How to Start a Business in Michigan

If you’re starting a business as a sole proprietor or as a member of a general partnership, you won’t need to do much more than sell something to establish your business. Neither of these business types will require you to register with the state of Michigan. However, neither will offer you liability protection, either. If your business is sued or owes debts, you are held personally accountable for all legal and financial obligations. This puts your personal assets—properties, vehicles, money in your bank accounts—at risk.

Forming a separate business entity that you register with the state, such as an LLC or a corporation, will protect your personal assets from business damages.

Michigan Limited Liability Company (LLC)

LLCs are flexible and adaptive. This quality makes LLC formation popular with small businesses, but businesses of all sizes can take advantage of this business structure. Forming an LLC will give you more control over your business’s management design and tax designation. If you want to form a Michigan LLC, you’ll need to submit Articles of Organization with the Department of Licensing and Regulatory Affairs.

Michigan Corporation

Corporations must adhere to specific management rules: they must have an elected board of directors, which then appoints officers to run the company. Corporations must also keep detailed records and follow the guidelines set down in their bylaws. However, because of this, investors and donors often view corporations as more trustworthy and stable. To form a Michigan corporation, you’ll have to file Articles of Incorporation with the Department of Licensing and Regulatory Affairs.

When naming your business in Michigan, you’ll need to follow a few rules. As the owner of a sole proprietorship, you must use your own name as your legal business name. The same goes for general partnerships, except you’ll need to use your name along with your partner’s names. To avoid this, you’ll have to get a DBA. A DBA will allow you to do business under a name like Great Lakes Consulting instead of Denise Johnson.

If you have an LLC or corporation, you’ll be able to choose your legal business name, but you’ll need to obey Michigan state naming guidelines. Your business name must:

• Be unique among registered business names in Michigan.
• Include an entity identifier, such as “Inc.” for a corporation or “LLC” for an LLC.
• Not contain any language that implies a false business purpose, including a false business identifier, such as using “corp.” in the name of an LLC.

Find out if your desired name is available in Michigan by searching the Department of Licensing and Regulatory Affairs’ Corporations Online Filing System Business Entity Search.

If you’re starting a sole proprietorship or a general partnership, you won’t need to file any paperwork with the state because you won’t be establishing a separate business entity. (You may still need a Michigan business license, though!)

Forming an LLC or corporation will require you to file registration paperwork with the Michigan Department of Licensing and Regulatory Affairs. After your paperwork is accepted, your business is officially registered as a separate business entity in Michigan.

• To form a Michigan LLC, file a Michigan Articles of Organization
• To form a Michigan corporation, file Michigan Articles of Incorporation

As part of filling out your articles, you’ll need to identify your Michigan Registered Agent. You can submit your registration paperwork by mail, in person, or online through the Department’s Corporations Online Filing System. The filing fee for LLCs is $50. For corporations, you’ll need to pay a minimum of $60—a $10 flat fee plus an additional $50 for your first 1-60,000 authorized shares. If your corporation has more than 60,000 authorized shares, you’ll need pay more. For example, with 10,000,000 or more shares, your additional fee will be at least $500.

Note: The information you include on your formation paperwork will go on the public record. The names and addresses you list on these documents will be freely available to the public through Michigan’s Business Entity search.

So far in this guide, we’ve dealt with public forms that you’ve had to file with the Michigan Department of Licensing and Regulatory Affairs. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.

Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.

Here are the major internal documents you need to organize for LLCs and corporations:

Michigan LLC Operating Agreement

This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.

Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft a Michigan LLC Operating Agreement template that you can use as a solid foundation.

Michigan Corporate Bylaws

Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Unlike operating agreements, corporate bylaws are required by law in Michigan (see MCL § 450.1231).

As with operating agreements, you can find plenty of bylaws templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted an Michigan Corporate Bylaws template you can use to get started.

Starting a nonprofit? Learn about Michigan nonprofit bylaws.

Michigan state doesn’t issue a universal state-level business license. Despite this, it’s very possible that your business will need a license of some type, depending on your industry, whether or not you’ll be collecting sales tax, and where you’re located.

Michigan State Business License

You won’t need to get a general business license in Michigan, but the state does require licenses for specific industries and types of work. For example, if you run a water park, you’ll need a permit from the Department of Environment, Great Lakes, and Energy, Drinking Water, and Environmental Health Division to operate. To find specific state licenses and requirements, you can use Michigan’s online State License Search.

Additionally, if you sell tangible personal property as a retailer, wholesaler, or contractor or if you provide repair or improvement services on tangible goods, your business will need a Sales Tax License to legally collect sales tax on purchases.

Professional Business Licenses

If your line of work is in a field that requires specialized training or education to perform, you and/or those working for you may need to get a professional or occupational business license. A wide range of fields call for professional or occupational licenses in Michigan, including accountancy, medicine, and landscape artistry. You can find licensing information online through the Department of Licensing and Regulatory Affairs’ Occupational Licensing and Health Licensing websites.

Local Business Licenses

In addition to state and professional licenses, you may also need to obtain county- or city-specific licenses and permits. Detroit, for example, requires licenses for certain types of businesses, including carnivals, dance studios, and vending machine operations. To find out if your business will need a local license, contact your local jurisdiction.

