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Michigan is a state of many opportunities—from the auto industry in Detroit and the tech hub of Ann Arbor to the lumber yards of the Upper Peninsula. No matter where your business falls within this ecosystem, there’s a chance the limited liability company (LLC) structure might be right for you. Here’s how you start a Michigan LLC.
How to start an LLC in Michigan
What is an LLC?
A common business structure in the United States is the limited liability company, or LLC. LLCs account for more than a third of all businesses nationwide, according to the National Small Business Association. A major benefit of starting and running an LLC is that the structure provides liability protection for business owners, shielding them from legal financial responsibility—and most business debts—brought against the business. The owners are known as “members,” with LLCs formed by one owner called single-member LLCs and those with more than one owner called multi-member LLCs.
Is an LLC right for you?
Before answering this question, there are two components of an LLC business structure you’ll want to ask yourself:
- Do you have personal assets in need of protection? If so, forming a Michigan LLC allows you to shield those assets from creditors or litigants in the event your business faces bankruptcy or legal action.
- Are you looking to limit your tax liability? Unless your LLC elects to be taxed as a C corporation, it is considered a “pass-through” entity in Michigan, meaning the business is subject to a single round of taxation. So, Michigan LLCs will not pay corporate taxes and instead will be taxed one time at the owners’ personal income levels, similar to the tax treatment of a sole proprietorship or partnership.
1. Choose an idea for your LLC
The first step is to develop a clear, cohesive idea for your Michigan LLC. It’s a process that involves more than just figuring out whether you’re going to sell a product, service, or, perhaps, a range of products and services. It’s also your LLC’s positioning in the Michigan business landscape: Are you selling direct to consumer or business to business? You’ll also have to make considerations about the overall direction of your Michigan LLC:
- Who is your customer? The picture of your Michigan LLC idea isn’t complete unless you know your target customer. To figure this out, conduct a competitive analysis of other businesses in your market, analyze marketplaces where similar products or services are sold (like Amazon), survey prospective customers, and/or research industry trends.
- What is your projected profitability? An LLC idea has to be potentially profitable to be worth the investment, both time-wise and financially. Understanding this can mean looking at the pricing and break-even point, how the products or services will be packaged or offered to customers, and determining an effective business model for your LLC.
2. Name your Michigan LLC
After settling on an idea for your Michigan LLC comes another crucial decision: What will you name your company? A good name is essential to building brand recognition and communicating what the business does in a catchy and memorable way. Equally important is a name that aligns with the business’s mission. There are also specific rules for naming your LLC in Michigan:
- Your LLC’s name must contain the phrase “limited liability company,” or a variation of its abbreviation (LLC or L.L.C.).
- Your Michigan LLC name must be unique and not shared with any other Michigan business. You can conduct a search with the Michigan Department of Licensing and Regulatory Affairs Corporations Division online filing system to check for a name’s availability.
- Your LLC’s name cannot contain the words “corporation” or “incorporated,” or abbreviations of either.
- Usage of other words in a Michigan LLC name is heavily restricted. A list of such words is maintained by the Michigan Secretary of State’s office.
3. Create a business plan
A workable business plan will include your company’s name along with a brief description of what it sells. It should also include a thorough market analysis, an outline of the managerial and broader organizational structure, descriptions of products and services you plan to market, a customer segmentation report identifying target customers, and marketing, logistics and operations, and financial plans.
4. Get a federal employer identification number (EIN)
A federal employer identification number (EIN), also known as a federal tax ID, is a nine-digit number assigned to businesses by the IRS for tax purposes. If your Michigan LLC has more than one member, then you must obtain an EIN. Additionally, if you choose to hire employees or elect to have your LLC taxed as a corporation rather than a pass-through entity, you will also need an EIN. You can obtain an EIN online through the IRS website.
5. Obtain your Michigan Certificate of Formation
After filing certain formation documents and having them approved, the state of Michigan will issue you a Certificate of Formation. Expect the formation documents, or articles of organization, to include your LLC’s name, the name and address of your registered agent, a general statement explaining the reason why you established your LLC, the duration you expect your LLC to exist (which can be indefinite), and a signature of the incorporator. Once you file these articles, the Michigan Secretary of State will review—and hopefully, approve—and register your business.
6. Choose a registered agent in Michigan
In the state of Michigan, you are required to appoint a registered agent for your LLC. A registered agent is a person or organization authorized to accept legal documents and other official documents on your behalf. A registered agent in Michigan can be an employee or member of your LLC, or a company that offers registered agent service. Your registered agent must be at least 18 years old and have an address in Michigan. If choosing a service, an agent must be on-site at your place of business and available to accept documents during regular business hours.
7. Obtain business licenses and permits
To lawfully run a Michigan LLC, you may be required to obtain certain business licenses. The state maintains a database of searchable business types—categorized by industry and field—that lists the required and potential licenses for your fledgling business. For example, a coffee shop would require a food license—and possibly, a local permit or license—if a restaurant offers live entertainment. Certain cities and counties in Michigan may also require you to obtain additional licenses or permits to operate. If your LLC is a retail business, you may also need to obtain a sales tax license.
