Guide to Forming an LLC in Michigan
Follow our free guide to form an LLC in Michigan
- Pros and Cons of Forming an LLC in Michigan
- Starting Your Michigan LLC
- Maintaining Your Michigan LLC
- Additional Michigan Resources
Should you form your LLC in Michigan? We’ve collected the relevant information that will help you make this decision.
Pros and Cons of Forming an LLC in Michigan
No Corporate/Franchise Taxes
Michigan does not impose any corporate or franchise tax on LLCs. The only taxes owed on the LLC’s revenue is the state and federal income tax paid by the members.
Privacy for Owners
Michigan state law does not require the LLC members/manager to be listed in the Articles of Organization. An organizer (the party who prepares and files the paperwork) can be used to submit the official documents to the state in place of the actual owners.
Low Sales Tax (6%)
Michigan has one of the lowest sales tax rates in the nation. Recent surveys show that the state is the 12th lowest in the country for a combined 6% sales tax.
New Law Enforcing Sales Tax for Online Purchases
Following a ruling by the Supreme Court in favor of Michigan, the state now requires online businesses to pay the 6% sales tax for sales conducted between MI residents, even if the company itself is not located in Michigan. The new law, though expected to generate more than $200 million in funds for the state, may have a less favorable impact on small online businesses.
Low Median Income and Wages
The average family income in Michigan is approximately $7,000 lower than the national average, even though the state is slowly regaining its losses from the previous decade. Wages in Michigan are markedly lower than the rest of the nation - the salary of a software engineer averages $87,000 in Michigan versus $104,000 (national average).
High Crime Rate (compared to national average)
Michigan’s crime rate is almost 25% higher than the country’s median average. According to recent reports, the state has the 12th highest crime rate in the U.S. The majority of crimes committed involve larceny and burglary.
Cost of Doing Business
- $50 filing fee / $25 annual statement
- No corporate/franchise tax
Phase One: Starting Your Michigan LLC
Starting an LLC may not appear overly simple, but you will see that actually forming a business can be done in a few steps. The process is not that difficult when you have help. Here are the steps needed to ensure that your Michigan LLC comes together correctly:
- Step 1: Name your LLC
- Step 2: Establish ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Articles of Organization
- Step 5: Create your Operating Agreement
- Step 6: Fill out the paperwork for an EIN
Step 1: Name Your Michigan LLC
The first step on the list for your Michigan LLC is to choose a name. Both the state and federal governments have guidelines and restrictions regarding the use of certain words in business names.
Tip: Use a free business name search tool to ensure your company’s desired name is available.
Business Name Guidelines
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C.
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted - it depends on the state. Additional paperwork may be required.
Create an online presence for your new Michigan LLC by selecting a domain name for your business’s website. Check availability of website addresses at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC are referred to as members and/or managers. All LLCs have members, but not every LLC has managers — the difference depends on the management structure of the business.
LLC Management Structures:
- Member-managed: All members participate in operating and making decisions for the LLC
- Manager-managed: An appointed manager oversees the daily operations of the LLC and the members are not actively involved.
Michigan LLC Member Guidelines
Required Number of Members
There must be at least one member or manager to form an LLC in Michigan.
Member Disclosure Requirements
An organizer/authorized representative may sign and file the Articles of Organization in place of the LLC members.
LLC members in Michigan may be of any age.
There are no residency restrictions imposed on LLC members in Michigan.
Step 3: Find a Registered Agent in Michigan
All Michigan LLCs must have a registered agent. Your business will not be legally recognized without this position.
What is a registered agent?
A registered agent is a person or business who is authorized to accept official government mail and service of process notices on behalf of the LLC.
Why do you need a registered agent?
Michigan law requires you to appoint a registered agent so that the state government has a consistent contact person for your LLC.
What are the main requirements for a registered agent?
- The registered agent must have a physical address — not a P.O. Box
- The registered agent must be available during business hours
Who can be a registered agent in Michigan?
- A state resident with a physical address in Michigan
- An LLC or corporation that is licensed to conduct business in Michigan
Can I be my own registered agent for my business?
You are legally allowed to be your own registered agent as long as you have a physical address in Michigan.
Is being my own registered agent discouraged?
Since the registered agent’s name and address are publicly listed, LLC business owners who choose to be their own registered agent risk compromising their personal information.
Tip: Avoid the hassles and choose Swyft Filings to fill the registered agent needs for small businesses in Michigan. Find more information here.
Step 4: File the Articles of Organization
The most vital step in forming your Michigan LLC is filing the Articles of Organization with the Secretary of State.
What is the Articles of Organization?
The Articles of Organization is a legally binding document that is filed with the state government to officially and legally form your LLC.
Why do I need the Articles of Organization?
Your LLC business in Michigan will not be legally recognized by the Secretary of State without filing this document. Consider the Articles of Organization as part of your LLC’s foundation.
What information is included in the Articles of Organization?
- The name and address of the LLC
- The name of the organizer filing the paperwork
- The name and location of the registered agent
- The statement of purpose
- The duration of the LLC (perpetual or not)
Additional Michigan Filing Requirements — Professional Service Businesses
Michigan also allows certain professional service businesses to form a Professional Limited Liability Company (PLLC).
