If you’ve chosen to form a limited liability company (LLC) for your business in Michigan, you’ve made a smart choice. LLCs offer personal liability protection as well as pass-through taxation which means the profits of the LLC pass through to its owners, called members, to be taxed at their personal income tax rate. The LLC itself is not taxed.
However, naming and setting up your LLC in Michigan is not a one-step kind of thing. It usually requires several steps. To make the whole process a bit light on you, we have dedicated this post to show you how you can set up and name your LLC in Michigan. Just keep reading!
Step-By-Step Guide on How to Setup and Name Your LLC in Michigan
#1: Choose a Name
You probably have a few winning names in mind for your business already. But if that’s not the case, then you should take your time to choose a name that’s unique and easy to spell and remember.
You also need to make sure that the name you choose meets Michigan’s LLC name requirements. Yes, Michigan has some strict rules when it comes to LLC names, which is unusual compared to other states. First of all, like in all states, your name must include either the word limited liability company or one of its abbreviations.
Your LLC name also cannot contain words that could confuse your business with a government agency, or that imply that your business is involved in illegal activity. But here’s the real kicker – Michigan has a long list of words that are restricted in LLC names, or that come with certain requirements.
The list is 44 pages long, so make sure that you check it out. If you don’t and you use a restricted word, your LLC registration will be rejected.
Once you’ve made sure that your chosen name is in compliance, you’ll need to do a Michigan LLC name availability search on the Michigan online filing system website. You should also check the United States Patent and Trademark Office’s website to make sure the name is not trademarked.
Once all of these have been done, now go to a site like GoDaddy to make sure that the domain name you want is also available.
If you’re not quite ready to form your LLC, you can reserve the name for six months by filling out this form and mailing it, along with a $25 fee, to:
Michigan Department of Licensing and Regulatory Affairs
Corporations, Securities & Commercial Licensing Bureau
Corporations Division
P.O. Box 30054
Lansing, MI 48909
#2: Select a Registered Agent
Once you are done with the whole process of choosing a name for your LLC, the next step will be to choose a registered agent for the business. In Michigan, you’re required to appoint a registered agent for your LLC.
This is a business or an individual who has the authority to accept official correspondence on behalf of your LLC. While you can be your own registered agent in Michigan, but a registered agent is required to be personally available at their registered address during business hours, which is restrictive for new business owners.
Many entrepreneurs instead elect a registered agent service. Registered agent services typically cost between $100 and $300 annually. You can consider that option too.
#3: Determine Your Management Structure
You have a choice between two management structures for your LLC. You can either choose Member-managed LLC or Manager-managed LLC. The difference between them? In Member-managed LLC, all members are involved in the management of the business. But with Manager-managed LLC, some members are appointed as managers while others are silent partners. And a non-member or member may be appointed as managers.
Most LLCs are member-managed unless they have an investor who is a member but not involved in the management of the business. Your management structure should be specified in your operating agreement, which we’ll discuss in a later section.
#4: Register Your LLC in Michigan
Now you’re ready to officially register your LLC with the State of Michigan. This is somewhat easy. You can get your LLC registered right on Michigan’s online filing system by filling out articles of organization. Some requirements you will need to get this done include your LLC name, your business purpose, and your registered agent’s name and address. The fee to file is $50.
#5: Draft an Operating Agreement
An operating agreement is not required for your LLC in Michigan, but it’s a very important document. It will specify the ownership of the LLC, show the distribution of profits is done, and how disputes are resolved. It will also show what rights members have when it’s time to vote, how ownership of the LLC can be transferred, and much more.
Even if you’re the only member of your LLC, your operating agreement can prove your ownership of the business, which may be required to open a bank account or obtain a business loan. In Michigan, your articles of organization do not require member names, so without an operating agreement, you have no documentation that you own the LLC.
If your LLC has more than one member, the operating agreement will be proof of your ownership percentages and will also contain language that can help you to settle disputes.
While you can find operating agreement templates online, it’s best to have an attorney’s help when drafting the document.
#6: Choose Your Tax Status
While LLCs are by default treated as sole proprietorships if they have a single member or partnerships if they have multiple members, members can instead elect to have the LLC taxed as an S corporation.
With S Corp status, pass through taxation is maintained, but the status has the potential to reduce members’ self-employment tax liability. However, S Corp status comes with additional administrative requirements which means added costs for the company.
That means that S Corp status is only beneficial if the self-employment tax savings exceeds the additional administrative costs. Determining the benefits involves complex calculations, so it’s best to seek the advice of your tax advisor before electing S Corp status. Making the election requires filing Form 2553 with the IRS.
Final Note
As you can see, setting up an LLC in Michigan requires a bit more work than simply filing articles of organization. Be sure not to skip any of the steps to make sure that your business gets off to a good start. The benefits of an LLC make it well worth the time, effort, and costs involved.
