Forming a Michigan LLC
Ready to start your new business in Michigan? How exciting! Many Michigan small businesses choose limited liability companies (LLCs) because the business structure offers entrepreneurs both limits on personal liability and tax benefits. Let's look at what you'll need to know to start your Michigan LLC.
Steps to Form an LLC in Michigan
Name Your LLC
It will come as no surprise: if you want to start an LLC, you need a business name.
When you register your Michigan business as an LLC, choose a unique business name. No other Michigan LLC can have the same business name. To check whether your preferred name is available, do a name search on the business entity database maintained by the Michigan Department of Licensing and Regulatory Affairs (LARA).
The business name you choose must follow state guidelines. In Michigan, an LLC name cannot include words or phrases that:
- Imply the LLC is a corporation (it cannot include "corporation, "corp., "incorporated," or "inc.")
- Indicate the LLC is associated with a government agency
- Suggest the LLC's purpose is other than those included in the articles of organization
- Indicate that the LLC is a professional organization like a law firm or a doctor's office without meeting additional criteria
- State that the LLC is a bank unless it meets specific criteria
- Are restricted by Michigan Law
The name you choose must include the terms "limited liability company," "LLC," or "LC." If it is a low-profit LLC, then it must include the terms "low-profit limited liability company," "L3C," or "l3c."
You will also want to check whether another business has trademarked your preferred business name. Your business could be sued for 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 is under trademark protection.
Reserving Your Name
Have you picked your business name but aren't yet ready to file? If so, you're in luck! You can file online, by mail, or in person with LARA for a six-month name reservation. No other business is allowed to register that name during that time. LARA charges a $25 fee for name reservations.
Get a Resident Agent
Each Michigan LLC must appoint a resident agent (often called a registered agent in other states) to file its registration paperwork. The registered agent maintains a registered office and is responsible for accepting government notices and service of process on behalf of the LLC. The registered agent must have a physical street address in Michigan and available during typical business hours.
You can name yourself or someone else with your LLC as your registered agent. Or you can contract with a registered agent service that will accept documents and service of process on your behalf, keep your LLC compliant, pay franchise tax, and maintain your privacy.
File Your Articles of Organization
The next step to form your Michigan LLC is to complete the articles of organization with your LLC information. You must include the following when you file 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 of the LLC's organizer
- Whether the LLC is being formed for a specified time or will be perpetual
- If applicable, a statement that managers will manage the LCC (that it is manager-managed vs. member-managed)
You may then file the articles of organization online, in person, or by mail to the Michigan Department of Licensing and Regulatory Affairs (LARA). The fee is $50 to file the articles of organization. Or you can use FindLaw's DIY business formation services.
Draft an Operating Agreement
Michigan state law does not require LLCs to draft an operating agreement, but it is a good idea. Like corporate bylaws, an operating agreement allows you to set out the relationships between the LLC's owners, who will manage it, and how the owners will receive compensation.
Most LLC operating agreements contain the following information:
- The names of the business owners (usually referred to as "members") and the ownership structure
- How to distribute the company's profits and losses among the members
- Whether its owners will manage the LLC or delegate operational decisions 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
- Procedures for dissolution
Since there is no standard format for drafting an LLC operating agreement, you can feel free to address any other necessary issues. Unlike your articles of organization, you do not file your LLC's operating agreement with the state, and its terms are available to the public.
Get an EIN
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, just like a Social Security number for your personal taxes. You can get a free EIN in minutes by applying on the IRS website.
An EIN allows your new business to:
- Open a business bank account
- Get a credit card
- Hire employees
- Apply for licenses
If you are operating a single-member LLC without employees, you are usually required to file with the IRS using your Social Security Number, so you do not need an EIN. However, if you do hire employees, you will need an EIN.
Set Up Business and Tax Accounts
When you start a business in Michigan, you must register for tax and business accounts to operate your business. Check the Michigan Department of Treasury's webpage for more information on the state's business taxes.
You should also check the Small Business Administration (SBA) website's list of business activities that require federal licenses.
It is essential to stay on top of the LLC tax obligations and business requirements that apply to your startup or small business.
State Business Tax
If you set up your LLC for pass-through taxation, the LLC can avoid paying any state income taxes. Any profits from the company are taxable income earned by the owners on their tax returns. However, if you set up your LLC as a corporation for tax purposes, the LLC must pay a 6% state corporate tax.
State Employer Tax
If your LLC is an employer, consult the Michigan Department of Treasury for more information on withholding taxes and other employer requirements. You must register for an unemployment insurance account with the Department of Labor and Economic Opportunity.
Sales and Use Taxes
If you sell items in Michigan and the state considers you a seller, you must charge sales tax. The state of Michigan has both a 6% sales and 6% use tax. Visit the Michigan Department of Treasury for more information on what your LLC tax obligation may include.
Business Licenses and Permits
Your LLC's licensing obligations to the state and federal government depend on your type of business and the location of your operations. It is always a good idea to check with city and county officials to ensure that your business has all the necessary licenses when forming an LLC.
Registration in Other States
If you plan to use your Michigan LLC to do business in other states, you will have to follow those other states' requirements. You will register as a foreign LLC in that state. Usually, this will involve checking your LLC's name in that state, filing documents similar to the formation documents you used to register in Michigan, and paying any fees. Consult the Secretary of State's offices where your LLC will be operating.
Michigan has specific annual filing requirements. Michigan requires all LLCs to file an annual statement (commonly referred to as an annual report) with LARA by February 15. The fee is $25. If you form your business after September 30, you will not need to file the annual statement on the following February 15, but you must file one for the next 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 in good standing, you will lose your limited liability protection, and the name will become available for another business to use.