Steps to Forming an LLC in Michigan
To start an LLC in Michigan you’ll need to file a legal document known as Articles of Organization with the Michigan Department of Licensing and Regulatory Affairs (LARA). The state of Michigan charges a filing fee of $50 to submit your Articles of Organization, which can be done online or via mail.
Forming your business as an LLC means that your business will be recognized by the state of Michigan as a separate legal entity from you as the owner. Because of this legal distinction, LLCs help to protect owner’s personal property, such as their home, car, and personal bank accounts. The liability protection provided is one of the main reasons why businesses in Michigan choose an LLC over operating as a sole proprietor or partnership. Follow the step-by-step guide below to learn what you’ll need to do to form your LLC in Michigan. If you want to learn more about LLCs, visit our guide What is an LLC and How does it Work?
Before getting started with the process of applying for an LLC in Michigan, you’ll need to choose the legal name of your LLC. When forming your business as an LLC, you’ll need to ensure that you follow the legal naming requirements laid out in Michigan law:
- The name you choose for the LLC must be distinct from other businesses in Michigan
- Name must include the word “limited liability company” or a designator that denotes that it is an LLC such as “LLC” or “Ltd.”
- Cannot include designators of different entity types such as “Inc”, “Incorporated”, “Corp”, “Corporation”, “LP” or “LLP”
- Should not have words in it that could create confusion between itself and an agency of the government
- Should not include restricted words like Bank, Attorney, or Insurance. A full list of restricted words can be found on Michigan.gov
Name Search Process
- Conduct a Michigan Name Availablity Search:
If the name you’ve selected is already in use by another business registered in Michigan, your application will be rejected. Therefore, it’s considered good practice to carry out a name search beforehand. This saves you time and money. The search process is simple, just look up the chosen name on the Michigan Department of Licensing and Regulatory Affairs (LARA) business entity search
- Verify Domain Availability:
A website is an essential requirement for any business these days. Even if you feel that you will never need to set up a website, it is important that you verify that the domain name for your business is available. It is highly recommended that you park the domain, to prevent customers from being misled by other parties. Considering the process can be as cheap as $10 through Namecheap, it’s practically a no-brainer.
Pro Tip: If the name you’ve chosen was at some point used by another business, it is advisable to opt for a different name. Though the name is available at the moment, the fact that it was previously used by someone else can cause delays for your business. A common way in which this manifests is the delay of the EIN receiving reference error 101 when applying.
The naming process deserves your undivided attention. Make sure you dedicate the kind of time it deserves. You can even consult our guide to picking out a great name for your business.
To form a Michigan LLC, you’re required to designate a resident agent in Article IV of your Articles of Organization document. In most other states, a resident agent is referred to as a registered agent – these terms refer to the same position.
What is a Michigan Resident Agent?
A Michigan resident agent is a person or company that you have designated to receive legal documents on the LLC’s behalf. A resident agent receives things like official documents, reminders, notices, and service of process papers. Essentially, a Michigan resident agent is the official point of contact for a Michigan LLC with the state of Michigan.
Who Can Serve as a Michigan Resident Agent?
To be a resident agent in Michigan a person must be a resident of Michigan, or in the case of a company must be registered in Michigan. The individual’s address must be in the state and they must be free during standard business hours. If a member of your LLC fits this description, they are eligible to represent your LLC as a registered agent. To learn more visit our detailed guide, What is a Michigan Registered Agent and who can serve as one?.
While some business owners will choose to list their business address and themselves as the registered agent, there are several reasons this could harm your business:
- You receive a lawsuit in front of a client: If you receive service of process for a lawsuit or other legal dispute at your business address, customers and clients could quickly become aware of the information you wish to keep private. You can avoid this embarrassing situation by choosing a third party as your registered agent.
- You miss important documents: Registered agents are expected to be available at all times during business hours. If you are frequently away from the office or expect to take a vacation this year, you should probably reconsider listing yourself as the registered agent. The last thing you want is to find out your business is tied up in a lawsuit or late on tax filings simply because you missed receiving service of process or other important documentation.