8. Understand Michigan tax requirements
Your Michigan LLC will be subject to both federal and state taxation. Estimated federal taxes may be collected by the IRS on a quarterly basis—and you will have to make estimated tax payments if you are operating your LLC as a partnership or S corporation, and expect to exceed $1,000 in revenues. Estimated taxes are calculated based on earnings to date. Depending on the nature of your Michigan LLC, you may also be required to register for some state taxes. Other taxes a business owner starting an LLC in Michigan may want to be aware of include:
- Personal income taxes. Regardless of how you choose to form your LLC—as a pass-through tax entity or as a C corporation—you and any business partners will pay taxes on income earned through the LLC at the personal level.
- Corporate taxes. If electing to form an LLC as a C corporation, the LLC will pay taxes on all profits generated before they are distributed to ownership, at which point they will be taxed again at the shareholders’ personal income levels. In Michigan, the corporate tax rate is 6% of taxable income.
- Unemployment insurance tax. If you have employees in Michigan, you will be required to register for unemployment insurance tax for benefits that will be paid to employees after job loss resulting from layoffs or other specific reasons. This tax is paid through the Michigan Department of Treasury.
- Employee withholding tax. This, too, is a tax on behalf of your workers that can be paid through the Michigan Department of Treasury. It is deducted from an employee’s paycheck. The tax rate for 2021 was 4.25%.
- Michigan business tax. The Michigan business tax, or MBT, imposes a 4.95% income tax and a modified gross receipts tax of 0.8% on certain businesses, including most LLCs, based in the state. Businesses operating in the fields of insurance, as well as banks and lending institutions, are exempt but pay their own set of state taxes.
9. Prepare an operating agreement
An LLC operating agreement is a legal document that outlines how your Michigan LLC will conduct business. It’s not required, but can provide a cohesive direction for internal operations and accountability. You can expect it to cover, at a minimum:
- Your LLC’s name and primary address
- How long you plan to run the LLC, perhaps indefinitely
- Information on the LLC’s registered agent
- Information about the articles of organization
- The business’s purpose and mission statement
- An organizational chart, listing members and their respective investments in the LLC
- The manner in which profits and losses will be divided among the members
- The process to accept new members, and offboard outgoing ones
- An overall management plan for the LLC
- Various indemnification and liability provisions
10. Examine business insurance options in Michigan
Even the best-prepared entrepreneurs can encounter unforeseen problems on the journey to building a full-fledged LLC. While LLCs offer a degree of personal asset protection, you may still want to purchase insurance for your business’s products, vehicles, and other unprotected assets. The federal Small Business Administration maintains a list of types of insurance your new Michigan small business may need. Some insurance options newly formed LLCs in Michigan may want to consider include:
- Liability insurance. Covers your business for any legal actions resulting from accidents, injuries, or negligence.
- Commercial property insurance. Protects your business from costs associated with fire or weather damage, or theft.
- Professional liability insurance. Protects manufacturers, wholesalers, distributors, and retailers from liability in connection with unsafe products.
- Cyber liability insurance. Protects Michigan businesses from costs associated with suffering a data breach.
- Umbrella insurance. Helps cover anything that may exceed policy limits on other insurance plans.
11. Understand financial considerations
Besides insurance, you will likely also have to make other essential purchases to properly launch your Michigan LLC. This could include rent toward a brick-and-mortar retail space, a professionally designed website, ad placements, business equipment, or software. You may also want to hire one or more lawyers, accountants, or other professionals. To manage these costs there are accessible options for startup funding.
12. Market your LLC
A solid marketing plan for your Michigan LLC will include several key elements:
- Market research. Conduct thorough market research to better understand your company’s target customer.
- Advertising and promotion. Leverage paid advertising to get the word out about your product or services. You can do this yourself, or hire an agency to do it on your behalf.
- Social media. Invest in social media, as success in business in 2022 is at least partially dependent on having a robust social media presence—on Facebook, Instagram, and YouTube, to name a few. As part of this strategy, consistently publish content that aligns with your brand.
- Public relations. Develop relationships with media outlets, both in Michigan and nationally, that can raise your LLC’s profile.
- New business and customer retention. The key to retaining and organically growing your customers is building genuine relationships, which may result in them spreading the word to friends, families, colleagues, and neighbors.
Starting an LLC in Michigan FAQ
How much does it cost to form a Michigan LLC?
Starting an LLC in Michigan costs, at minimum, $50, which is the fee required to file your articles of organization, or articles of incorporation, with the Michigan Secretary of State.
Do you need a registered agent for your LLC in Michigan?
Yes, all LLCs incorporated in Michigan must name a registered agent with an in-state mailing address.
How do state taxes work for LLCs in Michigan?
Unless Michigan LLCs elect to be treated as corporations, state taxes are applied to them in the same way federal taxes are—one time, at the personal income levels of its members.