Michigan may be primarily known for its car manufacturing, but there is more to the state than simply being the country’s automotive hub. In fact, Michigan’s small business sector accounts for 99.6% of all state businesses. Additionally, Michigan has earned an impressive 10th place in the entire country by the total number of small businesses.
All of this points to an environment conducive to entrepreneurship and overall business growth, whether you want to run a modest single-member LLC or plan to occupy an entire market niche.
But where do you start building your Michigan business? The actual LLC formation process is not that different from the average procedure you might encounter in other states, but there are of course certain details and legal caveats specific to Michigan. This article outlines the following aspects of LLC registration:
- How to draft and file formation documents in Michigan;
- What other forms are usually required for Michigan LLC formation;
- Compliance regulations and other aspects of Michigan law pertaining to LLCs;
- Other maintenance steps involved in establishing a Michigan LLC;
- State fees and general formation costs.
- How to Form an LLC in Michigan: Step by Step
- First Tasks After Forming an LLC in Michigan
- Keep Your Michigan Company Compliant
- FAQ About Michigan LLC Registration
How to Form an LLC in Michigan: Step by Step
Step 1: Name your LLC
The first task on your Michigan LLC formation list is to come up with a suitable name for your company. It may not seem like that much of a hardship, but you always have to consider Michigan naming laws and regulations before you use just any name that could turn out to be invalid.
Words You Have to Use in name to get llc in Michigan
Under the Michigan Compiled Laws Section 450.4204, every limited liability company operating in Michigan must display its business structure designation by including any of the following indicators in its registered name:
- Limited liability company;
What is a Michigan low-profit LLC?
According to the definition provided in the Michigan Compiled Laws Section 450.4102, a low-profit limited liability company is a Michigan LLC that meets all of these requirements:
- The LLC pursues one or more charitable/educational causes, and they form the sole purpose of the LLC’s existence;
- The LLC does not strive to make money as its sole purpose;
- The LLC does not exist to achieve political or legislative goals.
If your Michigan LLC is classified as a low-profit, it automatically alters the state’s naming parameters. Much like a regular one, the name for a low-profit LLC must indicate its designation with words like:
- Low-profit limited liability company;
- L.3.C. or l.3.c.;
- L3C or l3c.
Regardless of whether you’re forming a regular or low-profit LLC, the name of your company must be distinguishable from other entities registered in Michigan. The rule applies to all business types, even if your name is registered to a non-LLC entity.
For instance, if you plan to form a bakery called “Lansing Bakehouse, LLC” but it turns out that another company is already registered as “Lansing Bakehouse, Inc,” your name won’t be considered distinguishable enough. A way around it is to add words or change key terms like “Lansing Cakes & Pastry, LLC”.
Words You Can’t Use
Another aspect of naming regulations is the certain restrictions you have to follow when naming your Michigan LLC. According to Section 450.4204 of the state legislature, Michigan LLCs cannot use words that could misdirect customers.
For instance, if you run a bakery, your LLC must indicate your occupation clearly and not include words that point to a completely different industry like construction or landscaping.
Additionally, names of Michigan LLCs can’t include indicators of other business structures like:
- Corp. or inc.
Subsection (d) of this section also states that LLC names must not include words whose use is restricted or prohibited by Michigan’s statutes. Admittedly, this is a fairly broad statement, so the best way to ensure your LLC name is entirely compliant is to consult a legal professional.
What you need to remember is that your LLC’s name shouldn’t imply any connection to government agencies or regulated industries unless you have obtained explicit permission, licenses, permits, etc.
|If you aren’t sure whether your form of business requires permission, be sure to check with the Secretary of State’s list of licensable professions.|
Research the LLC Name You Want
Before filing your articles of organization, you need to make sure the name you’ve chosen for your LLC is available. You can check name availability on the Michigan Department of Licensing and Regulatory Affairs (LARA) website by using their business entity search tool completely free of charge.
Michigan DBA: Using a Fictitious Business Name
Operating under an assumed name is common practice for Michigan businesses. You could register a DBA (or “doing business as”) to avoid the naming restrictions or to expand your product lines and diversify services.
According to the Michigan Compiled Laws Section 450.4206, you can register a DBA by filing a certificate of the assumed name with the Corporations Division of the Michigan Department of Licensing and Regulatory Affairs.
