Michigan is one of the few states that offer a simple one-page form to register a business entity. This article would guide how to register a Michigan LLC and incorporate or form an entity and other information.
Identify the Business Structure
Michigan has different business structures for various needs. Below are the various business structure available in the state:
In this legal entity, an individual who owns the business conducts its activities without any separation from his or her person; thus, making himself personally liable for all of the debts and obligations incurred by the business. The business profits and losses are reported on shareholder’s personal income tax returns.
Risks: In this business structure, there is no protection from legal liability because the owner(s) will be held personally liable for all of the debts and obligations incurred by the business. A sole proprietorship does not allow for tax deductions. The correct business name should be registered with the county or city clerk.
Limited Liability Company (LLC):
An LLC is a business entity that combines the limited liability of a corporation with the tax efficiencies and operational flexibility of a partnership. The LLC offers owners, called members, protection from personal liability for debts and actions of the LLC. The company itself stays ‘pass-through’ whereby no profits are distributed to members.
LLCs are required to file an annual report with the Department of State, Division of Corporations, within one month after the close of its fiscal year and is due on March 1st. Income from an LLC is taxed as a sole proprietorship or partnership, depending upon whether one member or more than one member owns the business.
An LLC owned by one member is classified as a sole proprietorship for tax purposes, while an LLC with more than one member is classified as a partnership. Regardless of the number of members, income from an LLC passes through to the owner and is recorded on their personal income tax return.
An S Corporation may be formed under state law for profit and is operated and managed by shareholders. A corporation elects to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.
S Corporations are not taxed at the entity level; rather, they “pass-through” taxation similar to a partnership or sole proprietorship (unlike C corporations that pay taxes at the corporate level and dividends to shareholders). However, like other corporations, an S corporation is subject to a number of state laws that regulate and monitor its operations.
S Corporations are popular because they provide limited personal liability protection for both members and managers/employees. This differs from other entity types, which often require participants to sign personal guarantees and indemnity agreements. If a shareholder is personally liable for the actions of the corporation, that liability ends when he or she withdraws from the S corporation.
Obtain a Federal Employer Identification Number (EIN)
Business is required to have an EIN (Employer Identification Number) prior to registering a business. The EIN must appear on all federal tax returns, financial statements, and correspondence with government agencies.
It must also be used whenever you hire employees or apply for assistance from any state or local government. Michigan requires the use of this number when applying for a state-specific tax identification number. The EIN is issued by the IRS and can be obtained by completing Form SS-4
Register Your Business Name in Michigan
After establishing your business structure, you will need to register a name with the county or city clerk where your business will operate. The name must match your DBA (Doing Business As) name as well. If you decide to incorporate your business, you will be required to have a DBA and registered with the county or city clerk.
A name should not be confusingly similar to an existing business or other registered business names in the business name database in the county where the business will operate. It is also advisable to check for trade names with both the U.S. Patent & Trademark Office (USPTO) and the State of Michigan before finalizing a name.
Assumed Name vs. Co-Partnership Name
If two or more people own your business, you may be able to register a Co-Partnership DBA name. However, simply registering an assumed name (DBA) does not create any legal liability between the owners and creates no contractual commitment for future actions or debts of the company. This could lead to future problems if only one owner runs and operates the business.
County Clerk Procedures
In Michigan, the county clerk in the county of operation will issue a DBA. In most counties, this is an online process that can be completed by a business owner or authorized representative with proof of identity and residency.
A filing fee varies by county ranging from $20 to $100 depending upon its population. Business owners should plan additional time for the filing process and visit their county clerk’s office in advance of start-up to ensure they will have a DBA on hand.
Registering a Corporation
After obtaining a Federal Tax Identification Number (EIN) from the Internal Revenue Service (IRS), you have an obligation to register your corporation or LLC with the State of Michigan. Failure to register may subject your business to financial penalties and criminal prosecution.
Business formation services are provided by the Secretary of State, Michigan Department of Licensing and Regulatory Affairs (LARA), a division of the Department of Treasury.
You must submit or register articles of incorporation, application for a Tax Identification Number (TIN) and pay any required fees. In addition, you must record copies of your articles with the county clerk in the county where your main office or principal place of business is located.
The Secretary of State’s office performs limited due diligence to ensure your business entity name is available for use. This does not guarantee the availability of a DBA (Doing Business As) name.
How much does it cost to register a business in Michigan?
The cost to register your business in Michigan is $90 per year.
The “Michigan Business Tax ID Number” or M-Biz number is an umbrella tax identification number used to report taxes and pay fees on behalf of multiple business entities registered with the state. The M-Biz system was created in 2007 by the Michigan Department of Treasury to replace the Michigan Business Tax (MBT) and other tax-related reporting.
If you conduct business without registering or obtaining a TIN, Michigan will charge an annual $800 fine on top of any other outstanding taxes, fees, and penalties.
Licenses and Permits
A state license or permit might be required. For example, if your business is going to sell alcohol, you must apply for and obtain a liquor license from the Michigan Liquor Control Commission (MLCC).
The MLCC will also issue endorsements for additional privileges within their jurisdiction, such as seating in an establishment that serves alcohol.
Licensing & Permits Fees
Excise tax licenses are based on the type of business your company does. An example of a common excise tax license is the liquor license. Other examples include tobacco, pharmacy, gaming, and fuel storage tanks.
- Licenses/permits fees range from $50 – $400 per year depending upon the industry.
- Excise taxes are a fee collected by the state for specific alcohol, tobacco, and gasoline activities.
The following are some common types of business taxes in Michigan:
- The 4.25% sales tax is required when you register or renew your DBA with the county clerk’s office. This is an annual process that must be completed each year.
- Business Tax Registration Fee – $90 per year (for all businesses) *A minimum fee of $29 is due with your application to register/renew a DBA or Corp/LLC.
- Business Personal Property Tax – A tax levied by local governments on the value of personal property owned by a corporation, partnership, or any other business entity. Amount varies based upon location and type of business.
- Registration Fee – $20 (Annual)
- Corporation Tax/LLC Annual Report – $15 per year (Annual)
- Limited Liability Company Annual Report – $15 per year (Annual)
- Insurance Tax – It is a tax imposed by the State of Michigan on all insurers authorized to do business in this state. The insurance tax is based on premium net written premiums, subject to certain exemptions and credits.
- Business Income/Losses & Credits – This includes filing income/loss forms and paying taxes (Sales Tax License & Use, Corporate Income Tax)
- Business personal property tax filing fee – $0.79 per $100 of assessed value for the first year (all entities) *$47 minimum fee; taxes due in April.
If your business files any of the above taxes or licenses, an estimated amount of total state and local sales and use taxes due is $284.31 on an annual estimated sales volume of $0.
The business registration process in Michigan is simple, and the state will help you complete all necessary forms and provide assistance if needed.
Business registration fees, licenses, taxes, fines, etc., can quickly add up, so be sure to budget accordingly when starting a business.