How would you describe your company? What does your company do? Who are your customers? What makes your company unique?
If you want to start a new business or expand an existing one, you’ll need to form a limited liability company (LLC). An LLC is a legal entity that allows you to limit your personal liability for debts incurred by the company.
This means that if someone sues you personally, they cannot go after your assets.
An LLC is a great way to protect your personal assets from lawsuits. In addition, it provides tax benefits and other advantages. Learn more about starting your LLC in the state of Michigan. You can also find out how to open an LLC bank account online.
Starting a Michigan LLC requires filing articles of the organization with the state. This process usually costs around $50. The company or you must apply online, in person or by mail. The online application takes less than 15 minutes to complete.
To begin starting an LLC in Michigan, you’ll need to register your company in Michigan. You’ll also need to pay $300 to operate an LLC in Michigan.
What Is An LLC?
An LLC is a type of business organization that’s distinct from both sole proprietorships and corporations.
The main difference between these types of entities is that owners of LLCs aren’t personally liable for the debts or obligations of their companies. Instead, members’ personal assets are protected when the company incurs debt or has an obligation.
Unlike sole proprietorships, which are generally taxed as individuals, LLCs are typically taxed through pass-through taxation.
As such, profits and losses flow through to individual members, who then pay taxes on those profits and losses according to their personal tax rates. Members may be able to deduct certain expenses related to running the company, including salaries paid to employees.
The IRS requires that all businesses have two or more members. If you’re considering forming an LLC, you should contact a CPA experienced in this area before filing articles of organization with the state.
The Benefits Of Forming An LLC
Limited Liability Protection: One of the primary reasons people form LLCs is to protect themselves from personal liability.
When you incorporate, you give up some degree of control over your own finances; however, you retain full ownership of your personal assets. For example, if you buy a home, you don’t lose the house because you incorporated your business.
Taxation: Because LLCs are separate from their owners, they can use different accounting methods than sole proprietorships.
Sole proprietorships must follow Generally Accepted Accounting Principles (GAAP), but LLCs can choose to use either GAAP or any other method of bookkeeping. Using a different method of bookkeeping could result in lower taxes owed at the end of each year.
Asset Protection: Unlike sole proprietorships, LLCs offer asset protection. If someone were to sue you for damages, they couldn’t attach your personal assets, like a car or a bank account.
Ease of Management: Managing a sole proprietorship is relatively easy. However, managing an LLC involves much more paperwork. To keep track of financial records, file reports, and manage day-to-day operations, you’ll need to hire a manager.
Easier Formation: It’s easier to form an LLC than it is to form a corporation. Corporations require shareholders, while LLCs only require members.
A shareholder is a person or group of persons who own shares in a corporation. Shareholders elect directors and officers, and they share in corporate profits and losses.
Naming Your Michigan LLC
Your LLC name must be distinguishable. You can reserve a new name for 6 months. You can search for available names by checking the Michigan Business Database.
You pay a $25 fee for each reservation. Your LLC name must contain the word “LLC” followed by your LLC name.
To start, you should ensure that the business name you want is available. You can use any name as long as it isn’t taken by another entity. Your business name should be completely unique.
You can actually check the overall availability of the LLC name in Michigan’s business name catalog database.
Your LLC name must roughly end with something along with the words “Your Limited Liability Company” or “The Liability Company”. Your LLC must not contain the word or words “Corporation”, “Incorporate” or any other similar term.
Once you have found an available company name that is suitable, and you like it, then you may reserve this name by filling out an application for the reservation of the name.
The name fee is an estimated 25 dollars. You can either mail this application, fill it out in person, or even file it online.
A PLLC is a type of business entity used by professionals. Members of this type of business entity must be licensed to practice their profession. Each member of the PLLCs must have a professional license.
Dentists, physicians, clergymen, and lawyers must try to form PLLCs in Michigan. Every single member of the PLLC itself must actually have a standard license, which is for the profession he or she practices.
Businesses operating under assumed names must file a certificate of the assumed name with the state. This is done by filling out a form and paying a fee.
Choosing A Registered Agent
Every Michigan LLC must have an Agent for Service of Process in the State.
A good registered agent may either be a Michigan resident, an incorporated Michigan business, a foreign corporation with a certificate of authority to transact Michigan business, a Michigan LLC, a foreign LLC authorized to conduct business in Michigan, or a foreign LLC having a certificate of authority to do business in Michigan.
In order to start an LLC in Michigan, there are two things you need to do. You need to designate a good resident agent and register the company’s principal place of business.
Your overall resident agent must be someone over the age of 18 years who lives in Michigan.
Also, your registered office needs to be somewhere within the state of Michigan. Most small style business owners choose to use a commercial style provider such as Inc file to register their company. Inc file offers free-agent services in all the 50 U.S. states.
Filing The Articles Of Incorporation
Now you must file your LLC’s articles of the organization, you can actually either submit the actual articles of the organization yourself by mail or even file them online.
