Michigan is the land of opportunities—from the lumber yards of the Upper Peninsula to the auto industry in Detroit. Starting a limited liability company (LLC) may be your best decision regardless of where you plan to make your mark in this business ecosystem.
Any business wishing to reduce its personal liability from lawsuits or debts should consider forming an LLC. This guide gives you a step-by-step guide on how to create an LLC in Michigan.
Costs to Create an LLC in Michigan
When forming an LLC in Michigan, certain costs are involved in officially registering your new business with the state. The total expenses include the filing fee, operating agreement draft, LLC formation service cost, and registered agent costs.
Michigan LLC Filing Fee
Forming an LLC requires you to file an Articles of Organization, which you can find on the Michigan Department of Licensing and Regulatory Affairs website. The cost of filing a certification of formation online or through the mail is $50.
Michigan Registered Agent and Registered Office
Every Michigan LLC must have an appointed registered agent. A registered agent is either a person or entity assigned to receive legal documents, tax forms, and government correspondence on your company’s behalf. Typically, registered agent services cost about $130 annually or more. The registered agent can be:
- A registered agent service
- A business attorney
- Another member of the LLC
While you can elect to forgo the cost by being your own registered agent, it’s not advisable. Since you’re responsible for handling critical legal documents, failure to perform or comply can lead to serious consequences. It’s best to use a professional registered agent service to eliminate the burden and reduce the risk of potential non-compliance to your business.
Michigan LLC Operating Agreement
An operating agreement defines the various responsibilities and roles of the members of your LLC to prevent and solve business-related disputes that may come up later. For single-member LLCs, most people choose to draft the document themselves.
An experienced LLC attorney can help you draft a more favorable operating agreement. It can prevent future unintended consequences that can cause a rift between business and personal assets. If you choose to hire an attorney, it’ll cost you additional fees for their expertise and services.
Optional Michigan LLC Formation Costs
Besides the fees associated with forming an LLC, there are some optional LLC formation costs:
- Reserve a Name for Your Michigan LLC: No matter how great your LLC assumed name is, you’ll need to ensure that it’s available to use when filing your Micgian LLC registration. There’s an option to reserve your Michigan LLC name, but it’ll cost $25, which holds the name for up to six months.
- Certificate of Good Standing: A Certificate of Good Standing offers verification that your new business is legally registered and authorized to conduct business in Michigan. Banks and lenders typically require this.
- Doing Business As (DBA) Name: If you want to operate your new business under a different name than LLC, you’ll have to file a DBA, which costs $25. With a simple business entity search, you can determine whether your desired name is available.
- Expedited Michigan LLC Filing: Michigan offers an expedited filing service for your Articles of Organization. It costs an additional $50 per document for every 24-hour review or $100 for a same-day review.
How to Start an LLC in Michigan: A Complete Guide
The Limited Liability Company (LLC) is one of the best legal structures for small businesses. LLCs are a hybrid business structure that protects legal assets and various tax advantages while also giving you the flexibility of a partnership or sole proprietorship. Below is a simple, step-by-step guide on how to launch your LLC in Michigan.
Come Up With an Idea for Your LLC
Starting an LLC begins with a clear and strategic plan for your new business. This process involves more than just filing an LLC and registering a name. It involves figuring out the types of products or services you plan to offer and who you plan on selling to as your target audience. You’ll have to make important considerations about the direction of your LLC:
- Target customer: Unless you know your target customer, it’ll be difficult to get your business off the ground. Conduct market research by identifying problems in the marketplace and conducting a competitive analysis of other businesses in the market.
- Projected profitability: Your idea must be worth your time, so it’s essential to look at the profitability of your desired business model. That means knowing the break-even point and pricing, determining the suitable business model, and how you’ll offer the products or services to customers.
