The Limited Liability Company (LLC) is a popular entity structure for businesses starting in Michigan. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Michigan without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form a Michigan LLC
Let’s break down the steps to complete the Michigan LLC formation process.
Total Time: 10 minutes
Step 1: Choose an LLC Name
The first step in forming a Michigan Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state. The Michigan Department of Licensing and Regulatory Affairs Corporations Division (LARA) makes it easy to search and verify if your LLC name is available. Here is more information on how to do a Michigan LLC name search.
Additionally, the name of the LLC must include one of the following phrases or abbreviations at the end of the business name:
– Limited Liability Company
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is a name you want, but are not ready to register the LLC, you can reserve a name by filing the Application for Reservation of Name. The name reservation will hold a name for up to 6 months, at the cost of $25, paid to the Department of Licensing and Regulatory Affairs.
If you plan to use a different name from the one that you register (perhaps you want to run multiple businesses under the LLC), you can use a DBA or Doing Business As name (sometimes referred to as a fictitious business name, trade name, or assumed name). To register a DBA, file the Certificate of Assumed Name.
Before finalizing your LLC name, you may also want to see if a domain name is also available to have a matching website address.
Step 2: Appoint a Michigan Resident Agent
Every LLC in Michigan is required to have a Resident Agent. A Resident Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in Michigan include:
– The agent must be a Michigan resident at least 18 years of age or a commercial Registered Agent service
– The agent must have a physical address in the state (PO Boxes aren’t allowed)
– The agent must generally be available during normal business hours at the address provided to receive service of process
Learn more about the requirements for a Registered Agent in Michigan
You are not required to pay for a Resident Agent. Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a company like Northwest Registered Agent to be the Resident Agent with a separate registered office address will reduce unwanted phone calls and mailings.
Step 3: File the Michigan Articles of Organization
The paperwork to officially create an LLC in Michigan is called the Articles of Organization. To submit the paperwork, either file online through the Michigan Department of Licensing and Regulatory Affairs website or downloading and mail the Articles of Organization (Form CSCL/CD-700).
Estimated Cost: 50 USD
Turnaround Time: It normally takes 10-15 days for the state to process the LLC paperwork.
When filling out the Articles of Organization, there are a few sections that may be unfamiliar, especially when seeing them for the first time. Let’s go over a few of those sections to help you get your LLC started right.
Purpose of the LLC
You are allowed to provide more information about what the LLC will do; however, you can keep the included text “The purpose or purposes for which the limited liability company is formed is to engage in any activity within the purposes for which a limited liability company may be formed under the Limited Liability Company Act of Michigan” and not add anything more.
If you intend the business to exist forever, which most businesses leave this field blank. If you have a specific end date in mind (typically used for investment-related businesses), choose a dissolution date.
This is an optional section and not used by most LLCs. Here you would include additional rules for the operation of the LLC.
The most common provision would be if the LLC were Manager-Managed. If the LLC is Manager-Managed, meaning the members hired a manager to run the LLC, similar to a CEO of a corporation a statement would need to be included in this Article. It’s more common for an LLC to be Member-Managed, meaning the members (owners) are actively involved in the business’s day-to-day operations.
Additional articles can be added. One common one is a delayed effective date. By default, the LLC is effective on the date submitted. If you prefer the LLC to start up to 90 days in the future, you would enter that date as a new article.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
You have a Michigan LLC, now what???
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Michigan LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- In some circumstances, a Michigan Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as bakeries, lawn services, dog groomers, and others must be licensed.
- Sales Tax License – To sell products and certain services, registration with the Michigan Department of Treasury will be necessary.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
File the Annual Statement
LLCs are required to file an annual statement (sometimes referred to as an annual report) with the Michigan Department of Licensing and Regulatory Affairs. The annual report must be filed by February 15th, after the year of formation. If the LLC was formed after September 30th, the initial statement isn’t due until the year following. The annual statement state fee is $25.
Common Questions To Starting An LLC In Michigan
How much does it cost to start an LLC in Michigan?
There is a filing fee of $50 to start an LLC in Michigan.
Is there a yearly fee for an LLC in Michigan?
Each year, an annual report and a $25 state filing fee will be due for Michigan LLCs.
How long does it take to start an LLC in Michigan?
It normally takes 10-15 business days for the state to process the LLC paperwork. For an additional fee, one business day processing is available.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC would file an Application for Certificate of Authority to Transact Business in Michigan (CSCL/CD-760)
What is a Professional Limited Liability Company?
Businesses that require state licensing, such as a dentist, physician, attorney, etc., can form a Professional Limited Liability Company (PLLC), though it’s not required. Instead of the LLC form, you would use form BCS/CD 701. Filing for a PLLC is very similar to that of the LLC.