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LLCs offer several benefits to owners including personal liability protection, flexible management options, and potential tax advantages. However, navigating the legal requirements and paperwork involved in starting an LLC can be a daunting task. In this guide we look into the step-by-step process of starting an LLC in Michigan.
The Steps of starting an LLC in Michigan such as choosing a name for your LLC, registering your LLC with the state and obtaining all necessary licenses and permits. This guide provides you the information to get your business running. If you are ready to become an LLC owner in Michigan, keep reading.
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Pros and Cons of Starting LLC in Michigan
Starting and running a small business in the state of Michigan has positive and potential implications. There are many options of small businesses that you can start, an LLC is a popular and favorable option. Starting an LLC comes with several benefits. LLC’s also have disadvantages, regardless of these disadvantages the benefits outweigh the disadvantages.
Pros Of Starting an LLC in Michigan
Some benefits of of starting LLC’s in Michigan include:
Personal Liability Protection
LLCs in Michigan provide personal liability protection to the owners, this is a major advantages of forming an LLC in Michigan. This means that the owners’ personal assets are generally protected from business debts and lawsuits, as long as they maintain the proper formalities and do not commingle personal and business funds.
Flexible Business Management Options
With LLCs you have access to a lot of flexibility in the management and ownership structure of your business. LLC members manage their LLC themselves, they may also decide to get a professional to manage the LLC’s daily operations.
Potential Tax Advantages
LLCs in Michigan are made to pass-through government entities for tax purposes. This implies that the LLC owners do not bear tax burdens due to loss or profit from the LLC. This can result in potential tax advantages for the business owners.
Easy To Set Up
Starting an LLC in Michigan is a simple process. This is the case when compared to starting other businesses like corporations. It generally requires less paperwork and fewer formalities.
Credibility
Starting an LLC helps a business owner(s) to establish credibility with potential customers, clients, and partners. Owning a formal business structure gives businesses more legitimacy and professionalism.
Opening a Business Bank Account
To open an LLC you need to have a business account. LLC business account help you to separate personal and business finances. An LLC business account also helps you in managing and tracking business finances efficiently. When opening a business account ensures you open an account with the best business account providers for LLC’s.
Privacy
LLCs in Michigan provide a level of privacy to the owners or members. Unlike corporations, which are required to publicly disclose their directors and officers, LLCs are not required to make this information public.
Cons Of Starting an LLC in Michigan
Starting an LLC in Michigan has some downsides including:
Additional Paperwork And Fees
While starting an LLC in Michigan may be simpler than forming a corporation, there are certain administrative tasks and fees associated with maintaining an LLC. For example, you have to file annual reports and pay state fees as an LLC in Michigan.
Self-Employment Taxes
Although LLCs offer potential tax advantages, the members are generally subject to self-employment taxes. This implies that LLCs often pay their employees and employer percentage of Medicare and Social Security taxes.
Limited Potential for Growth
While LLCs can be a great choice for small businesses or startups, they may not be the best option for businesses that have significant growth potential. For example, if you plan to raise capital through the sale of stock or you want to bring in outside investors, a corporation is a better option for you.
Steps on How to Start an LLC in Michigan
Here are the steps on how to open LLC in Michigan:
1. Choose your LLC name
Choosing a unique name for your LLC is a very important aspect of opening an LLC in Michigan. The business name you choose represents the LLC and helps establish the LLC’s identity. Important considerations in choosing an LLC name include:
- Uniqueness: Your LLC name must be unique to the brand. This means that it must not be in use by another brand in Michigan. LLCs are required to check for their name availability. The name availability is checked on the Michigan Department of Licensing and Regulatory Affairs (LARA) website. It’s important to note that even if the name is available in Michigan, it may still be trademarked by another business in another state.
- Relevance: It is advisable for your LLC name to reflect the nature of your business and be relevant to your industry. This can help potential customers or clients easily identify what your business does.
- Easy to remember and spell: It is advisable for your LLC name to be easy to remember and spell. LLC names that are easy to remember help brands brand recognition. Brand names that are easy to remember help customers to find brands online easier.
- Avoid using certain words: There are certain words and phrases that Michigan law prohibits in LLC names, such as “bank,” “insurance,” and “trust.” Additionally, using words that could be considered misleading or false advertising is also prohibited.
- Domain name availability: Check for the availability of the domain name for your LLC. Having a domain name that matches your LLC name makes it easier for potential customers to find your business online. Availability of chosen name, is checked on the Michigan Department of Licensing and Regulatory Affairs (LARA) website.
2. Appoint a Registered Agent
It is important to appoint a registered agent to handle your operations when starting an LLC in Michigan. A registered agent is usually a person or an entity that is mandated to receive legal and official documents for your LLC. As a registered agent you must have a physical address in Michigan. Here are some important considerations when appointing a registered agent:
- Eligibility: Your registered agent must have a physical address in Michigan. A registered agent should be a person resident in Michigan or a business entity authorized to conduct business in the state.