Name Your Michigan LLC
Before registering for your LLC, you’ll need to decide on a name to include in the Articles of Organization. Your LLC name must comply with Michigan’s requirements. Here are some crucial requirements you’ll want to keep in mind:
- Certain restricted words such as credit union, attorney, lawyer, or bank will require additional licensure paperwork and documentation
- The business name can’t use words to name a government agency such as Treasury, FBI, CIA, or State Department)
- Your business name must include words like LLC or Limited Liability Company
- Your name must be unique from existing businesses in the state. You’ll have to check if your desired name is available by going to the Secretary of State’s website.
Choose a Registered Agent
Michigan requires you to assign a registered agent to your LLC. This person or entity is responsible for receiving service of process and other legal documents for your LLC.
The agent must be at least 18 years old and have a Michigan address. They need to work on-site during regular business hours to accept documents.
File Your Michigan LLC Articles of Organization
- Business name
- Name and address of your registered agent
- Name and signature of the business owner
- Durable of the LLC
If you already have an established LLC in another state but want to operate in Michigan, you’ll have to file as a foreign LLC. That means you’ll need to fill out the application to give you authority to transact business in Michigan.
Obtain a Michigan Certificate of Formation
After filing specific formation documents and getting them approved, Michigan will issue a Certificate of Formation. These formation documents should include your LLC’s name, a general statement explaining why you’ve created your LLC, the name and address of the registered agent, the signature of the incorporator, and the duration the LLC is expected to exist.
The state issues the Certificate of Formation once the Articles of Organization documents are filed and approved. This certificate lets you obtain business licenses, an EIN, and a business bank account.
Create a Michigan LLC Operating Agreement
An operating agreement is an important document that outlines how your LLC will conduct business. A written operating agreement is essential for many reasons, such as settling disputes over financial agreements and other litigations. Without an operating agreement, the court will make judgments based on state law, not necessarily what’s in the best interest of your LLC and your members.
The operating agreement contains valuable information:
- Your LLC’s assumed name and principal address
- Name and address of the registered agent
- Purpose of the business
- Duration of the LLC
- Members and their responsibilities
- Information about the Articles of Organization
- Management of the LLC
- Division of profits and losses from the company
- Indemnification and liability clauses
- Procedures and processes for admitting new members
Get an EIN for Your LLC
The Employer Identification Number (EIN) is a nine-digit number the Internal Revenue Service assigns to identify your LLC when filing for taxes. An EIN can help with opening a business bank account, hiring employees, and filing taxes at the federal and state level.
You can obtain your EIN for a Limited Liability Company online or by mail through the IRS.
What to Do After Setting Up an LLC in Michigan?
You’ve formed your Michigan LLC—now what? Starting a business is exhilarating and exciting, but knowing what to do next once you’ve set up the limited liability company can be confusing. Here are the essential things you’ll need to do to keep your business on track.
Create a Business Bank Account
A business bank account keeps your company finances separate from your individual finances. It makes tax preparation and recordkeeping much easier while preserving your personal identity.
Opening a business bank account requires certification of business formation and an EIN you’ve received when filing for your LLC.
Obtain a Seller’s Permit or Local Businesses Licenses
A seller’s permit lets you sell items and services in Michigan and collect sales tax on those items. Additionally, it allows you to purchase items from wholesalers without paying sales tax.
Michigan requires you to acquire a seller’s permit before making any sales. If you have sales representatives or physical locations in multiple states, you’ll have to get a seller’s permit for multiple states.
Also, depending on your business type, you may need various business licenses from your county or city. The Michigan local government website has a state business license search function that helps you determine the permits and state-level licenses you need. For example, if you run a hair salon or sell used cars, you’ll need an industry-specific business license.
Open a Merchant Account
If you plan on accepting credit cards as a form of payment, you’ll need a method to process those transactions. A merchant account is a bank account that can hold funds from debit and credit card purchases. The funds can be transferred to your bank account when the transaction is verified and approved.
You’ll have to get approval for a merchant account, so expect to pay monthly fees and upfront costs. However, if you’re on a budget, you can use third-party payment processors like PayPal, Square, or Google Processor. These services won’t require startup capital but charge a percentage of every transaction.
