Set up your Michigan LLC without the hassle.
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Why start an LLC in Michigan? An LLC is a business structure that combines many of the benefits of a corporation, without the hassle of actually opening one. It can be a good option for small and medium businesses, including new businesses operated by one person.
LLC stands for limited liability company, meaning that it may protect the business owner’s own personal assets, in case the business goes under. If managed correctly, an LLC can be a great option for entrepreneurs, and may offer many advantages such as tax benefits and liability protection.
With a population of over 10 million, Michigan is the 10th largest state by population. It boasts a gross state product of $626 billion GDP, a strong industry, and abundant natural resources. With over 900 thousand small businesses, starting an LLC in Michigan is a promising prospect for many people.
The Department of Licensing and Regulatory Affairs (LARA) of the Corporations Division of Michigan is the governmental bureau for registering a new Limited Liability Company (LLC) in the state.
A person who is the “organizer” forms the LLC. The LLC has members who are the owners of the company. The organizer may be but does not have to be a member of the LLC. We’ll explain more about the management structure of LLCs later!
Starting an LLC in Michigan or any other state can seem daunting, especially if you are diving to it head first for the first time. Our guide breaks down the process into simple and clear steps, so that you can feel like a pro even if you’re doing it for the first time.
Here Are the 6 Steps to Take to Start an LLC in Michigan:
Below, you’ll find a detailed explanation to walk you through each step.
Before you file, ensure the name you want to use is available. The recommended ways to find out if another business uses the name are to call 517-241-6470 or use the online search for a business entity.
This would also be a great time to check for domain name availability for your website and social handles availability for your social media profiles, to build the foundation for your business’s social media presence and general online presence. Ideally, your business name should be consistent along all your online and offline marketing channels.
The reservation of a name for an LLC is possible for 6 months following the month of filing the reservation form. This reservation is accomplished by filing a name reservation form and paying $25. If you are ready to file the LLC immediately, there is no need to reserve the name; however, name reservations are first-come, first-served.
Doing business as (DBA) is a way to have a different legal entity name for the LLC while operating under another name as the business. For example, Alphabet Inc. is the parent company doing business as Google.
In Michigan, a DBA is called an “assumed name.” To apply for an assumed name for an LLC, use the form CSCL/CD-541 and pay the $25 fee.
The name chosen for the assumed name cannot be so materially similar to another business name in the state that it causes confusion, so follow the state’s rules when choosing a business name.
Filing an assumed name can be useful in many cases, usually for branding purposes. If you’re not sure whether or not you need a DBA (or assumed name), learn more on what is a DBA here, and how to file a DBA in Michigan here.
Note that this step is also optional. You may want to protect your business name rights using a state or federal trademark. The filing fee for registering a trademark or a service mark, only for use in Michigan, is $50.
Suppose the business already has a registered trademark or service mark on file with the U.S. Patent and Trademark Office (USPTO). In that case, that filing extends the registration to all of the United States, including Michigan.
A registered agent is a person or a corporation that serves as the address for all legal and formal inquiries. In order to form an LLC, appointing a registered agent is a must, in Michigan as in all 50 states.
Under Michigan law, an LLC may serve as its own registered agent if it maintains a physical office in the state that is open during regular business hours and has at least one staff member who is a person over the age of eighteen to accept process service and mail.
A postal box does not suffice to meet this requirement.
Most businesses prefer to use the services of an authorized registered agent for a small annual fee.
Be sure the registered agent is in good standing with Michigan state. The LLC will authorize this registered agent to accept process service and mail for the company. The address and contact person of the registered agent will be part of the public records in Michigan.
We provide this service and if you choose to create your LLC with Tailor Brands, we can supply you with registered agent services.
It’s possible to serve as your own registered agent. However, for privacy reasons, many business owners opt for using a registered agent service, as being your own registered agent means that your address will be part of the public record.
Take that into account and make the right choice for you!
Filing articles of organization is one of the very first steps of officially forming your Michigan LLC. You can think of it as the birth certificate of your new LLC!
The Articles of Organization form contains basic information about your LLC. Details like:
Starting a new LLC in Michigan costs $50.
Forming a new professional LLC costs $50. Any additional licensing fee depends on the profession.
A foreign LLC transacting business in Michigan must obtain a Certificate of Authority for $50.