Note that DBA certification doesn’t grant you exclusive rights to your assumed names. Under state law, this DBA can be used by other LLCs (two or more) or by one LLC and one other formal entity like a corporation or LLP.
You can file your certificate of assumed name online or by mail using Form CSCL/CD-541. The filing is $25, but you can expedite the processing for an additional $100-200 per document.
|The DBA is valid for 5 years after which it can be renewed for successive 5-year periods. The expiration date is December 31 of the fifth full calendar year following the initial filing year.|
Step 2: Appoint a Registered Agent for your LLC
Under the Michigan Consolidated Laws Section 450.4207, every Michigan LLC is required to maintain a registered agent—called a ‘resident agent’ in the state of Michigan—and a registered office to receive notices and service of process on behalf of the company.
|The term service of process describes the practice of serving legal papers, specifically court summons, to a defendant (in this case, an LLC) on behalf of the plaintiff.|
Unlike personal lawsuits, any notice of a business-related legal action goes through your registered agent office who then informs the members of the LLC. By law, registered agents must make their contact information public on the LARA website.
In Michigan, the service of process can be delivered to the LARA administrator instead of a registered agent in cases when representatives can’t reach your agent or you failed to provide their information.
This provision has been put in place to facilitate more reliable means of communication between the state and the company, but it’s impossible to gauge how fast the LARA could notify you in place of your registered agent.
And if any papers get lost in the process, there is no way for you to know that you need to show up for a hearing. In that case, your non-response could lead to a default judgment.
While Michigan gives you quite a few options when it comes to registered agent appointments, it’s safe to say that the most efficient candidate is a professional registered agent company.
Although technically you can appoint any Michigan resident to do this job and even serve as your own registered agent to save money, there are far more disadvantages to this method than benefits.
- Reduced cost: You don’t have to pay annual fees for LLC services;
- Simple set-up: You can use one set of addresses for registering as an agent;
- No middle man: You will get all deliveries in person.
- Privacy issues: A registered agent must make their information public;
- Inconvenient schedule: Registered agents have to remain at their registered office address at all times during business hours. This means you don’t get to have breaks or sick days;
- Disruptive situations: Being served a summons from a creditor in the middle of a client meeting can be both embarrassing and damaging, but it’s what could happen if you act as your own agent;
- Spam and junk mail: Publicly available addresses mean that you will get no shortage of spam;
- Liability risk: It will be your responsibility to make sure you don’t miss an important delivery. And if you do, the consequences will also be yours and yours alone.
No matter how tempting it could be to avoid paying annual fees for a professional registered agent company, remember that it’s a fairly low price compared to thousands you might end up paying in fines if you hire a non-professional and they miss out on a vital document.
|If you don’t know where to find a good professional registered agent, be sure to check out our article on Best Registered Agent ranking for potential options.|
Most professional LLC formation companies offer free trials up to an entire year. After that, most professional providers set their annual fees within the $100 range.
Step 3: File Your Michigan LLC Articles of Organization
The filing of your Michigan articles of organization is the key step that defines the LLC formation as a whole. According to the Michigan Compiled Laws Section 450.4202, an LLC can only legally exist after the state approves its executed articles of organization.
|An efficient way to handle multiple LLC filings is to hire a professional formation service. If you are new to this, take a look at our compiled list of Best LLC formation services with general overviews and rankings.|
What to Include in Articles of Organization to Set Up an LLC in Michigan
If you don’t know how to structure your articles of organization, the Michigan Compiled Laws Section 450.4203 provides a list of mandatory items, as well as suggestions for other provisions. The articles of organization must contain:
- The name of the LLC;
- The purpose of the LLC;
- The LLC’s registered office address;
- The LLC’s registered agent information;
- The LLC’s management structure (manager-managed, owner-managed, etc);
- Whether the LLC is perpetual or has a dissolution date.
Curiously, Michigan law allows you to add optional provisions that you would otherwise include in your operating agreement, but this is generally not recommended.
The reason you wouldn’t want to use your articles of organization the way you might your operating agreement is the order of their priority. In case of a lawsuit or dispute of any kind, the articles of organization will be given priority whereas the operating agreement will be discarded.
