How to Form an LLC in Michigan: The Affordable Way

So you are looking to start your business in Michigan? Great! A Limited Liability Company, or LLC, can be an excellent choice for the business you are trying to form. It enjoys the benefits of a corporation without having to run like one.

An LLC can protect your personal assets and can open the door for tax savings. Besides, it also provides great operational flexibility.

Michigan, like every other state, has a unique set of rules and procedures for forming an LLC. You can reserve your LLC’s name for a period of 180 days and can have your LLC formed within an hour in Michigan (subject to a separate fee).

Forming the LLC by carefully following each step will ensure that you do not end up repeating the whole process. We are here to break it down and guide you through the process of incorporating an LLC in Michigan.

Name your Michigan LLC

The very first step towards forming your LLC would be to name it. Your LLC’s name will be its first point of identification for customers as well as the State. So make sure that the name you choose is unique and creative. A good name will help your LLC to have brand value in the market.

There are certain rules Michigan imposes on what you can and what you cannot have in your LLC’s name.

Naming Guidelines

The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).

The name of the LLC should be unique and must not resemble the name of any existing entity that has been permitted to conduct business in the State of Michigan. 

The name cannot contain any words or phrases that indicate a purpose other than the one stated in your incorporation document. Similarly, your LLC’s name cannot have the following words: “corporation,” “incorporated,” or the abbreviations “corp.” or “inc.” Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork

Additionally, your LLC’s name should not imply any affiliation with a State agency. For instance, you can not name your LLC “State Health Department.”

To know the entire naming guidelines of the State, you can visit the Michigan Department of Licensing and Regulatory Affairs website.

Does Your Business Require a DBA?

The name you register your LLC under becomes its legal name. A DBA (doing business as) enables you to operate your business under a different name. It is also called a Certificate of Assumed Name in Michigan. It is best used for branding purposes and cannot give the protection of limited liability.

Make sure that the name you choose for DBA is unique and follows the naming guidelines of the State.

Doing a Name Search and Name Reservation

Remember that your company’s name must be unique. It must not be identical to that of any other registered business. In order to make sure your LLC’s name is not already taken, you can use Michigan’s Department of Licensing and Regulatory Affairs (LARA) LLC name search portal. 

You may have decided on your company’s name but may still need time before you are ready to form your LLC. In order to make sure no one else takes the name you have decided on, Michigan allows you to reserve the said name with them. The reservation lasts for 60 days, and Michigan allows you to extend this period by another 60 days, twice, for a total of 180 days (6 months).

Registering Your Business Domain

The internet’s importance is growing exponentially, and everyone is looking to move online. Before purchasing a product or service, most customers rely on online reviews and look for an online presence.

Furthermore, a well-designed website might assist in attracting new clients. As a result, you should consider registering a domain name for your company. Before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available. 

You can check currently available domain names.

Choose a Resident Agent in Michigan

Michigan mandates that you appoint a resident agent (also known as a registered agent in other states) while registering your LLC. A resident agent is a legal person who receives notices and other communications on behalf of the LLC, such as court notices, government notices, and so on.

They also receive any process service concerning a lawsuit against your company. In essence, they serve as a link between the business and the government.

Who Can Be a Resident Agent?

You can either appoint an individual (yourself, friends or family, members of your LLC) or employ the services of a commercial resident agent. The agent you select for your LLC must be:

• An individual State resident (above 18 years) or
• A business entity that has obtained authorization to conduct business in the State. 

The resident agent should have a physical street address in the State and be available during business hours on all working days.

Individual Resident Agent v. Resident Agent Service

While you can appoint yourself as the registered agent, it may not be advisable for all businesses. Availing of a resident agent service has many advantages.

They ensure that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. The resident agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.

Also, availing of a resident agent service will help you focus your time and energy on growing the business without having to worry about missing any communications addressed to your LLC.

File the Articles of Organization with Michigan

The Articles of Organization is a document you file with Michigan in order to officially register your LLC with the State. It is a very important document, as it will ensure that your LLC is registered and is recognized in the eyes of the law.

