If you are a business owner or an aspiring entrepreneur looking to secure your future by starting an LLC in Michigan, this article will benefit you. As long as you have the vision and passion for your new venture, it doesn’t matter where you are in the State of Michigan. However, what does matter is how much effort you put into securing an LLC on your terms. You can consider many options if what or who has stopped using to stray away from this goal.
The five steps to form an LLC in Michigan:
Following are the steps are the guide when you are looking to form an LLC in Michigan:
Step 1: Name your Michigan LLC
As a business owner, you need to name your Michigan Limited Liability Company(LLC) correctly. This is the first step in the formation process, and it is essential that you consider many factors related to your LLC at this time.
Consider the following essential factors when naming your Michigan LLC :
- Be mindful of using the terms “Limited,” “Ltd.,” and “Company” in your MI LLC name, as they are used differently in various states.
- You should also avoid using terms that seem generic or are not unique. Many states have a list of words that cannot be used in business names, and most of these are generic words that do not have any relevance to your business.
- Always check for the availability of your name before you choose it, as you cannot use the same name for an existing LLC.
- If you are not sure about the availability of your trade name before you choose it, it is recommended to contact a local lawyer that can help you with the same.
Step 2: Appoint a Michigan resident agent.
An MI LLC must have a resident agent who has a physical address in Michigan. This person will be the one who will receive official notifications and communications on behalf of your LLC.
If you fail to appoint a Michigan resident agent, then you will be liable to pay hefty fines and penalties.
You can either appoint an individual or an organization as your Michigan resident agent.
There are specific qualifications that an individual need to fulfill when they are appointed as the Michigan resident agent for your LLC:
- They should be physically present in the state of Michigan.
- They should be at least 18 years old.
- They should also be a U.S. citizen or a legal permanent resident.
The qualifications for an organization are not as stringent as those for an individual when it comes to acting as the Michigan resident agent. However, they still need to follow some basic requirements:
- The organization needs to be duly formed and registered in Michigan before you can appoint it as your LLC’s Michigan resident agent. The organization’s registered location should be in the State of Michigan.
- They can be a sole proprietorship, LLC, corporation, or partnership. They should also be an entity that is appropriately licensed in the State of Michigan.
- You would need to appoint them as your Michigan resident agent before you file your articles of organization with the state.
Step 3: File Michigan Articles of Organization
To complete the filing process, you need to file your Michigan Articles of Organization with the Michigan Secretary of State.
Your Articles of Organization should reflect a list of all owners and members, and it must be filed within 90 days from the date that you formed your LLC.
The easiest way to file your Michigan LLC Articles is through an online form provided by the Michigan Secretary of State. Users can complete all necessary information online from their home state or office without leaving their office.
Step 4: Create an operating agreement
An operating agreement is the backbone of an LLC. It will help maintain your business as well as control your assets and liabilities.
The information included in an operating agreement varies from state to state, but the most important data consists of a list of all members and their capital contributions.
It is a good idea to share this document with your members, as it will help you stay on the same page. Just make sure that you follow established rules for sharing LLC documents with members.
You can create an operating agreement either online or offline. We recommend that you purchase a template from a third-party website and edit it according to your requirements.
If you have a large number of members, then you can look for an attorney to help you draft an operating agreement. The cost of hiring attorneys depends on the number of pages in your agreement. If your operating agreement is short, then the price will be relatively low.
If you do not have the time and/or resources to hire an attorney, you can find one online. There are companies that offer affordable services, and they will even review your agreement before you sign it.
Step 5: Apply for an EIN
An EIN is an identification number given to the businesses that are registered with the IRS. It can be obtained for free from the IRS website.
By applying for an EIN, you will receive a unique number that you will use to identify your LLC.
The EIN is useful for completing various financial transactions and filing articles of organization and operating agreements.
We recommend that you get an EIN within 30 days of forming your limited liability company (LLC).
Michigan corporations division
There are few classifications of companies in Michigan. You can choose from the following types:
- C or R Corp is for corporations, partnerships, and limited professional liability companies (LLC) that do not pay federal income tax. C or R Corp does not have a profit and loss statement.
- S corp is used for corporations, LLPs, and partnerships that pay federal income tax and make profit-and-loss statements.
- ST corp, which is used for small business corporations that have less than 100 shareholders or partners.