This means that the operating agreement loses all power, including other crucial provisions outlined there but omitted in the articles of organization. If you don’t know how to start even the basic outline for the articles, you can always use Form CSCL/CD-700 provided by the LARA.
Filing Fee: How Much Does an LLC Cost in Michigan?
According to the LARA filing fee schedule, the one-time filing fee for the articles of organization is $50 per document.
Michigan LLC Processing Time
Standard processing time for Michigan formation documents is 10-15 business days plus extra if you submit by mail. Unlike online filings, mail submissions go through several processing locations until they can be approved by the Corporations Division.
Fortunately, Michigan offers several paid expedited service options:
- 24-hour processing: $50 per document;
- Same-day processing: $100 per document which must be submitted by 1 p.m. EST/EDT;
- Two-hour processing: $500 per document which must be submitted by 3 p.m. EST/EDT;
- One-hour processing: $1000 per document which must be submitted by 4 p.m. EST/EDT.
You can find out more about Michigan’s Corporations Online Filing System (COFS) on the LARA website.
Step 4: Draft Your Michigan LLC Operating Agreement
An operating agreement is a contract between members of an LLC designed to regulate internal processes, responsibilities of LLC members, and other procedures pertaining to the entity’s activities.
Although it’s not a mandatory formation condition to draft an operating agreement, this document is crucial if you want to keep your company well-organized. This is especially true for LLCs with multiple members each of whom have unique roles.
|Curiously, Michigan law doesn’t allow single-member LLCs to have an operating agreement as such documents are considered unenforceable.|
Whereas some states allow an operating agreement to be made in a purely verbal form, the state of Michigan (Michigan Compiled Laws 450.4102(r)) requires this document to be put in writing.
An operating agreement may include the following items:
- Rights and responsibilities of the LLC members: What each member is entitled to in terms of executive powers, rights, duties, and official titles;
- Entity’s purpose: What types of business activities and transactions the LLC intends to engage in;
- Regulations for members/managers: The powers granted to the LLC’s managers or equivalent;
- Capital contributions: The initial investments LLC members contributed to the establishment of the company;
- Percentage interest: Ownership shares of each member;
- Profit distribution: How profits and losses are allocated among members;
- Meetings and voting: How regular meetings should be held, the voting process, voting method, voting rights, etc;
- Membership administration: How to train, qualify, and hire new members, replace members, etc;
- Transfer of ownership: Procedures for redistributing ownership shares of ex-members or transferring shares to new members;
- Dissolution: The exact dissolution process for the LLC;
- Amendment rules: Appropriate ways to make changes to the operating agreement.
The beauty of the operating agreement is it is, by nature, internal. You don’t need to file it with any Michigan agency nor do you have to pay to amend it. This is why it’s cheaper and more efficient to draft the LLC’s operational provisions using the operating agreement rather than the articles that require $50 per amendment filing.
Step 5: Get an EIN to Register LLC in Michigan
Every individual taxpayer uses their SSN to report their income to the IRS. The same goes to business entities that have to report their state and federal incomes, except formal structures like LLCs have to use EINs or Employer Identification Numbers, instead.
That said, an EIN is not technically a blanket requirement for business entities, so LLCs may go without it on occasion. For instance, single-member LLCs could report taxes using the sole owner’s SSN. However, the EIN becomes mandatory for LLCs in the following cases:
- When an LLC has more than one member;
- When an LLC has employees;
- When an LLC elects a corporate tax system;
- When an LLC needs its own bank account.
If your LLC does end up needing an EIN, it’s fairly easy to obtain one. You can do it by applying online on the IRS website or by submitting IRS form SS-4 by mail or fax. Online applications are naturally faster, in fact, you will be issued your EIN almost immediately.
It’s important to remember that the EIN service is provided by the IRS entirely for free. Some LLC formation services would try to push EIN filing as some premium feature with an egregious price tag, so it’s best to steer clear of these formation packages.
First Tasks After Forming an LLC in Michigan
After getting your Michigan LLC formation documents in order, it’s time to take care of a few key maintenance steps. More on that below.
