Everything you need to know to start your business in Michigan
The process of launching your own business is much simpler than you might think. In this post we'll walk you through the process of establishing every type of business structure in the state of Michigan.
But before you launch a business in any location, it's important for you to have an understanding of its startup ecosystem.
Have a look at some of the key startup stats for Michigan:
Planning your business in Michigan
Your first task should be creating a business plan.
Think of a business plan as a roadmap. It contains all of the strategies and procedures that will grow your business and also keep all business members aligned.
With a dependable business plan on hand you'll always be prepared to hand it over to anyone wanting to learn more about your business, such as potential investors, potential business partners and banks.
Thankfully, we've written an in-depth guide to crafting a winning business plan
The typical business plan is comprised of the following chapters:
Sales and marketing
It's important for you to also validate the demand of your business idea with proper market research
. It's no good pursuing a business idea only to find out there's no market for it.
Structuring and registering your business in Michigan
There are 6 main business structures, and all are applicable to both brick and mortar businesses and e-commerce businesses:
Limited Liability Company (LLC)
Procedures for all business types
Regardless of the business structure you choose, you'll need to follow a few key steps:
Get your EIN
You'll need an Employer Identification Number (EIN) if you'll be hiring employees. It's also a mandatory step for business structures such as LLCs and Corporations.
Select a name for your business
If you'll be trading under a business name that differs from your given name, you'll need to file a "Certificate of Assumed Name" with the county clerk
of every county in Michigan where business will be transacted.
Register for UIA Employment Account Number and Sales Tax
You can register for Michigan sales tax and your UIA Employment Account Number (the number associated with your unemployment insurance) online
Get your licenses and zoning permits
Some businesses require a license
to operate in Michigan. Certain locations also require a zoning permit in order to be used for commercial purposes. Check with your county office if your business location requires a zoning permit. This is especially important if you'll run your business from home.
Register business with the Michigan Department of Treasury
Open Business Banking Accounts
This isn't necessarily a requirement, but it's important to keep business transactions separate from personal transactions.
Submit New Hire Reports
All new employees need to be reported to both the IRS
and the state of Michigan.
The video below provides some helpful tips for New Hire Reporting:
Tax details for all business types in Michigan
You can access details of all of the taxes applicable to businesses in Michigan from the Michigan Department of Treasury
website under the title "Business Tax Types."
Domestic or Foreign business in Michigan?
To ensure you're accessing the correct business forms, it's important to understand the difference between a "foreign" business and a "local" business.
A business in Michigan is classified as "foreign" if its headquarters are based outside of Michigan. A domestic business is headquartered in Michigan.
Now let's discuss the processes of establishing each individual business structure.
How to start a Sole Proprietorship in Michigan
If you're launching a business alone, a Sole Proprietorship is the simplest and cheapest business structure you could choose.
Most business owners commence as a Sole Proprietorship structure and then upgrade to a more complex structure when they reach a notable growth milestones.
The good news is that if you've followed all of the general steps we outlined above for starting a business, there's nothing more you need to do to launch a Sole Proprietorship in Michigan.
It's important to mention that Sole Proprietors share their personal assets with the business, so they run the risk of losing their possessions if the business fails or is sued. To mitigate this risk, Sole Proprietors should insure themselves
High risk businesses
should consider a more secure business structure (such as an LLC or Corporation) for the greatest level of personal asset protection.
How to start a Partnership in Michigan
A Partnership structure is a multiple member version of a Sole Proprietorship. This is the simplest and cheapest structure you can choose for multiple founders.
Just like Sole Proprietors, Partnership members have unlimited personal liability for all business debts.
There are three different types of Partnerships in Michigan. To establish each one you'll need to contact your county clerk and request a "Certificate of Co-Partnership"
General Partnership (GP)
This is the standard form of partnership. The liability of the business is equally distributed between all members. All general members are directly involved in the day-to-day decisions that govern the business.
Limited Partnership (LP)
Limited partners (also known as silent partners) cap their personal liability in the business at the price of having less control over business decisions. You can access the Certificate of Limited Partnership
and Certificate of Assumed Name
from the Michigan Department of Licensing and Regulatory Affairs.
Limited Liability Partnership (LLP)
Limited Liability Partnerships cannot be held liable for any errors, negligence or fraud committed by other members.
Create a Partnership Agreement
This isn't a requirement in Michigan, but it is highly recommended. A partnership agreement is a formal document outlining how the business is to be run and the role of each of its members..
This document provides partnerships with a sense of order and control, which is very appealing to potential investors and financial institutions should you be looking for funding.
Some suggested chapters to include in your Partnership Agreement are:
Roles and expectations of each members
Distribution of profits
If you're unfamiliar with how to write a Partnership Agreement, take a look at this template
How to form an LLC in Michigan
An LLC provides a superior level of personal asset protection to all its members. It's also the minimal business structure required to officially distribute stock certificates to investors.
Naming your Michigan LLC
The business names of all LLCs in Michigan need to end in any of the following suffixes:
Limited Liability Company
You can also conduct a name search
to see if the proposed name for your LLC is available.
Appoint a Registered Agent in Michigan
All LLCs in Michigan must appoint a registered agent. A registered agent is a third party that receives all mail and important documents on behalf of a business.
The purpose of a registered agent is to guarantee the transfer of all legal mail to business owners.
All registered agents in Michigan must meet the following criteria:
Be located in the state of Michigan.
Accept mail via a residential or business address (not via a PO BOX).