Articles of organization
For a new LLC, the CSCL/CD-700 filing form contains only the minimum information required for the Articles of Organization, which may not meet the full needs of your new LLC.
You may want to file more comprehensive Articles of Organization instead. This filing is fine as long as it meets the minimum requirements.
For a professional LLC, which requires a professional license, use the form BCS/CD 701 instead. This is only applicable if you practice a trade that requires a professional license, such as a medical doctor or a law practitioner.
Resident agent
As mentioned in step 2, You must have either a physical office for the LLC in Michigan that is open during regular business hours or a resident agent to accept process service. A resident agent is authorized to accept process service on behalf of the LLC and maintains a physical office in Michigan, which is open during regular business hours.
Entity name
The LLC name must contain the words Limited Liability Company or the abbreviation LLC, LLC, LC, or LC.
An LLC is officially formed in Michigan by filing Articles of Organization (form CSCL/CD-700) with the proper LARA bureau and paying the $50 filing fee. Make this filing and fee payment online (preferred), by mail, or in person at the Corporations Division bureau office.
Filings may be done online, by mail, or in person.
It is safer and more efficient to use the available online services than going to the office in person.
Expedited services are available by submitting the form CSCL/CD-272 and paying extra fees depending on how fast you need the filing done, which are:
Here is contact information for the Department of Licensing and Regulatory Affairs (LARA) Corporations Division.
Monday to Friday, 8:00 a.m. to 5:00 p.m. (Eastern time)
Cashier’s office (first floor), Monday to Friday, 8:00 a.m. to 4:30 p.m. (Eastern time)
The Corporations, Securities & Commercial Licensing Bureau
2407 N. Grand River Ave.
Lansing, MI 48906
Email: [email protected]
Tel.: 517-241-6470
Fax: 517-763-0039
Postal mailing address (for USPS delivery only):
P.O. Box 30018
Lansing, MI 48909
There are essential elements of operating an LLC that should be in the Operating Agreement. A written Operating Agreement defines how the business will run. It’s important to cover everything that might arise in the future that may cause a conflict, especially if you have a multi-member LLC.
Michigan has no legal requirement for an LLC to have an Operating Agreement. If you are a single-member LLC, it is unnecessary to have an Operating Agreement, although it’s still permitted under Michigan law. Nevertheless, it is good business practice for an LLC with more than one owner to have a written Operating Agreement. If questions come up about operations in the future, the owners can refer back to the written Operating Agreement.
It’s also recommended for a single-member LLC to have an operating agreement. Since this document lays out the details of operation of your LLC, it’s a key element in keeping your liability protection intact, in case of any legal woes. An operating agreement is so essential, we consider it a must!
More details about creating an Operating Agreement for an LLC are in our separate, in-depth explanation of that topic.
Suppose you do not have an Operating Agreement for your LLC. In that case, the business must run according to the default provisions in the Michigan Limited Liability Company Act of 1993 and the amendments signed into law by Governor John Engler as Public Act 686 on December 2002.
When forming a new entity, the IRS requires the company to have an employer identification number (EIN) for tax records, payments, refunds, and filing tax returns. There is no cost for an EIN, and it is very straightforward to apply for an EIN online. Please note that the IRS website operates only from Monday to Friday, 7 a.m. to 10 p.m. (Eastern time).
We provide this service and will apply for an EIN for our clients, if they opt for it as part of our automated LLC formation process.
If your LLC is a pass-through entity, Michigan has no annual state LLC tax. However, if you elect to be a C-corporation for tax purposes with the IRS, the company will pay a 6% flat fee for Michigan’s state corporate tax rate.
After you get your federal EIN for a new business in Michigan, you must register with the Michigan Treasury Online (MTO) for business taxes.
You will pay federal, state, and perhaps local taxes for your business operations. Learn more about LLC taxation here.
The LLC can be either a C-corporation that pays federal taxes or a pass-through entity for federal tax purposes. If the owners of the LLC elect to be treated as a C-corporation for federal tax purposes, they file a Form 8832 Entity Classification Election with the IRS.
Treatment as a C-corporation means that the LLC pays federal income taxes on its net income.
The advantages of this entity classification are the possibility of more deductions being allowed and that dividends paid by the LLC to its owners are subject to the long-term capital gain tax rate, which is usually lower than a taxpayer’s individual tax rate.