The articles of the organization will officially authorize the LLC to be operational in Michigan. Please do note that there is an estimated different set of articles.
You’ll need the following standard information to be able to attempt to even file the Michigan LLC articles of the organizations:
Business name, and the name and the overall address of the resident agent (PO Boxes insufficient).
You must complete this form within 30 days after you register your business name. A person named in the articles of the organization must sign the articles of the organization.
If you do not know who owns your company, you should contact the Secretary of State’s Office.
Please note: If you choose to operate an LLC under the laws of a different state than the state in which you reside, you will need to obtain a certificate of authority from that other state before you can legally transact business in that state.
You need to file an application for a certificate of standard authority to transact the business in Michigan alone. This application costs $50. Your company must be registered in another state before operating in Michigan.
Creating An Operating Agreement
Operating agreements are important documents. They set out the rights and responsibilities of each member or manager. They also show who owns what portion of the company.
An operating style agreement helps protect the owner’s personal assets if the company goes bankrupt.
An LLC operating agreement actually is a form that describes and goes through the overall daily operations and the responsibilities of a good LLC. It also includes information about each member of the LLC and the manager.
This document should be created by the owners of the company.
LLC documents include these sections: Organization, Members, Manager, Managers, LLC Agreement, Operating Agreement, D&O Insurance, Director & Officer Liability Insurance, Tax Information, Articles of Organization, By-Laws, and Bylaw Amendments.
Getting An EIN Number
Additional tax and regulatory requirements may be applied to your LLC. These include having an EIN, even if you have no employees. If your LLC has more than one member, it needs an EIN, even though there are no employees.
If you have a one-member LLC and you want to pay taxes as a corporation instead of as a disregarded entity, you’ll need an EIN.
You may get an EIN by filling out an online application on the IRS website. Your LLC may need other local business licenses depending on its type of business (e.g., retail, service) and where it is located (city/town/county).
Check with the clerk for the location where your LLC’s primary place of operation is located. To obtain a state business license, check State License Search.
It is a nine-digit number used to identify employers for tax purposes. What if you actually already have the EIN? The IRS actually requires that the Sole Proprietorship need to get a new one when converting to one of the LLCs.
Getting an EIN is actually an easier process than getting an SSN. You can apply for an EIN online, by mail, or even by fax.
To apply for an EIN without having a social style security number, you must file IRS Form SS-4. Leave Section 7B blank. LLCs with employees must have an EIN because they are taxed as corporations.
However, LLCs without employees do not have to have an EIN because there are no taxes due.
Frequently Asked Questions
Do I Need A Business License?
Not every Michigan LLC needs a Business License. Some companies in regulated industries, such as childcare or construction, may be required to get a license from the state government.
Companies in professional occupations, such as healthcare or construction, must get a license from the bureau of professional licensure.
Your city or county might also require you to get a business license. Larger cities, such as Detroit, tend to have stricter regulations than smaller towns. Contact your city or county to see if there are any additional requirements.
You’ll be required to collect sales taxes from your customers and remittance them to the State on a monthly, quarterly, or annual basis. The frequency of the filing depends on how much tax you collect from your customers.
Business insurance helps protect your business from risks. You may need general liability insurance, professional liability insurance, and/or workers’ compensation
What Are The Tax Requirements?
LLCs are actually pass-thru entities for your income tax style purposes, meaning the LLC actually itself does not pay the income taxes alone and does not actually file any tax return.
Owners/members that are of your LLC must pay state-style income taxes overall on their portion of the LLC’s income. Annual statement forms will be sent out to the owner/member 90 days prior to the date that they are due.
Filing fees will be collected via check made payable to the Treasurer of State. Members of the LLC can actually choose whether to treat the business as a corp. If they choose to make the business a C-Corp, then the company must pay both state and local taxes.
The company also needs to collect sales tax and pay the unemployment insurance style taxes. The company also withholds payroll taxes and remits them to its government.
Businesses with any employees need to withhold the federal income taxes and even the social security and sometimes the medicare taxes directly from their employees’ wages, and then pay the overall corresponding employer style share of this social security and the medicare taxes.
Employers also need to pay federal unemployment taxes. Federal unemployment taxes are often reduced if you actually pay Michigan Unemployment-style taxes in full and then on time.
Before filing the federal tax returns, it’s likely that your LLC will actually need an IRS employer ID number (EIN) because you’ll need to file Form SS-4. The EIN is required for LLCs with any employees, and for the LLCs choosing to be taxed overall as corporations.
To get unemployment insurance tax, you must be registered with the Michigan Unemployment Insurance Agency. They will send you an invoice for your taxes every year.
For employee withholding tax, you must be enrolled with the Michigan Department of Treasury and file your payroll report by the 15th day of each month.
Starting an LLC is relatively easy, but there are many things that could go wrong along the way. It’s important to have a good attorney and accountant review your paperwork before you sign anything.
A good lawyer will ensure that all the documents are accurate and complete. An experienced accountant will ensure that everything is filed correctly and that you’re paying the correct amount of taxes.