Guarantee availability during business hours.
Guarantee the timely forwarding of all accepted mail to respective business owners.
As a busy business owner you can never guarantee your availability to accept all mail during business hours. This is why it's not recommended for you to act as your own registered agent.
All foreign business must appoint a registered agent.
Here's a list of some professional registered agents in Michigan you can contract:
Submit Michigan Articles of Organization
Submitting the Articles of Organization
registers your LLC with the state of Michigan. Before completing this document you need to decide whether your LLC will be managed by its members (member managed) or an external party (manager managed).
If you choose for your LLC to be manager managed, in article 5 of the Articles of Organization, you'll need to include the details of the management structure.
Create an Operating Agreement
This document outlines the rules of the LLC and the role of each of its members. It's not a state requirement, but it's highly recommended to ensure uninterrupted business operation.
If you don't know how to structure an Operating Agreement, have a look at this template
Submit Annual Report to keep Michigan updated
All LLCs in Michigan need to ensure that their business details are up to date by filing an annual report. A form will be automatically issued to your nominated registered agent 90 days before its submission deadline.
This report can also be filed online
How to form a Corporation in Michigan
A Corporation is the most advanced business structure. Its perpetual life and superior personal asset protection to all members make Corporations the most appealing business structure for prospective investors.
There are two different types of Corporations:
This is the default form of Corporation. C-corporations can have an unlimited number of investors and issue all classes of stock. It's also easier to transfer ownership within a C-Corporation by selling shares of stock.
The main disadvantage of a C-Corporation is the double taxation process that occurs at both the corporate level and personal income level of each member.
In order to elect an S-Corporation status, members need to file Form 2553
with the IRS.
Because this business structure is classified as a "pass-through entity," S-Corporation members are only taxed once at a personal income tax level. They also share the same benefits of C-Corporations, with the following exceptions:
S-Corporations are limited to only 100 shareholders.
They can only issue one class of stock.
Stockholders can only include individuals, estates and trusts
Michigan Corporation naming guidelines
The names of Corporations in Michigan must end with any of the following:
Submit Articles of Incorporation
Submitting this document officially registers your Corporation with the state of Michigan.
Domestic Corporations should use this form
if they wish to file the document by mail. You can also file your Articles of Incorporation online
Appoint a registered agent
The process of appointing a registered agent for Corporations is the same as the process for LLCs.
Create a corporate records book
A corporate records book stores all of the important documentation pertaining to the Corporation such as:
High value transactions
A corporate records book does not have to adhere to any specific criteria, so you're free to fill it with any information you see fit. Just make sure it's readily accessible to all members by keeping it in your principal office.
Host initial Corporate meeting
This meeting is an opportunity for all members to create bylaws, appoint first term directors and finalize any other process that require attention prior to commencing business operations.
Stock certificates should also be officially distributed to all members during this meeting. Before this is done, make sure you contact the Michigan Regulator
to see if your corporate stock is exempt from a "security" status.
Submit annual reporting
Corporations must insure that all their business information is kept up to date. The state of Michigan will automatically send an annual report to fill out to your registered agent 90 days prior to its submission deadline.
Alternatively, you can also file this report online
How to form a nonprofit in Michigan
A nonprofit is a form of Corporation that's exempt from certain taxes.
Naming your nonprofit
Unlike other Corporations and LLCs, the names of nonprofits in Michigan do not require a suffix.
You can conduct a name search
to see if the proposed name for your nonprofit is available.
Submit Nonprofit Articles of Incorporation
In order to register your nonprofit with the state of Michigan you'll need to submit the Nonprofit Articles of Incorporation
. If you plan to also apply for federal tax exempt 501(c)(3) status, you must include specific statements in your Articles of Incorporation. For more guidance, refer to the section "Articles of Organization" in this IRS document
Create a Corporate Records book
This book should be stored in your primary office location in Michigan and contain important documentation such as:
Notable Transactions / purchases
Host initial corporate meeting
This is an opportunity for you to complete all of the processes that must completed prior to launching the business such as:
Appointing initial term directors
Opening corporate bank accounts
Register for tax exemption
To obtain an exemption status at a federal level, you'll need to file Form 1023
with the IRS. Smaller nonprofits may be eligible to submit the simpler Form 1023-EZ
You're automatically exempt from Michigan State tax once the IRS grants you a Federal Tax exemption status.
Register for fundraising activities
Before commencing any fundraising activities, you'll need to register
your intention to do so with the state of Michigan. This is to ensure your nonprofit remains compliant and maintains its integrity as a community focused organisation.
Certain nonprofit organizations are exempt
from this registration process.
Protecting your business in Michigan
Some recommended insurance policies for your startup in Michigan are:
Business owners policy (BOP)
A combination of business liability insurance and business property insurance that protects your business from loss of income as a result of disasters, theft, fire, etc.
Commercial property insurance
This policy protects all of your business inventory and other business belongings.
General liability insurance
This policy protects your business from property damage, copyright infringements, personal injuries and more.
Business income insurance
This insurance policy supplements any lost income while your business recovers from disruptive damage.
Workers compensation insurance
This policy offers compensation to any employees injured at work.
A resource for business tax information and an online portal to file tax returns.
Access Articles of Organization, business licenses, zoning permits etc.
This is a great resource for small business news, tips and advice, market research and industry-specific links.
The US Small Business Administration offers advice, advocacy and instruction for small businesses across the country.
Our own guide to launching your startup will walk you through every step of starting a business, from concept to execution.