The disadvantages are double taxation and the added expense of maintaining a C-corporation.
A pass-through entity is one in which members report their portion of the LLC’s net income on their personal federal income tax returns. However, a disadvantage is that LLC members have to report this income as self-employment income and pay federal taxes on it, including withholdings for Medicare and Social Security.
If your LLC operates as a pass-through entity, you will pay self-employment taxes on the income from the LLC. The federal self-employment tax rate for 2020 and 2021 was 15.3%. Social Security was 12.4% of that amount, and Medicare was 2.9%.
After reaching the income threshold of $137,700 for 2020 or $142,800 for 2021, there are no further Social Security taxes for any income above the threshold.
There is no Michigan state tax on an LLC that operates as a pass-through entity.
The Michigan corporate income tax (CIT) rate is 6% of taxable income. This rate applies to all corporations transacting business in the state and any LLC that elects for taxation as a C-corporation.
Michigan has only one credit in the CIT, which is for any business entity that is a state taxpayer with gross receipts less than $20 million and with adjusted business income (minus the loss adjustment) that does not exceed $1.3 million each year adjusted for inflation.
There is a disqualification of the taxpayer if any officer or owner of the business receives more than $180,000 in annual compensation.
A qualifying business under the small business alternative credit pays only 1.8% of adjusted business income, subject to recapture provisions if the company fails in the future to qualify by moving out of the state within five years after claiming the first credit.
The Michigan sales tax rate is 6%. Goods subject to sales taxes include furniture, appliances, vehicles, prepared food, and many other items. Some items such as machinery, raw materials, groceries, gasoline, utilities, medical devices, prescription medication, and others are tax exempt.
If you are buying goods for re-sale, you should apply online for a sales tax license to get a sales tax license number. Then, when claiming a sales tax exemption, you use the form 3372 Michigan Sales and Use Tax Certificate of Exemption.
For the calendar year 2020, payroll tax in Michigan had a withholding rate of 4.25%, with a personal exemption of $4,750. See the Michigan payroll tax withholding rules for more information and due dates.
When an out-of-state business sells or leases tangible personal property to a Michigan resident, they must register to pay a 6% use tax.
Licensed marijuana retailers pay a 10% Marihuana Retailers Excise (MRE) tax on sales and collect 6% sales tax from customers.
Other tax laws include the Bottle Deposit, 9-1-1 Surcharge, and the Insurance Provider Assessment Act (IPAA).
Once you have a federal EIN and your LLC is registered in Michigan, you should open a separate business bank account for the LLC. Do not commingle business funds with your personal monies.
Having a business bank account establishes the company and may help limiting liability to the amount invested in the company. This benefit is one the main advantages of having an LLC to help protect your personal assets. In any case, it’s advised to consult a lawyer once your LLC is set-up to understand the legal requirements and how to maintain your LLC properly.
You may want to establish a business credit line or get business credit cards for your new company.
Michigan requires all owners of LLCs operating in the state to file an annual report.
The annual form and payment of the fees can be filed online using your Customer Identification Number (CID) and PIN that you get when you first register.
Each year, for a regular LLC, you will pay an annual fee of $25. For a professional LLC, the annual fee is $75. The form is due before February 15th of each year.
If filed late, the penalty fee is $50.
Failure to pay your annual filing fee and file the report for two years after it is due will cause an automatic revocation of good standing. To reinstate good standing requires the payment of past-due fees and total penalties for all the years they are due.
Learn more about ongoing Michigan LLC costs here.
There is no generic business license in Michigan. However, you may also need a certificate, license, or permit to operate, depending on your business type. Learn more about getting a Michigan business license here.
See Michigan’s official website to determine if your new business needs a certificate, license, or permit. Search by business type or read through the alphabetical list to find your business type. For every kind of business, you will see the certificate, permit, and business license requirements, if any.
Also, note that the local rules of the county, city, village, or township may differ from the state rules. Home-based businesses are subject to the same laws.
No warranty is expressed or implied for completeness or accuracy of the information in this summary guide. The laws are complex and constantly changing. Be sure to consult with a qualified tax advisor, lawyer, and accountant to get the most up-to-date information and advice regarding these matters.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
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