- MB corp, which is mostly used by companies whose business requires more protection against outside creditors.
- LLC is for pass-through taxation and is taxed like a partnership or sole proprietorship.
Forms of companies in Michigan
- A Limited Liability Company (LLC) provides many of the benefits of a corporation but avoids the corporate level of taxation by becoming an LLC.
- A Corporation is an LLC with a separate legal entity that is owned by shareholders and operated by directors and officers.
- A Professional Corporation with reservation for professionals such as doctors, lawyers, accountants, and architects. They can have such classifications as Professional Law Corporation (PLC), Professional Association (PA), S-Corporation, and LLC.
- A Sole Proprietorship is the simplest form of business ownership, and it does not involve any legal business structure or anything of the sort.
- A Partnership is an association between two or more people who are engaged in a trade and have agreed to share business profits and losses.
- A Limited Partnership which is a partnership in which one partner is liable for the actions of the business but has no control over the management of it.
- A General Partnership is an association of two or more persons who carry on as co-owners of a business with unlimited liability for all partners.
- A Limited Liability Partnership (LLP) is a partnership that provides limited liability to all partners.
- A General Business corporation is a business that has shareholders who own stock in the LLC and elect directors of the corporation and employees to operate it. They may also deal with real estate, franchises, or patents.
What Are the Benefits of Forming a Michigan LLC?
Forming a Michigan limited liability company (LLC) has a lot of benefits for you and your business. In essence, it allows you to have more control over the way your business is run as well as your liability. By operating an LLC, you can set up different rules that govern the transactions that are conducted on behalf of your LLC. You will also be able to pay taxes on certain small business income at a lower rate.
- You can raise capital for your business.
- You can access a wide range of tax write-offs
- You will have a lower taxable income.
- If you decide to sell your business, then it is likely that the buyer will not recognize the LLC. This means that he might report less than what he should make for tax purposes. This will result in you having to pay self employment taxes on the sale price of your business.
- The process of transferring a Michigan LLC is relatively simple and cost-effective. For example, if you want to transfer your Michigan LLC to another person, there is no need to file a form. Instead, you can inform the state that the member of your LLC has changed by notifying them and updating your operating agreement.
- Suppose you want the Michigan Department of Licensing and Regulatory Affairs corporations securities to inform the state about any changes in your LLCs registered agent or members. In that case, they will charge a $20 fee. You should also remember that there is a $100 annual fee for maintaining an active Michigan LLC.
- If you want to dissolve your Michigan LLC, you should file Form 8602 with the Michigan Secretary of State within five business days from the date you notified all members. After filing this form, you must also pay a filing fee of $70.
You can make your changes in every aspect of the business after filing for an LLC. If you decide that it is time for your business to go out of production, then it is recommended that you dissolve your LLC instead of going into liquidation.
Cost to Form an LLC in Michigan
The cost of forming a Michigan LLC will depend on the type of entity that you choose. The costs also depend on the number of members that you have as well as their voting rights.
If your business has a single member, then you can form an LLC for $125. However, if you decide to add another member, then the cost will increase to $200.
If your Michigan LLC has more than 75 members, you will be required to pay an extra fee of $100 for each additional member.
In the State of Michigan, LLCs with members who have more than 50% voting rights are classified as Professional Service LLCs. You must pay an extra $100 if you decide to choose this type of business entity.
If you do not make any changes to the initial formation documents, you will be charged a $25 for each year. However, if you want to make changes, then there will be an additional $50 fee.
Tasks After Forming Your LLC
After you file for an LLC in Michigan, the Secretary of State will send you a confirmation letter that will include your LLCs EIN and your Registered Agent’s name and address.
If you have followed the steps correctly, then you have completed all the necessary formalities of forming your LLC.
The easiest way to maintain your Michigan LLC is by appointing a Registered Agent. The responsibility of a Registered Agent includes receiving legal documents on behalf of your business.
Prepare a Michigan LLC Operating Agreement
You can also prepare an Operating Agreement which will include important information on the basic rules of your Michigan LLC.
By preparing this document, you will be able to review it when it comes to transferring the LLC or dissolving your LLC. If you have many members, then it is recommended that you seek legal advice before drafting your operating agreement.
There are a lot of third-party sites that offer free templates for operating agreements. These templates can be purchased online and edited according to your requirements.