Comply with Michigan Employer Obligations
As a business owner with employees, you’ll have to comply with Michigan laws to ensure you accurately report what they earn. You may want to consider hiring a business attorney to help you understand the details of employment requirements to ensure compliance. Here are the various requirements you’ll want to comply with:
- Employer withholding: Michigan employers must withhold local, state, and federal income taxes from their worker’s wages and remit those taxes to the government.
- Buying worker’s compensation insurance: Most businesses must buy worker’s compensation insurance to pay for job-related injuries. You can purchase this insurance from a group fund or private insurer.
- Employee reporting: State and federal law mandates that employers report new hires to the government within 20 dates of their start date. You’ll have to register for reporting at the New Hires Operation Center.
- Paying unemployment taxes: Employers in Michigan must pay taxes to help fund the state unemployment fund. The tax rate depends on the history of unemployment claims and the business’s age.
Get Legal Guidance
Many small businesses fall into legal pitfalls. However, most of those mistakes are entirely avoidable by seeking expert advice from an attorney before hiring employees or signing contracts.
A lawyer helps to draft and review contracts, advise on how to protect your intellectual property, like product designs and logos, and negotiate more favorable terms. They can also advise on how to avoid violating independent contractor laws and avoiding employment discrimination. Furthermore, they can suggest the types of employee-related contracts best suited to protect your business.
Evaluate Business Insurance Options
Even the most prepared business owners will encounter unforeseen issues. While LLCs offer some personal asset protection, you may want to buy insurance for your company vehicle products and other unprotected assets.
There are many types of small business insurance available to newly formed Michigan LLCs:
- Professional liability insurance protects retailers, distributors, wholesalers, and manufacturers from liability related to unsafe products.
- Liability insurance covers your business for legal actions resulting from negligence, injuries, or accidents.
- Commercial property insurance protects your company from costs associated with theft, weather damage, or fire.
- Umbrella insurance covers anything that potentially exceeds policy limits on your other insurance plans.
- Cyber liability insurance safeguards Michigan businesses from costs related to suffering a data breach.
It’s helpful to contact a reputable insurance agent to get counsel on the most appropriate insurance for your specific type of business. While legal and insurance laws can be overwhelming, receiving help from the right people can make the process go more smoothly.
Understand the Tax Requirements in Michigan
Your LLC in Michigan is subject to state and federal taxation. Estimated taxes can be collected every quarter when operating an LLC. The calculation factors in your earnings to date. Some of the taxes a new Michigan LLC business owner should be aware of:
- Personal income taxes: You and your business partners must pay taxes on the income earned through the business at the personal level.
- Unemployment insurance tax: If you have employees in Michigan, you must register for unemployment insurance tax benefits paid to employees after a job loss caused by layoff or other reasons. Tax payments go to the Michigan Department of Treasury.
- Corporate taxes: The LLC must pay taxes on the profits generated before distribution to ownership, which will be taxed again at the shareholder’s income levels. The corporate tax rate is about 6% of taxable income.
- Employee withholding tax: This taxation is made on your employees’ behalf and deducted from an employee’s paycheck.
Visit an Accountant
Don’t wait until it’s tax season to find a CPA for your new business. LLCs have several choices about how the federal government can tax them. Tax classifications are subject to deadlines once your LLC is incorporated, meaning it’s vital to receive expert tax advice sooner rather than later.
A reliable CPA firm like MI Tax CPA can also recommend business deductions to reduce tax liability and prevent hefty fines or penalties.
Need Accounting Help for Your LLC? Get in Touch!
Forming a Michigan LLC is a major decision that forges a new path for your business journey. Creating an LLC can be confusing and mind-blogging because of the legal jargon, form filing, and documents.
Paying taxes is one of the biggest challenges new business owners face. Failure to file your taxes properly can cost your business thousands of dollars. It’s best to hire a specialized CPA firm like MI Tax CPA, which understands the ins and outs of Michigan tax laws. Get in touch with MI Tax CPA today, and our experts will help you find every deduction possible and help you save.