Are you looking to run a business with one or more partners in the state of Michigan?
The simplest way to do this is to form a Michigan general partnership, which at its core is essentially just a handshake agreement between two (or more) people to operate a business together. However there are still a few formal steps you should plan to take while setting up a general partnership, and this guide covers each of those steps in detail.
General partnerships are just one of several ways for multiple people to co-own a business, so in this guide we’ll also describe how the general partnership compares to some other more formal business structures in Michigan.
Guru Tip: It’s important to understand that a general partnership does not offer limited liability protection as the LLC does. The LLC is the most popular entity for small businesses and is easy to set up – by doing it yourself or hiring an LLC service.
How to Become a Michigan General Partnership
If you want to start a general partnership in the state of Michigan, there is no formal business registration process to complete.
To form a Michigan general partnership, you simply need to start working with your partner or partners. In addition, unlike corporations or LLCs, there aren’t any formation fees or ongoing maintenance fees associated with filings like annual reports.
While the actual legal requirements are incredibly simple, there are still some other steps that you might want to take, depending on your preferences and your goals for the company. Let’s discuss the additional steps that may or may not suit your business needs.
DBA Obtainment
If you don’t want to use your personal name as your official business name, you can acquire a doing business as (DBA) name from the state of Michigan. With a DBA, you can use an assumed name in an official capacity, which is a great way to attract customers, as most people find that a business name adds legitimacy and professionalism to a business, as opposed to simply using the owners’ own names.
With a DBA, your general partnership can also open business bank accounts using the assumed name, which is another way to increase the professional aspect of your company. After all, it looks much better to have your company name on your checks, rather than just writing checks from your personal accounts.
Those wishing to secure a DBA (or “assumed name”) in Michigan must first check the name’s availability with the state’s Business Entity Search. After confirming that the name is not already in use, you may claim it by filing the appropriate form with the County Clerk’s Office of the county in which your general partnership operates. The fee to file the assumed name document will vary depending on which Michigan county you file with.
Do you want more information on DBA registration in Michigan? Take a look at our full article on the subject.
Get Your Business Domain
To fully embrace the business name, register your URL. With GoDaddy you’ll be able to quickly build a company website so that nobody else can use or take it.
Register for Taxes
Other than the fact that general partnerships have more than one owner, the other major difference between a sole proprietorship and a partnership is the fact that a general partnership needs to acquire a federal tax ID number, otherwise known as an EIN.
While sole proprietors can get away with just using their personal social security number, the partnership needs an EIN because ― even though partnerships do not file business tax returns ― it needs to file an annual information return with the IRS.
In addition to the EIN, your business may need to register for state or local taxes.
Most Michigan general partnerships are liable to pay sales and use tax if the business provides taxable products or services within the state. Several other taxes may also be applicable. For example, if you have any employees you’ll be required to pay employer taxes and withholding taxes. Further details on which Michigan taxes apply to your general partnership can be found on the Business Tax Section of the Michigan Department of Treasury website.
Determine License and Permit Requirements
The state of Michigan does not have a general business license that all general partnerships are required to obtain. However, depending on what industry you operate in, your business may need licenses or permits to enable you to run your company in a compliant fashion.
While the state of Michigan has hundreds of licenses, your general partnership will likely only need a handful. In some cases, you may not be required to obtain any business licenses at all.
If you make any type of taxable sales in Michigan, you’ll be required to apply for a sales tax license. This can be done through the Michigan Department of Treasury’s Online New Business Registration System.
Outside of the tax license and depending on the nature of your business, you’ll likely be required to carry regulatory or professional licenses as well. A full list of Michigan licenses and permits can be conveniently located using the Michigan Licenses and Permits Search.
Lastly, in addition to state-level licenses you must also confirm that your general partnership meets all local requirements. For example, cities such as Lansing, Ann Arbour and Grand Rapids each have their own business permits that may or may not apply to you.
What Is a General Partnership?
At its core, the general partnership bears the most similarities with the sole proprietorship. Both are unincorporated business entities that are viewed as extensions of their owners as people, rather than as separate legal entities. General partnerships often don’t even have business names, as they can be operated using the owners’ personal names.
Let’s take a look at two of the most important differences between general partnerships and formal business entities:
1) Taxation and Signature Requirements
Due to the lack of legal distinction between the general partnership and its owners, the “pass-through” model of taxation applies to this type of company. This means that the profits and losses of a partnership are claimed on the owners’ personal tax returns. Along those same lines, general partnership owners can sign business contracts using their own names instead of signing on behalf of the company, and customers are also welcome to write checks to the owners personally.
2) No Asset Protection
The most important distinction between general partnerships and formal business structures like corporations or limited liability companies (LLCs) is the issue of personal asset protection. In a general partnership, if your business is sued, your creditors are free to pursue your personal assets, including but not limited to your house, car, and even the contents of your personal checking account.
On the other end of the spectrum, owners of LLCs and corporations enjoy limited liability protection, which means that for the most part, creditors can only go after business assets, and the personal assets of the ownership group are left intact.
Conclusion
The general partnership is a much simpler business for multiple owners than a corporation or a limited liability company.
The state of Michigan doesn’t require any official formation for general partnerships, and they’re also not required to pay any formation fees or participate in ongoing maintenance filings like annual reports. However, the general partnership as a business structure has some serious weaknesses as well, like the lack of personal asset protection that leaves owners’ assets exposed to potential lawsuits.
We hope this article helped you determine whether you’d like to form a Michigan general partnership, or if there’s another business type that would better suit your needs. As always, we wish you a successful business future!