The Articles of Organization will require the following information:

• The name of your LLC
• The purpose (nature of business) of your LLC
• The duration of your LLC (it can be perpetual if you wish to list it as such)
• The name and contact information of your LLC’s resident agent

Expedited Filing

If you would like your LLC to be formed within a certain time frame, you can do so by filing an Expedited Service Request. A 24-hour formation will cost you an extra $50, while a same-day formation costs an extra $100. If you would like your LLC to be formed within 2 hours, you will have to pay an extra $500. For an extra $1000, you can have your LLC formed within an hour.

Publish Notice of Formation

The state of Michigan does not mandate your LLC to publish a notice of its formation.

Create an Operating Agreement for your Michigan LLC

An operating agreement is a legal document that acts as a guiding force in matters of the day-to-day functioning of the LLC. t lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.

Although Michigan does not require your LLC to have an operating agreement, it is highly recommended. An operating agreement eliminates the possibility of misunderstanding between the members when it comes to matters like profit/loss distribution, voting rights, etc.

As a result, it minimizes the likelihood of your LLC’s members getting stuck in conflicts. It spells out the rights and responsibilities of your LLC’s members and employees. Members are aware of their expectations, roles, and liabilities.

An operating agreement usually contains the following information, but there are no rules as to what it must or must not carry:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Dissolution

Writing the Operating Agreement Yourself v. Hiring a Service

You have the option of drafting the agreement yourself or hiring a commercial service to do it. Both options have their own pros and cons. As a business owner, you may be in a better position to determine what the LLC’s objectives are.

As a result, you can construct the operating agreement to represent the aforementioned factors. However, a commercial service that creates such agreements on a regular basis may be aware of which elements of the agreement are problematic and could result in a disagreement. Many commercial resident agents offer services to draft your operating agreement.

Limits of Operating Agreement

While an operating agreement can help to reduce the likelihood of a disagreement, it cannot eliminate the risk of liability that your LLC may face in the course of its operations. An operational agreement cannot be unconscionable in the sense that it cannot avoid responsibilities mandated by law.  

Obtaining an EIN for your Michigan LLC

EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is a nine-digit number that serves as a tax identification number. The Internal Revenue Service (IRS) issues it.

An EIN is required for any LLCs with more than one member. It will also be necessary to open a bank account, file tax returns, and hire employees. You can apply for your LLC’s EIN online or through the mail. 

File Annual Statements in Michigan

The annual statement is a legal document you must submit to the State. It is used by the authorities to get the latest and updated information about all the business entities operating in the State.

Your annual statement should contain information about the LLC, members, addition of members (if any), new address (In case the company has shifted from the previous address), etc. The due date for filing the document is 15th February of every year, and the filing fee is $25.

Failure to file the document will result in your LLC getting penalized. The State charges a penalty of $50 for the first default. If your LLC fails to submit the annual statement and the applicable fee within two years of the due date, it will lose its good standing, and the name of the LLC will be deregistered. LLCs formed after 30th September do not have to file annual reports in the first year of formation. 

You can file your annual statement online using the Department of Licensing and Regulatory Affairs website.

You may also mail the application along with the fee to PO Box 30768 Lansing, MI 48909 or deliver it in person to the office at 2501 Woodlake Circle, Okemos, MI.

Tax Liability of Your Michigan LLC

Depending on the type of business your LLC is engaged in, the tax liability accruing to your LLC in the State of Michigan may vary. Moreover, the federal tax accrued would also be influenced by the taxation structure adopted by the LLC. The IRS can tax your LLC in four ways:

• Sole-proprietorship: a single-owner LLC
• Partnership: a multiple-owner LLC
• C – Corporation: the members and the LLC are taxed separately
• S – Corporation: the individual members of the LLC are taxed separately

Federal Tax Liability

Depending on the taxation structure adopted by the members, an LLC will be treated differently for taxation purposes. By default, a multi-member LLC is treated as a partnership and a single-member LLC as a sole proprietorship for taxation purposes. If your LLC has a partnership taxation structure, then the partners will be personally responsible for paying taxes. In a partnership, the LLC does not pay any taxes on income. However, individual members are taxed on the profits/losses they acquire from the LLC. The LLC needs to file Form 1065. 