Once the previous requirements are complete, it is time to file the Article of Organization. This is a legal formality to complete the formation of your LLC and must be submitted to the State of Michigan Department of Licensing and Regulatory Affairs via mail or online. Information required in the filing is as follows:
- Article I: Name of your LLC
- Article II: Purpose Statement
- Article III: Duration of the LLC (Perpetual unless otherwise noted)
- Article IV: Name and Address of the Resident Agent
- Article V (Optional): Section 401 of the Act specifically states the business shall be managed by members unless the Articles of Organization state the business will be managed by managers. If the limited liability company is to be managed by managers instead of by members, insert a statement to that effect in Article V
Key Information about the Michigan Articles of Organization Filing Process:
- How much does it cost to start an LLC in Michigan?
It costs a total of $50 to form an LLC in Michigan. Michigan also offer optional expedited service: $100 for same day service, $500 for two hour service, and $1,000 for one hour service.
- How long does it take to form an LLC in Michigan:
Standard Turnaround Time: 24 hours for online filings and 3-5 business days for mailed filings.
How to Submit your Michigan LLC Application
- Online – https://cofs.lara.state.mi.us/CorpWeb/LoginSystem/ListNewFilings.aspx?FilingMethod=I
- Mail – Download the PDF Form
While a Michigan LLC is not legally required to have an operating agreement, it is highly recommended. An LLC operating agreement is a legal document that outlines the rules and regulations around the business’s financial and strategic decisions. It also outlines each LLC member’s initial investment, ownership percentage, and the process for if a member wishes to leave the business.
There are three main reasons why your LLC needs an operating agreement:
- Protects the LLCs limited liability status:
An operating agreement helps prove that your LLC is a legitimate business venture and isn’t operating as a sole proprietorship or partnership. Without an operating agreement, you could be at risk of losing your personal liability protection if you were sued or had outstanding debts that were unable to be paid.
- Provide Clear Rules for Resolving Disputes:
While it may not seem likely now, disputes regarding business operations and strategic decisions are common. It can save you a lot of hassle by outlining formal processes to resolve conflicts and outline operating procedures.
- Protection against default Michigan governing rules:
If an LLC does not have an operating agreement, they are subject to the state’s default rules. These rules are very general and, as a result, are not ideal for most LLCs and can have significant downsides. Creating an operating agreement can ensure that your LLC is not subject to the default state governance rules.
Having a professionally created operating agreement is your best bet. However, not everyone can afford to have a lawyer draft a custom operating agreement. If you want to create a basic one yourself, be sure that you include these items:
- Percentage of ownership allotted to each member
- Members’ responsibilities and powers
- Voting rights (if applicable)
- General internal structure of the LLC
- How profits will be distributed
- Buyout and buy-sell rules outlining the procedures for transferring ownership interest
If you are a multi-member LLC (have two or more owners), you are required to obtain an EIN. EINs are also needed to open a business bank account or hire employees. Because of this, we recommend that every LLC get an EIN.
EINs are an ID number issued by the IRS for tax and employment reporting purposes. You can think of an EIN as a social security number for a business. You can apply online for free directly with the IRS by using their online application system, know as the EIN assistant. Note that the EIN assistant is only available from 7 AM – 10 PM Eastern.
Michigan LLC EIN Filing Tips:
When applying for your EIN, be sure to wait until the State of Michigan Department of Licensing and Regulatory Affairs has approved your LLC. If your Michigan LLC filing is rejected, you will need to either amend your EIN filing or obtain a new EIN under the correct name.
When completing your EIN application, you must list your LLC name correctly. In the LLC name field, be sure that your name is listed exactly as it appears on your approved Articles of Organization document. A conflict in your name could result in delays when setting up a business bank account or applying for loans and lines of credit.
The online IRS EIN Assistant has a timeout security feature that will end your session if you are inactive for 15 minutes or longer. As a result, you’ll need to complete your EIN application in one sitting. Because of this timeout feature, we recommend that you collect all the information you’ll need to complete the application and have it on hand before starting. This information includes:
- Number LLC members (the owners of an LLC are referred to as members)
- Designate a Responsible Party – A responsible party is the designated person with financial control over the entity. You’ll need to provide this person’s name, address, and SSN.
- Physical Address and Phone Number of the LLC
- The legal name of the LLC
- County where the LLC is located
- State where the LLC is located
- State where the Article of Organization were filed – Michigan
- LLC Start Date
- If the LLC owns a high motor vehicle with a taxable gross weight of 55,000 pounds or more
- If the business involves gambling
- If you will need to file excise taxes
- If you will sell or manufacture alcohol, tobacco, or firearms
- If you will have or expect to have any W-2 employees within the next year, and if so, how many
Steps After Your Michigan LLC is Formed
Now that your LLC is legally registered with the State of Michigan Department of Licensing and Regulatory Affairs, there are still several steps to take before you start conducting business. Often, when you search how to start an LLC in Michigan, the instructions stop once the paperwork is filed. Yet, there are several more steps you can take to ensure your business is set up for success.