- Availability: As a registered agent you must be available at normal business hours, the availability of the agent is to receive legal and official documents of the LLC. This can include service of process, tax notices, and other important correspondence from the state or federal government.
- Consistency: Your registered agent should be consistent throughout the life of your LLC. If you wish to change your registered agent at any point, you need to apply and file a change of agent form with the Michigan Department of Licensing and Regulatory Affairs (LARA).
- Privacy: Registered agents help to protect the privacy of business owners. The registered agent’s address will be publicly listed as the official address for your LLC, rather than your personal address.
3. File articles of Organization
It is crucial to file articles of organization when starting your LLC in Michigan. The articles of organization are filed with LARA, this is to legally form your LLC in Michigan. Articles of organization legally and formally indicate the formation of LLC in Michigan.
Articles of organization documents are the documents that indicate basic information about an LLC. Some of such details are name, purpose, registered agent, and management structure. Some important considerations to make in filing articles of organization include:
- Gather Information: Before you file articles of organization, you have to ensure you have all the important information about your LLC. Some of the information gathered include the name of LLC, name and address of the registered agent, and the names and addresses of the LLC’s members.
- Choose A Filing Method: Prospective LLC owners can file articles of organization online, on the Michigan Department of License and Regulatory Affairs (LARA) website. LLCs can also apply via mail. Online filing is generally faster and more convenient, but you may prefer to file by mail if you have specific questions or concerns.
- Pay The Filing Fee: There is a filing fee to register your LLC in Michigan, which can be paid online or by mail. The fee varies depending on the type of LLC you are forming and the filing method you choose.
- Review And Submit Your Articles Of Organization: Once you have gathered all the necessary information and paid the filing fee, you can review and submit your articles of organization to LARA. Your articles of organization should include information about your LLC’s purpose, management structure, and duration, among other details.
- Wait For Approval: After you submit your articles of organization, you will need to wait for LARA to review and approve them.
4. Obtain Your EIN
It is important to get your Employer Identification Number (EIN), if you are opening an LLC in Michigan. The EIN is given as a nine-digit unique number, which is assigned by the Internal Revenue Service (IRS). The EIN is used to identify businesses for tax purposes. Here are some important considerations when obtaining an EIN:
- Determine If You Need An EIN: In general, you will need an EIN if you plan to hire employees, operate as a partnership, corporation or have multiple members in your LLC. You need an EIN to open a business bank account or apply for certain types of licenses or permits.
- Apply For An EIN: Application for the EIN can be done online, via mail, fax, or by phone. Online application is the fastest way to get your EIN. The application process is free and takes just a few minutes to complete.
- Provide Required Information: When you apply for an EIN, you will need to provide certain information about your LLC, such as your business name, the address of your principal place of business, the names and addresses of your members or owners, and your LLC’s legal structure.
- Wait For Confirmation: On submitting your EIN application, a confirmation from the IRS will be sent to you. The confirmation indicates that your EIN has been assigned. This typically happens within minutes of submitting your application online.
- Keep Your EIN On File: Once you receive your EIN, it’s important to keep it on file and use it for all tax-related purposes, such as filing federal and state tax returns, opening a business bank account, and applying for licenses and permits.
5. Draft an Operating Agreement
Drafting an operating agreement is an important step when starting an LLC in Michigan. The operating agreement indicates the operation and management structure of an LLC. While not legally required in Michigan, having an operating agreement helps to prevent misunderstandings among members and provide clarity on how the LLC will operate. Some important considerations in drafting an LLC operating agreement include:
- Identify the members
- Outline the management structure
- Describe ownership interests
- Define member contributions
- Outline voting procedures
- Address member withdrawal and dissolution
- Registered names of agents
- Certificate of Formation details
- Purpose of Business
- Ownership percentages of members and their contributions
- Profit and loss distribution
- Admission of new members and removal of existing members procedure
- Management of the LLC
- Clauses for indemnification and liability
6. Register for Taxes
Registering for taxes is a crucial step when starting an LLC in Michigan. Depending on the nature of your business, you need to register for certain state and local taxes in Michigan, such as sales tax or withholding tax. LLCs are able to register for taxes on the Michigan Department of Treasury website.
It is compulsory to register for taxes with the Michigan Department of Treasury. Some of the taxes to register for include sales and use tax, withholding tax, and unemployment insurance tax. You can register online through the Michigan Treasury Online (MTO) website.
7. Obtain All Necessary Licenses And Permits
You have to get the necessary licenses and permits, depending on the nature of your business. The LARA website provides you with licensing and permit information your business needs.
Frequently Asked Questions
Conclusion
Creating an LLC in Michigan offers several benefits to small businesses that will help such businesses to thrive and grow. This guide will help your LLC to be set up properly and be legally compliant. From choosing a name for your LLC to registering for taxes and obtaining an EIN, each step is crucial in creating a successful and sustainable LLC in Michigan.
While there may be costs and paperwork involved, the benefits of forming an LLC in Michigan, such as limited liability protection and flexibility in management structure, make it a worthwhile investment. With the resources we have provided in this guide, you can easily create an LLC in Michigan.