Learn more about How to Get a Business License.

The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.

Open a Business Bank Account

To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.

Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.

Set up Payroll

Do you plan on hiring employees or independent contractors? If so, you’ll need to set up payroll in Michigan. Here’s a overview of the process:

• get an EIN
• determine whether you’re hiring employees or independent contractors
• prepare the forms your employees will fill out
• choose a payroll service or software
• decide on a payroll schedule
• report new hires to the Michigan Office of Child Support through the Michigan New Hires Operation Center Employer Services Portal
• register with the Michigan Department of the Treasury to remit tax withholding using Michigan Treasury Online
• register with the Department of Labor and Opportunity Unemployment Insurance Michigan Web Account Manager (MiWAM) to get your Unemployment Insurance Account (UIA) number and rate

Setting up payroll can be overwhelming. It helps to use a solid payroll service or software that will automatically withhold payroll taxes, file state and federal returns on your behalf, and pay your employees by check or direct deposit.

Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is on the hook to pay. Business insurance can help cover the costs.

If your Michigan business has any employees, it’s likely that you’ll be required to purchase workers’ compensation insurance. And, obviously, if you have a company vehicle, you’ll also have to get auto insurance. Otherwise, you won’t need any other business insurance to operate legally in Michigan. That doesn’t mean your business won’t benefit from supplemental insurance, though. Liability insurance can help protect the funds and time you’ve invested into your business by reimbursing you for losses to property and equipment damages or liability claims.

Here’s a brief rundown on the most commonly purchased types of business insurance:

Workers’ Compensation Insurance

Workers’ compensation insurance covers medical costs and lost wages for employees who are injured on the job, protecting them from unreasonable financial loss. Almost all employers in Michigan with employees are required to purchase workers’ compensation insurance.

This includes:

• All public employers
• Private employers with at least one employee who works 35 or more hours a week
• Private employers with three or more employees at the same time
• Agricultural employers with three or more employees working 35 or more hours a week for 13 or more consecutive weeks
• Household employers with one or more domestic servants working 35 or more hours a week for 13 or more consecutive weeks

There are several ways to obtain coverage in Michigan. You can purchase a policy from a licensed and approved insurance carrier or through the Compensation Advisory Organization of Michigan’s assigned risk pool. You can also self-insure, individually or through a group fund with other businesses, if you meet all of the qualifications to do so. The cost of workers’ compensation insurance will vary depending on your industry and the level of risk associated with the work your employees perform.

Liability Insurance

This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.

Doing business in Michigan, you’ll need to pay federal, state, and, in some cases, local taxes. Michigan also charges sales tax on tangible personal property, so depending on what kind of business you’re in, you may need to factor this into your prices. Compared to other states, Michigan’s tax rates run average or a little higher than average.

Federal Taxes

• LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. For federal income taxes, you’ll need to pay the 15.3% federal self-employment tax rate on all earnings up to $147,000. An LLC can file paperwork with the IRS to be taxed as an S-Corp or C-Corp instead.
• Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate on federal taxes.

To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.

Michigan State Business Taxes

In addition to federal taxes, both LLC owners and corporations are on the hook for Michigan state taxes. Michigan also levies a state sales tax and some additional taxes for certain industries, such as marijuana and tobacco retailers.

LLC owners are responsible for paying Michigan state individual income tax, which is collected at a flat rate of 4.25%. If your tax liability will be more than $500 for the year, you’ll be required to make quarterly estimated tax payments to the Michigan Department of the Treasury.

Corporations need to pay Michigan Corporate Income Tax (CIT), which is imposed at a flat rate of 6%. However, corporations with annual gross receipts that don’t exceed $20 million (and meet several other requirements) can receive the Small Business Alternative Credit and qualify to pay at a rate of 1.8%. Your corporation must make quarterly estimated tax payments to the Michigan Department of the Treasury if you expect to have a tax liability of $800 or more for the tax year. Michigan charges a state sales tax of 6% on sales of tangible personal property.

Local Michigan Business Taxes

You’re not done yet! If your business owns buildings or land, you’ll need to pay property tax at the county level, though tax rates vary from county to county. Many cities in Michigan also charge city income tax. In Detroit, for example, as an LLC owner, you’ll need to pay individual income tax to the city at a rate of 2.4%. Detroit corporate tax at a rate of 2%.

If you want Michiganders to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an influencer to establish a robust online presence. You’ll just need the following:

• Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
• Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
• SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
• Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.

In Michigan, all LLCs and corporations are required to file Annual Reports with the Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau. Submitting your annual report on time allows your business to remain in good standing with the state. On your annual report, you’ll have the opportunity to update basic information about your company, such as your members’ names and addresses.

The Bureau will pre-printed annual report forms to the office of your registered agent before your filing is due. You can submit this form by mail or use the Department of Licensing and Regulatory Affairs Corporations Online Filing System to file online. Due dates and form issuing vary by business entity type. Filing costs $25.

Read more about How to File a Michigan Annual Report.

A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.

You can apply to register your trademark with the State of Michigan or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Michigan is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Michigan.

You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.

Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.