- Open a Business Bank Account
- Complete State Registrations
- Get Business Licenses and Permits
- Establish an Accounting System
- Set Up Credit Card Processing
- Sign Up for Business Insurance
Keeping a clear line between your personal and business transactions will keep you out of trouble and make accounting much easier for you. Mixing the funds is referred to as “co-mingling” funds and is seriously looked down upon. It also leaves you at risk of losing your limited liability.
If you fail to maintain separation from your business’ finances, the law may wonder why you’re being treated as a separate entity from your business. If a judge decides this as a valid argument, your business could lose its limited liability protection, and open you up to a potentially catastrophic lawsuit.
If you fail to keep your business and personal funds separated, you risk piercing the corporate veil. If you are faced with a lawsuit or have outstanding debts, a court may evaluate your business to determine if there is any real separation between the business and its owners. Without having a separate business bank account, you are at significant risk of losing your personal liability protection due to the lack of separation.
To learn more, visit our guide, How to Open a Business Bank Account.
Another common step that should always be included in your journey of learning how to form an LLC is completing Michigan state tax registration requirements. The two most common are registrations related to collecting and remitting sales tax and employment-related registrations.
In Michigan, any business that sells physical goods or specific services is required to collect sales tax from their customers and remit payment to the Michigan Department of Treasury. To do this, you’ll need to register for a Michigan Seller’s Permit.
Any business that hires employees in Michigan must register with Michigan Department of Labor and Economic Opportunity.
It is not enough to just set up a business; you must also make sure you are compliant with all state, federal, and local laws. You don’t just start a business and start making money; the government has strict rules and requirements about who is permitted to do what. To request permission to conduct a certain kind of business, you will have to seek out the relevant license or permit that is required for the type of business.
So, before you begin, conduct research to see what additional requirements you would need to fulfill.
- Federal Business Licenses and Permits:
To see what federal licenses your business might end up needing, consult the list provided by the US Small Business Administration.
- Michigan State Business License:
Michigan requires businesses to obtain certain licenses as well, the list of which you can find on the Michigan Department of Licensing and Regulatory Affairs (LARA).
- Local Licenses and Permits:
Additionally, your county would also have certain permits and licenses that need to be secured. Information related to this will be available with your county clerk.
If you’re looking for more in-depth information related to business licenses and permits, visit our Business Licenses & Permits Guide.
Even once you have sorted out how to form an LLC in Michigan and filed for all necessary state registrations and business licenses, there are still a few steps to help you with the day-to-day running of your LLC. One of the most significant is your accounting system. Your accounting system is much more than balancing your business checkbook. Every time you gain a new customer, make a sale, pay an employee, or pay down a vendor, that information needs to be tracked.
Establishing an accounting system for your business and choosing which programs or software you will use before you even make your first sale will ensure you never miss a detail regarding your business finances. Better yet, determine if you will need to hire a bookkeeper to help you set up and use your accounting system or if it is part of running the LLC that you will manage.
Whether you sell a product or service, online or in person, customers in today’s market will expect to have options when it comes to paying you. Cash-only businesses exist in 2021; however, you could be limiting your customer base by only accepting one form of payment.
How you set up credit card processing for your LLC will depend on your business. If most of your sales are made online, credit card processing is often a built-in feature for e-commerce platforms. For in-person sales, you may need to invest in software that allows you to safely process a customer’s credit card, such as a mobile card reader or point of sale system. However you choose to set up credit card processing for your LLC, the goal is to make sales as easy and safe as possible for your customers. The better their experience with your business, the more likely they are to become repeat customers.
It is important to protect your business from all potential dangers, and it is thus a good idea to obtain the security provided by business insurance. Not every kind of insurance is going to help though, so it’s important to seek out the right one. We go over selecting the appropriate insurance for your business in our guide. Typically, small businesses will need at least one of the following:
- General Liability Insurance
- Product Liability Insurance
- Professional Liability Insurance
- Commercial Property Insurance
- Home-based Business Insurance
- Business Owner’s Policy