Organization
Your LLC will officially come into existence when you file your articles of organization with LARA, and they are accepted. While you can draft your articles of organization yourself, Michigan provides a convenient fill-in-the-blanks online form. You may also submit your articles of organization by mail.
The following information must be included in your Michigan articles of organization:
- The LLC's name
- The LLC's purpose
- The name and address of the resident agent
- The name, signature, and phone number for the LLC's organizer
- Whether the LLC is being formed for a specified time period or will be perpetual
Step 4: Draft an Operating Agreement
Michigan state law does not require that LLCs draft an operating agreement, but it is a good idea to do so. Like corporate bylaws, an operating agreement allows you to set out the relationships between the LLC's owners, how it will be managed, and how the owners will be compensated. Most LLC operating agreements contain the following information:
- The names of the owners (usually referred to as “members") and the ownership structure
- How the company's profits and losses will be distributed among the members
- Whether its owners will manage the LLC or whether operational decisions will be delegated to managers
- How much capital was contributed by each owner, their ownership share, and voting rights
- Procedures for adding or removing members from the LLC
- What happens when the LLC is dissolved
Since there is no standard format for drafting an operating agreement, you can feel free to address any other issues you believe necessary to address in your document. Unlike your articles of organization, your LLC's operating agreement does not need to be filed with the state, and its terms will not be available to the public.
Step 5: Get an EIN From the IRS
All LLCs with more than a single member should apply with the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). Your EIN is the IRS's unique number to track your LLC for tax purposes. You can get a free EIN in minutes by applying on the IRS website. Be sure you are applying on the IRS.gov website because the first results for an internet search are often companies that will charge you to apply for an EIN when the IRS issues them for free.
In addition to allowing you to file with the IRS, an EIN allows your company to:
- Open a business bank account
- Get a credit card
- Hire employees
- Apply for licenses
If you are operating a single-member LLC without any employees, you are usually required to file with the IRS using their Social Security Number, so you do not need an EIN. Essentially, the IRS treats it as a sole proprietorship.
Comply With Tax and Regulatory Requirements
Michigan treats income from an LLC in much the same manner as the federal government regarding taxation. That means the LLC can avoid paying any state income taxes, and any profits from the company will be treated as taxable income earned by the owners. However, Michigan does require that LLCs file an annual report each Feb. 15 and pay a $25 filing fee.
Depending on the type of business you are running, your business may need to either pay or collect various other types of taxes, including:
- Sales tax
- Motor fuel tax
- Tobacco tax
- Severance tax
Check the Michigan Department of Treasury's webpage for more information on the state's business taxes.
Your LLC's licensing obligations to the state and federal government depend on the type of business you operate and where it is located. It is always a good idea to check with city and county officials to ensure that your business has all of the necessary licenses. You should also check the Small Business Administration (SBA) website's list of business activities that require federal licenses.
Step 6: File Annual Statements
Michigan requires all LLCs to file an annual statement with LARA each Feb. 15. If your business is formed after Sept. 30, you will not need to file the annual statement on the following Feb. 15 but will be expected to file one for the following year. Fortunately, the state will mail a pre-printed form to your resident agent 90 days before it is due each year. If you fail to file, the LLC will no longer be considered in good standing, and the name will become available to be used by another business.
Michigan LLC FAQs
Why should I create a Michigan LLC?
LLCs offer business owners both protection from liability for their company's debts and obligations and specific tax advantages. Because an LLC exists as an independent legal entity, nobody can collect the business's debts from your personal assets if it is sued or goes bankrupt.
Additionally, LLCs have the option of pass-through taxation where the business does not pay any tax on its profits. Instead, the owners declare any of the company's income or losses on their personal income tax returns. This is different from a corporation subject to "double taxation." There, income is taxed when the business earns it and again when it is distributed to shareholders as dividends.
What is the difference between an operating agreement and articles of organization?
Articles of organization are the legal papers an LLC files with the state when forming the company. It includes crucial information like the LLC's name, purpose, and the names of its owners.
An LLC is not required to have an operating agreement, but it is good to draw one up when forming an LLC. It is an internal company document that is not filed with the state and addresses issues such as how the LLC will handle profits and losses, management disputes, and stakeholder votes.
Can I register my out-of-state LLC in Michigan?
Whether registering an LLC formed in another state or another country, it will be referred to as a "foreign" LLC. Foreign LLCs transacting business in the state must obtain a Certificate of Authority from the Michigan Department of Licensing and Regulatory Affairs (LARA). Failure to file for a certificate may lead to a company paying penalties or fines.
The application for a Certificate of Authority will require that your LLC list the specific business activities it is planning to undertake in Michigan. The application will also require the foreign LLC to name a resident agent to receive documents on behalf of the LLC. Finally, there is a $50 fee to apply for a certificate of authority.
Can my LLC do business under a different name?
Yes, a Michigan LLC can conduct operations under a name that is different than its registered name if it has registered with the Michigan Department of Licensing and Regulatory Affairs (LARA). When an LLC operates under a different name, it is often referred to as a DBA ("doing business as"), an assumed name, or a fictitious name. There are many reasons for doing business under a DBA. These include when a company wants to start a new line of business or sell a product under a different name.
If you are registering a Michigan DBA, you will first need to perform a search to ensure that another business has not already registered it. Once you know that your name has not already been claimed, file a Certificate of Assumed Name with LARA along with a $10 filing fee. For more guidance on choosing an unclaimed business name, check out Step 1: Name Your Business above.
Note: State laws are always subject to change through new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
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