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If you’re looking to start an LLC in Michigan, this article will answer all your questions and break down the LLC formation process in easy-to-follow steps.
Over the last few years, an increasing number of small businesses, entrepreneurs, and even freelancers are forming LLC companies all across the US.
While forming an LLC has various long-term advantages for your business, it involves several legal aspects that you need to consider before deciding.
Since this article is focused on Michigan LLC formation, we’ll cover the relevant costs, laws, and steps for that state.
Let’s get started.
Why Starting an LLC in Michigan is Worth It
Michigan has a vibrant startup ecosystem that recently produced one of its most successful unicorns, Duo Security, later acquired by Cisco.
Its educated and tech-savvy population makes Michigan a promising place for new companies, startups, and entrepreneurs.
This is probably why so many small businesses are choosing to start new companies there to formalize their processes and plan for growth.
But why start an LLC? Let me explain.
A Limited Liability Company (LLC) is among the most popular types of business structures in the United States because of the flexibility it offers to small businesses and new startups. An LLC follows a hybrid business stricture that combines the advantages of both a corporation and a partnership business.
An LLC owner has limited liability if their business fails, which is among the top reasons why startups choose this business structure. But like a partnership, LLCs “pass-through” their profits so that they are taxed as part of the owners’ personal income.
One of the biggest advantages of an LLC is that it allows you to operate as a solopreneur or a small team but take advantage of a registered business.
This is among the top reasons why startups, freelancers, entrepreneurs, and small businesses choose LLC over other business structures.
Like many other states in the US, Michigan recognizes a single member or owner LLC. This means you’re free to make your financial and administrative decisions without seeking the approval of a board of directors or partners, which is the case in other business structures.
This allows greater control and faster decision making which is crucial for startups and small companies.
Another factor that attracts small businesses and entrepreneurs towards forming an LLC is the protection it offers to company owners. Unlike a sole proprietorship (and several other business structures), an LLC owner has limited liability for their company’s debts and legal obligations.
In an LLC structure, the owner’s assets are separate from the company. Their investment in the company may be affected in case of bankruptcy or debts, but their personal assets like a house, car, or any other assets are completely separate from their company’s liabilities.
However, you may still be personally liable in some instances, such as a personal guarantee for a business debt, harming a third party because of your actions, or failing to comply with your responsibilities in an LLC.
Also, many of the documents and legal formalities required for standard corporations do not apply to an LLC. This makes it much easier and cost-effective for small businesses and entrepreneurs to start an LLC.
For example, corporations need to hold board meetings, elect corporate members, create bylaws, hold shareholder meetings, etc.
None of that applies to an LLC. Instead, an LLC only needs to submit its full name, member list, business duration, address, and articles of organization along with the registration fee to the Michigan Corporations Division.
The Investment Needed to Start an LLC in Michigan
Starting an LLC in Michigan is relatively cheaper than in many other places in the United States.
If you plan to form an LLC in Michigan, you’ll need to file Articles of Organization with the Michigan Corporations Division, which costs a one-time $50 fee. Besides this fee, you also need to pay an annual statement to the State of Michigan, which has a $25 fee. In case of late submission, you’ll need to submit an additional $25 late fee.
That’s it for the government’s expenses.
However, there are several optional costs involved in getting and maintaining an LLC in Michigan.
For example, you might want to hire a resident agent to manage the legal documentation and coordinate with the relevant government agencies on your behalf.
ZenBusiness, a service we recommend, is an excellent option for resident agent services, plus many other services related to LLC formation and management.
Its starter plan costs $49 per year and offers filing services, an operating agreement template, and resident agent services.
However, their Pro plan offers the best value at $199/year and takes care of all your LLC requirements, including expedited filing services, employer ID number (EIN), and worry-free compliance.
For fully managed services, you can also go for their Premium plan at $299/year, including domain registration and website design.
Overall, It’s a reliable service that will take care of all the documentation and legalities of starting an LLC in Michigan and allow you to focus on your business operations.
5 Steps to Start an LLC in Michigan
Now that you understand the merits of starting an LLC in Michigan let’s discuss its steps.
Step #1: Name Your Michigan LLC
The first step in starting an LLC in Michigan is choosing a business name. Your business name should comply with the Michigan state laws and align with your brand’s long-term vision. Plus, it should not cause any confusion to your target audience because of similarities with other brands or businesses.
Here are the things you need to consider when naming your LLC in Michigan.
1. Follow the LLC naming rules in Michigan.
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Restricted words (e.g., Bank, Attorney, University) may require additional legal paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
You can find the complete list of naming rules for Michigan LLCs on the Michigan Department of Licensing and Regulatory Affairs website.
2. Search for your desired business name using the LLC name search on the Michigan Department of Licensing and Regulatory Affairs (LARA) website to ensure that there’s no existing business in Michigan with that name.
If a Michigan LLC already has your desired name, you’ll need to choose a different name for your business.
Similarly, ensure that no other business in the US has trademarked your desired name.
3. Finally, make sure that you can find a .com domain for your desired business name without changing it. This is not a legal requirement, but you should consider it because it will significantly impact your search visibility and brand image.
Also, run a quick Google search of your desired name to ensure that nothing harmful is associated with it.
Step #2: Choose A Registered Agent
A registered agent or resident agent is a person or business entity that manages all the government correspondence on behalf of your business. This includes receiving tax documents, legal notices, and managing other government documents required for managing your LLC.
Michigan state requires LLCs to appoint a resident agent to manage things on their behalf. You can nominate someone from your company as a resident agent or hire an external service provider like ZenBusiness.
However, make sure that the service you appoint as your resident agent is a Michigan resident or has the legal authority to conduct business in the state of Michigan.
While you can manage this yourself if you reside in Michigan, it’s always better to hire a professional service provider to handle these things for you. Because it can take a significant chunk of your time to manage all the documents and legal requirements.
Step #3: File The Articles Of Organization
To register your LLC in Michigan, you need to file the articles of organization using Form 700 – Articles of Organization with the Michigan Corporations Division. You can file the form online, by mail, or in person.
This is a slightly complex step depending on the nature and existing status of your business. For example, if you have an existing LLC outside Michigan and want to expand your operations to the state of Michigan, you’ll apply as a Foreign LLC.
Plus, you also need to decide whether to apply as a member-managed or manager-managed LCC.
Therefore it is best to rely on a consultant such as ZenBusiness to handle this step for you.
Step #4: Create An Operating Agreement
An operating agreement outlines the ownership, roles, and operating procedures of an LLC. It is a legal document that brings transparency to ab LLC’s operations and helps avoid conflicts between the members.
However, the state of Michigan does not legally require an operating agreement for LLC registration. But it is a good practice to have one because of its benefits.
Step #5: Get An Employee ID Number (EIN)
An Employee Identification Number (EIN), also called a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN), is a nine-digit number assigned by the Internal Revenue Service (IRS).
The IRS uses an EIN for the tax purposes of an LLC. It is essentially a Social Security number for an LLC.
If you already have a sole proprietorship business with an EIN, you’ll need to get a new one for your LLC.
You can use an EIN to open business bank accounts, file and manage state and federal taxes, and hire new employees.
Once you complete these steps and pay the $50 LLC creation fee, your LLC is ready for operations in Michigan.
However, to ensure that you stay compliant with any other state-specific legal requirements, we recommend keeping in touch with the ZenBusiness team (or any other legal service of your choice).
After forming an LLC, the next steps are creating your website and building your online brand assets so that you can create a solid and credible brand image.