According to the Michigan Limited Liability Company Act 23 of 1993, a Limited Liability Company (“LLC”) is a type of business formation in which its members enjoy separate liability from the entity itself. The owners of an LLC are referred to as its “members” who will be responsible for operating the LLC unless the Articles of Organization state otherwise.
An LLC can provide many benefits for a company, including pass through taxation and a shield from personal liability for its members. To learn more about how to form an LLC in Michigan, you should contact a Michigan business lawyer in your area for further legal advice.
What are the Requirements for a LLC?
To form an LLC business in the state of Michigan, a business owner will need to register their company with the Michigan Department of Licensing and Regulatory Affairs (“LARA”). LARA is the government agency in Michigan that oversees the process and enforces the requirements for forming an LLC in the state. Thus, a business owner can research the requirements and find the filing forms for an LLC on the website for the LARA.
One of the main requirements for an LLC in Michigan is to choose a name that is not already taken by another entity. All LLCs must provide a unique name, so as not to cause confusion. This is because all LLCs in any state are required to add either “LLC” or “Limited Liability Company” to the end of their names.
Another requirement that must be met in order to form an LLC in Michigan is someone who is appointed to act as a registered agent on behalf of the business. The registered agent of the LLC must reside and provide a physical address that is located in Michigan. This individual will be able to accept documents on the behalf of the LLC, such as if it is served a complaint and summons in a lawsuit.
Michigan also requires that LLCs complete and submit an Articles of Organization. While an LLC operating agreement is typically optional, it is generally recommended that all LLCs create one regardless. Additionally, if the business does not already have one, the LLC will need to register for an Employment Identification Number (EIN).
Lastly, aside from complying with all federal and state tax as well as employer obligations, LLC will also need to choose how they would like to be taxed. If members do not select how they would like to be taxed, then the automatic default will be applied, which is that of an LLC. An LLC business is normally taxed as a pass through entity.
What Paperwork Do I Need to form a LLC?
As previously discussed, the requirements and forms to create an LLC in Michigan can be found on the website for the LARA. Some common examples of the types of legal documents that a business owner will need to submit when forming an LLC in Michigan may include the following:
- An Application for Reservation of Name (i.e., Form CSCL/CD-540);
- Alternatively, a business owner will need to use Form CSCL/CD-541, Certificate of Assumed
- Name, if they want to use a trade or fictitious business name;
- The paperwork for the Articles of Organization (i.e., Form CSCL/CD-701);
- The operating agreement for the LLC;
- The name and physical address of the resident agent chosen to represent the LLC in Michigan;
- Copies of any financial records that contain the quantity of shares or equity that each member of the LLC possesses; and
- Any paperwork associated with a business or professional license (e.g., healthcare, child care, construction, etc.).
What Benefits Does Michigan Give to a LLC?
There are many more benefits than there are disadvantages that a business owner can gain from forming an LLC in Michigan state. For one, the fees to form an LLC are much lower in the state of Michigan than they are in the majority of other states. The state of Michigan also does not charge in-state LLCs an annual tax like some other states impose on LLCs within their respective jurisdictions.
One of the greatest benefits that owners of a business can get from forming an LLC is that they will enjoy limited liability. Being granted limited liability means that the owners of an LLC cannot be held personally responsible for the losses or legal risks incurred by the LLC.
For instance, if a lender or creditor brought a lawsuit against an LLC for failing to pay off its debts, the members of the LLC cannot be personally sued for their assets (e.g., a home) or their money.
Another significant benefit that can be enjoyed under an LLC business structure is that all LLCs offer pass-through taxation. This is in direct contrast to the way in which a corporation is taxed, which is through double taxation. Pass through taxation essentially means that the LLC itself will not be required to pay income taxes or have to file a tax return. Instead, the members of an LLC will need to pay taxes for the LLC on their personal tax returns.
There is one exception to pass-through taxation, which also happens to be another benefit, and that is the fact that members of an LLC can elect to be taxed as a C corporation. In such a case, the LLC will be subject to the corporate income tax rate in Michigan state.
What Disadvantages Does Michigan Give to a LLC?
Although there are typically more advantages than there are disadvantages in forming an LLC, the state of Michigan does impose a number of substantial registration requirements as well as ongoing obligations that the members of an LLC will need to comply with if they want to continue operating as an LLC. This is especially true with LLCs that are made up of multiple members who will all be required to fulfill specific ownership duties.
For example, the members of an LLC owe both the company and the other members certain fiduciary duties, such as acting in accordance with good faith and promoting the best interests of the LLC. However, these legal obligations will be required of all LLC members in any state, not just Michigan.
As for the disadvantages given to an LLC in Michigan state in particular, it is usually harder and much more expensive to form an LLC in the state of Michigan than it is to register a business as a partnership or as a sole proprietorship. Members of an LLC in Michigan will also be required to pay federal self-employment taxes on any revenue that the company collects.
In addition, an LLC is not set up to issue stocks or to take the company from private to public in the way that may be easily permitted by other types of business formations. Thus, this also means that LLCs are generally not the best option for businesses that need to raise capital from investors.
Where Can You Find the Right Lawyer?
If you intend to establish your business as an LLC in the state of Michigan, then it is generally recommended that you speak to a Michigan corporate lawyer who practices law in or near your local county. A Michigan lawyer who has experience in handling business matters will be able to assist you in complying with the necessary laws and legal procedures that are required to form an LLC based in Michigan.
Your lawyer will also be able to answer any questions or concerns you may have about forming an LLC in Michigan state. In addition, if a mistake was made when submitting the paperwork to form an LLC, your lawyer will be able to assist you in resolving those issues as well.
Finally, your lawyer will be able to provide legal representation in a Michigan state court if there is a dispute between you and another LLC member or an outside party that involves an LLC.