A well-drafted operating agreement will help you avoid unnecessary expenditures as well as conflict with your co-owners.
Prepare Minutes of the First Meeting
When it comes to preparing minutes of an LLC first meeting, you should include essential details such as the full business name of your LLC, the location of your business, etc. The Secretary of State will accept these minutes if they are prepared within 60 days after the date that you have filed for an LLC.
Obtain an EIN
It is necessary that you obtain an EIN within 30 days of forming your Michigan LLC. If you do not receive one, then there is a possibility that you will have to pay fines and penalties.
With an EIN, you will be able to open up a business bank account for your business as well as file for taxes at the state level.
In addition to this, if you want to open a savings account, then the bank will require your EIN before they allow you to do so.
You should note that the EIN is a 13-digit number that must be in the format of XX-XXX-XXXX. If you do not use this format, then your application will be rejected.
Get an Employer Identification Number
If you have employees, you will also need to secure a federal Employer Identification Number (EIN). Michigan’s Department of Treasury requires all employers to obtain a tax ID number within six months from the date that you start an LLC.
With the EIN, you will register for employee benefits account at the Michigan Department of Treasury.
If you plan to hire additional employees, you will also need to obtain their Social Security Numbers and verify these numbers with the Social Security Administration. Michigan also requires employers to pay taxes on behalf of all employees who are currently working for them.
Elect the LLC’s Form of Federal Income Taxation
One of the biggest decisions you will have to make after forming your Michigan LLC is choosing its Form of Federal Income Taxation.
There are two types of taxation that you can immediately go for after forming an LLC. These are the sole proprietorship as well as C corporation.
You should remember that just like for a general partnership, an LLC will also be taxed as a sole proprietorship if there is only one member in your LLC. LLCs are required to file a separate income tax return with the Internal Revenue Service.
You will need to submit a Schedule C with your 1040 tax return if you have filed for an LLC. This schedule will show all of your business income as well as expenses.
After preparing your tax returns with the help of the information provided in this article, you can expect to receive a refund from the IRS if there were any overpaid taxes during the previous calendar year.
Open an LLC Bank Account
You can now use your LLC bank account to start receiving payments from customers. In addition to this, you can also put money into this account to pay operating expenses of your business.
SNAP Information for Michigan LLCs
You should also be aware that there are many other requirements that will need to be met before you can file for Social Security numbers (SSN) and Taxpayer Identification Numbers (TIN) for each member of your LLC.
You will need to apply for a Social Security Number for every LLC member, even if the person is only entitled to receive a Limited Liability Company (LLC) number.
Michigan requires LLC members to have a TIN, an identifier that will be used to identify the individual business owner.
If you wish to avoid delays when it comes to processing your LLC application, then you should make sure that you are prepared with the required documents to avoid penalties and fines in the future.
Apply for Business Licenses and Permits
Once you have filed for your LLC articles of organization in the Secretary of State’s office, you will need to acquire a few business licenses and permits.
You will need to apply for a Business Licensing within 30 days of filing your LLC’s articles. When it comes to registering with the state, you must first obtain a Business Certificate of Authority.
You will also need to obtain the appropriate Political Subdivision (PSA) if you plan on conducting business in an area that is not governed by the state government.
If you plan on operating a business in Michigan from home, then you will need to obtain a Business Occupation Permit.
Use Michigan’s E-Commerce Resources
After applying for your LLC, you will also be required to register with the state of Michigan’s Electronic Commerce Office. This office is responsible for ensuring that any LLC reporting and operating in the state of Michigan adheres to all local and federal laws.
Another critical aspect of the office is that it will provide online services that will help you to avoid unnecessary expenses when it comes to running your business.
You can also go for a Michigan E-Commerce Permit if you plan on selling products and services to the residents of the state.
When you are applying for a Michigan E-Commerce Permit, you should make sure that you have filled out all of the pertinent information that was requested in order to acquire one.
Get Business Insurance
Michigan’s LLCs are required to obtain business insurance before they can begin conducting business.
The type of coverage that you will need to purchase depends on the type of activity that your LLC is conducting.
In general, you will need to have coverage for business owners, professional liability protection, property damage, equipment, and inventory protection.
The premium that you will need to pay for these insurance policies will depend on the nature of your business.
When you are preparing for the application process, make sure that you have a lot of information related to your company’s assets and its general activities. This information will be useful when you are attempting to acquire the required insurance coverage for your business.