The following professions must form a PLLC:
- Physicians and Surgeons
- Osteopathic Specialists
- Clergy/Doctors of Divinity
A few points to consider:
- All members of the PLLC must be licensed in the profession of the business.
- The PLLC is only allowed to provide services for which the business was formed.
- The members are still subject to whichever licensing boards govern the PLLC’s profession.
- PLLCs must file an additional annual statement that lists the company’s members/managers and verifies the licenses that each party holds.
Step 5: Create an LLC Operating Agreement
When you form an LLC in Michigan, it is good practice to have an LLC Operating Agreement. The operating agreement also shows professionalism and helps prevent creditors from getting to your personal assets.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that defines the rights and responsibilities of each person involved in the business and lays out the details involving how the business will operate.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes.
Do I need to file the LLC Operating Agreement?
You do not need to file the Operating Agreement with the state; it is for the benefit of your LLC and remains in-house.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC Operating Agreement, most documents include the following information:
- List of the members/managers and their roles
- Designation of authority in the LLC
- Initial capital contributions of the members
- Voting designations and percentages of the members
- Member transfer/addition rules and restrictions
- Distribution of profits
- Meeting schedule
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Obtain an EIN
The majority of Michigan businesses must register for an EIN. Your Michigan LLC will not be able to conduct business without this ID.
What is an EIN?
The EIN (Employer Identification Number) is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS). The EIN identifies your business with the government much like a personal Social Security number.
Are all businesses required to have an EIN?
Federal law dictates that certain types of business entities register for an EIN:
- Any business with employees (even if owned by one person)
- Any business with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is not required to have an EIN, but it is still recommended.
Why does my LLC business need an EIN?
The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
In short, if you make money through your business and it has employees, you must have an EIN.
Is the EIN publicly listed?
The EIN for your LLC will be part of public record.
Can I use my Social Security Number as the EIN?
If you are a sole proprietorship who wants an EIN for your business, you can elect to use your social security number; however, your EIN is part of public record.
Swyft Filings offers EIN services for small businesses in Michigan. Find more information here.
Phase Two: Maintaining Your Michigan LLC
Now that you’ve finished the initial phase of setting up your Michigan LLC, the following steps help move your business forward and stay compliant. The next few steps are:
- Step 1: Register for the necessary taxes in Michigan
- Step 2: Apply for the required types of permits and licenses
- Step 3: File a Certificate of Good Standing
- Step 4: File your LLC’s annual report
Step 1: Register for Michigan State Taxes
Michigan is among the few states in the country that does not charge LLCs any corporate or franchise taxes. LLC members are still required to pay state and federal income taxes on their earnings.
State Income Taxes
The pass-through income from a Michigan LLC is subject to a 4.25% state income tax.
Corporate Tax Information
You can also choose to have your Michigan LLC taxed as a corporation; if so, you will be responsible for paying the 6% corporate income tax rate on your business’s net income.
Additional Tax Information
Other taxes your LLC may need to pay:
- Sales and Use Tax at 6%
- Employee Withholding Tax
- Unemployment Tax
Step 2: Obtain Business Licenses and Permits
The licenses and permits required in Michigan vary, depending on the type of business you are operating. In fact, not every LLC formed in Michigan is required to have any kind of license.
Please Note: Any business that sells physical goods is required to register for a sales tax license.
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Statement
All businesses formed in Michigan are required to file an annual statement with the Secretary of State.
What is an annual statement?
An annual statement, which is also called an annual report, is a legal form that is filed with the Secretary of State to keep your business’s information and status up-to-date.
What kind of information is in the annual statement?
The information requested in the annual statement is similar to what was listed in the Articles of Organization:
- The name and address of the business
- The name and address of the registered agent
- The names of the members
- The business’s EIN
Is the annual statement part of public record?
The annual statement filed on behalf of your LLC is a matter of public record.
Due Date: February 15th
Implications of Late Filings: $50 Late Fee
Businesses specified as PLLCs must file a combined Annual Statement/Annual License Report — the statement updates the specific license information of each member of the business.
Fee: $75 (for both reports)
Due Date: February 15th
Implications of Late Filings: $50 Late Fee
Learn more about annual reports and how Swyft Filings can help you.
Step 4: Obtain a Certificate of Good Standing
After your Michigan LLC has been formed and is ready to go, the last step in the LLC formation process is securing a Certificate of Good Standing.
What is a Certificate of Good Standing?
The Certificate of Good Standing is an official notification that confirms your business is legally formed and adhering to all state requirements.
Who issues the Certificate of Good Standing?
The Certificate of Good Standing is generally issued by the Secretary of State.
When can I request a Certificate of Good Standing for my business?
You can request a Certificate of Good Standing after your LLC is officially formed through the Secretary of State.
Why do I need a Certificate of Good Standing?
Many businesses and financial institutions want proof that your LLC is in good standing with the state government. Some companies may not even agree to conduct business if your LLC does not have this certification.
Additionally, some states require a Certificate of Good Standing before a business can apply for Foreign Qualification.
Does the Certificate of Good Standing have an expiration date?
The Certificate of Good Standing does not expire/does not need to be renewed.
Swyft Filings can create a Certificate of Good Standing for your Michigan LLC. Click here for more information.