On the other hand, the owner of a single-member LLC would be required to file form Form 1040. The profit/loss acquired by the LLC would be reflected in the owner’s personal income tax return.

If you wish for your LLC to be taxed as an S – Corp, you will file taxes under  Form 2553. If you would like your LLC to be taxed as a C – Corp, you must file taxes under Form 8832. 

State Tax Liability

Depending on your LLC’s business, you may accrue State taxes. If your LLC is engaged in selling physical products, your LLC needs to pay Sales Tax. But first, you would have to register for a seller’s permit. Once you obtain the permit, you can collect sales taxes from your LLC’s customers. 

If your collections amount to $62.50 per month, you would have to file returns annually. If they range from $62.50 to $300 per month, you would have to file returns quarterly. If they are more than $300 per month, you would have to file returns monthly. The deadline for filing tax returns is on the 20th of every month unless it is a holiday, in which case the deadline becomes the next working day. In case of late filing, a penalty amounting to 5% of sales taxes is levied. 

To determine whether you need to file for state taxes, visit Michigan’s Overview of Use Tax for Sellers of Services. (Usually, medicines, groceries, gasoline, and digital goods are exempt from taxes.)

Miscellaneous Tax Liability

You may accrue additional taxes if your LLC has employees. In such cases, you need to file for Unemployment Insurance Tax. You would also be required to register for the Employer Withholding Tax. Depending on the municipality you are located in, you may be required to file additional taxes; make sure you check with your county clerk’s office about the same.

Permits & Licenses

Obtaining licenses and permits is another aspect of ensuring that your LLC can operate without legal trouble. Depending on your LLC’s business, you may require additional permits at the Federal, State or Local Administration levels.

Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.

Some business activities requiring Federal Licenses and Permits are 

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, ammunition and explosives
• Fish and wildlife
• Commercial fisheries 
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and television broadcasting
• Transportation and logistics

At the State level, you will need to obtain a seller’s permit if your LLC plans to sell or lease tangible personal property subject to sales tax. You can obtain your seller’s permit by visiting the Michigan Treasury website.

Detroit requires a specific city license for certain businesses. Depending on where you operate your business, you may also be required to get the local government’s license and permit. To know more about local licensing requirements, get in touch with the office of your city or county office.  

For more information, you can visit the following online resources:

• Bureau of Professional Licensing website 
• State business licenses search tool
• State License Search
• Federal Permits and License

Business Bank Account & Phone Number

It is critical to have a separate bank account for the LLC. It ensures that there are no mix-ups and that your personal assets are not affected in case of insolvency or lawsuits. Whichever bank you open your LLC’s account in, they will ask for your LLC’s EIN and other information.

A business phone number will provide an avenue for customer support, increasing consumer satisfaction and proving beneficial to your business. You can obtain a phone number by availing of the services of any network carrier (such as AT&T).

The documents required may differ depending on the service provider. Usually, you would require some documents to prove the existence of a business entity.

Final Thoughts

Michigan is an excellent choice for setting up your LLC. It has a favorable environment for start-ups and new businesses.

LLCs in the State can avail of several tax abatement and incentives. The Industrial and Hi-Tech Tax Abatement program, Michigan Development Corporation Renaissance Zone, New Personal Property Tax Exemption, etc., are some of the business incentive programs in the State.

Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.

Make sure that you follow that you do not miss any deadlines and follow all State regulations. Repeatedly missing annual statement filings can be disastrous, as Michigan will delist your LLC.

Make sure you speak with your resident agent about meeting this deadline. Keep the State happy so that your LLC can function unhindered. Best of luck to you and your new LLC