File the Annual Statement
After the initial year has passed, you will need to file an Annual Statement of Operations.
When you are filling this statement out, make sure that you are aware of the number of employees and their payroll records.
In addition, you should include estimates for your operating expenses and your anticipated tax liability with this report. This information is required in order to satisfy both the Secretary of State’s office as well as the IRS.
How to Order LLC Formation Service
The best way to order a formation service is to go online and review more than 40 reviews of the various entities that offer these services.
The second way that you can go about this is by calling multiple companies and talking to several representatives in order to understand how they will be able to help you.
After making the decision on which LLC to go with, you should follow the instructions on their website. This way, you will be able step-by-step through each and every part of the process which they have created for you.
Who Can Establish an LLC in Michigan?
If you have a business that is registered in Michigan, then you are able to establish an LLC.
However, in order to be considered for this type of legal form, you will need to meet the following requirements:
- You should have the financial wherewithal to operate this type of LLC.
- You should be at least 18 years old.
- You should not hold any properties that are located outside of Michigan.
- You should not have any financial interests in any other LLCs or corporations.
How to Comply With Federal Requirements
There are special requirements and restrictions that apply to LLCs that have been registered under federal law.
- When it comes to tax-exempt status, you will need to be on the lookout for tax deductions and tax credits.
- You should also know the difference between an IRA and a 401k when it comes to retirement accounts.
How to get Foreign Qualification in Michigan
You are able to obtain foreign qualifications in Michigan in order to allow for the LLC to be recognized within other countries.
To do this, you will need to file a certificate of qualification with the Secretary of State’s office. You will also be required to set up a registered agent service.
Do I need a Michigan phone number for my LLC?
You do not need a Michigan phone number in order to establish an LLC. However, you will need to obtain one if you wish to receive and make phone calls from the state of Michigan.
If you are conducting business in the state, then you can obtain this number through the Secretary of State by registering at 800-999-3905.
How to Obtain a Certificate of Good Standing in Michigan
A Certificate of Good Standing is something that is issued to you by the Secretary of State’s office in order to ensure that you are in compliance with all of the state and federal laws. You will need to obtain this certificate in order to prove your compliance status.
You can obtain your certificate of good standing online through the Secretary of State’s website by following the process on the official page. After the process is complete, you will need to download a copy of your certificate.
When is the Michigan Annual Report due?
The Annual Report is due on June 30th of the year that you are conducting business at that time.
No extensions will be issued on this form.
Go to the Michigan Secretary of State’s website to get all of the information that you need in order for you to complete your Annual Report.
The Secretary of State will also provide you with a detailed checklist, which will include all of the relevant information that is necessary to file your statement successfully.
What is the benefit of filing an Annual Report?
When you are filing your Annual Report, there are a number of benefits that you will receive. These benefits include:
- An immediate reduction in the tax rate; This tax reduction can be used for income and property tax purposes.
- You will no longer pay any state fees if you have registered your business in the past.
- You will be exempt from the business tax, which is $10 a year.
What should I know about Michigan LLC taxes?
There are certain items that you will need to remember if you are a member of an LLC that is owned by one member.
How this works is that the owner’s taxable income will be the same regardless of what type of business loss there is. In other words, if there is a loss, then the owner will not be able to take it into consideration for their personal income taxes return.
Following taxes are due:
- State Sales Tax
- Personal Property Tax
- Corporate Income Tax
- Corporation Franchise Tax
Other than these types of taxes, there are no additional taxes that you will need to pay in order to file your Michigan LLC annual report.
When Are Taxes Due for A Michigan LLC?
The Tax Day for a Michigan LLC is April 15th of each year.
You will need to make sure that you have filed your tax forms and paid any pertinent taxes before this date.
There are different forms that you will need to fill out in order to complete this process. Some of the most common forms include the following:
- The Employment Schedule.
- The Employee Information Report (740).
- The Michigan Income Tax Return (40).
These forms are available for you to download from the Secretary of State’s website.
While forming an LLC in Michigan is a simple process, you will need to make sure that you are prepared with all of the relevant documents and information. For this reason, it is advisable that you consult an experienced lawyer if you have any questions or concerns about the process.
If you are planning on moving your business to Michigan, then it is even more important to ensure that your LLC application is processed within the required timeframe.