Open a Business Bank Account
While some entrepreneurs choose to conduct LLC transactions using their private bank accounts, this method may not be the best choice for complex business enterprises. It may seem like opening a business bank account is unnecessary for all its additional paperwork, but there are quite a few solid reasons to get one for your LLC, including:
- Account management: Bookkeeping is made more efficient by the separation of accounts. If your LLC has its own bank account, you won’t need to spend hours if not days to isolate each transaction to organize your accounts and pay taxes;
- Credit: Establishing credit lines is essential for small business funding. Business credit is more accessible if your LLC already has a bank account;
- Personal asset protection: Having proof that your LLC and you as an individual are financially independent is crucial for maintaining limited liability protection.
As is evident from the list, a business bank account is not only extremely useful but often indispensable. One of the main reasons for the popularity of the LLC as a business entity is its ability to grant corporate levels of liability protection by utilizing the concept of the corporate veil.
Although it originally applied only to corporate entities, the corporate veil has been adopted by LLCs to serve the same purpose—to protect entity owners and their personal assets from litigation brought against the business itself.
This is where business bank accounts become essential. If you mix your LLC’s transactions with your personal ones, maintaining the legal separation of individual and entity is virtually impossible. In cases like these, courts are able to “pierce” the veil thus putting LLC members’ personal assets at risk.
Get Business Insurance
Another fundamental facet of running a business is maintaining a reliable safety net in the form of business insurance. Among dozens of policies, some essential and some less so, several can be classified as must-have LLC basics:
- General business liability insurance: The broadest of the bunch, this policy protects against common risks like general property damage or bodily injury;
- Commercial auto policy: Designed for LLCs that utilize auto transportation like trucks and vans to deliver goods and services;
- Workers compensation insurance: Under Michigan law, businesses that have employees are likely to require workers comp regardless of the industry. There are exceptions to this regulation, more on which you can find in Section 418.16 of the Workers Disability Compensation Act;
- Professional liability insurance: Applies to certain professions and industries put service providers at risk of malpractice lawsuits;
- Business income coverage: Aimed at businesses that need coverage during industry slowdowns and temporary inactivity or shutdown;
Business property insurance: A more comprehensive coverage of property damage, inventory, equipment, etc.
Keep Your Michigan Company Compliant
The final stage of the overall formation process concerns the legal aspects of running an LLC. A business must excel at state compliance, otherwise, it risks scoring multiple penalties and even dissolution.
Business Permits and Licenses
Michigan does not require a state business license to run an LLC, but you will likely need one or several licenses or permits for operating in your local jurisdiction. Each county and municipality has its own regulations, so you will need to clear that up with your local reps.
Additionally, certain industries are more heavily regulated than others and require specialized permits and licenses. If you are unsure whether your professional field requires any licenses, check the LARA business licensing page for more information.
Michigan Tax Requirements
As pass-through business structures, LLCs typically don’t pay direct income tax. What this means for the owners is the shift in responsibility, specifically that the state income tax is reported on the income return of each member. This method of tax reporting only changes when the LLC adheres to a corporate tax system.
Other major taxes that could be relevant for your LLC include sales tax, social security taxes, and withholding taxes. If your entity engages in commercial activities that involve selling goods or services, the LLC qualifies for sales tax. You can find more about the tax on the Michigan Department of Treasury website.
Aside from paying the FICA taxes, an LLC with employees will need to withhold these taxes from the issued paychecks. To do that, an LLC must first register for withholding taxes with the MI Department of Treasury.
Federal LLC Tax Filing Requirements
The LLC’s default classification as that of a pass-through entity exempts such companies from the federal income tax typically applied to business structures like C-corporations.
All profits and losses generated by the business are instead reported on personal tax returns of the entity owners using Form 1040, Schedule C unless the LLC has elected a corporate taxation system.
Annual Report and other Filing Requirements
All LLCs operating in Michigan must report on any changes within the company on a yearly basis by filing the annual statement otherwise known as the annual report.
Under the Michigan Compiled Laws Section 450.4207, the annual statement must include:
- Your LARA ID;
- The name of the LLC;
- The LLC’s registered office address (both street and mailing if they are different);
- The LLC’s resident agent information;
- The name/title of the individual filing the annual statement and their signature.
|Annual statements must be submitted before February 15 of the year following the previous filing. One exception to this deadline are LLCs that were registered after September 30.|
You can file the annual statement online through the LARA website or by mail at least 90s days before the final submission date. The filing fee for this application is $25. Online applications can be paid electronically whereas mail filings need to include a check made payable to the state.
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.
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