Do you have a great business idea, but you’re not quite sure how to get from the idea phase into owning and operating your own business in Michigan? You’ve come to the right place! There are many important aspects to running a company, and like any other state, Michigan has its own rules and regulations to consider.
In this guide to starting a business in Michigan, we’ll discuss all the relevant details to business ownership in this state. By the time you’re done reading, we think you’ll have a strong grasp on the necessary steps involved.
1) Create a Business Plan
The first step to creating any business in any state is to plan what products and services you’ll sell, set your operational budget, and figure out how you want to market your company.
When you are creating your business plan you will need to do market research. The market research that you do will help you determine your marketing and sales strategies. It will help you define who is the target audience, the current demand for your product or service, the market size, location, and pricing. It is important to do this before or in conjunction with your business plan, because you need to make sure you have direction and a foundation for your business. You often will use your business plan to try and get investors or loans, so you want to make sure your market research and business plan are thorough.
Your business plan doesn’t have to be fancy at all, you just need to make sure you spend enough time considering these important aspects before you actually launch your business. To get started, SBA.gov has a great free tool that can walk you through writing a business plan.
2) Choose a Name
The name of your business is an extremely important attribute because it’s often how you make your first impression to potential customers. It also will determine the direction of your branding.
Before you decide on a name you must make sure it is still available. In Michigan, you can run a business name search to confirm that your desired business name is still available via the Secretary of State’s website. If your desired name is available, but you are not ready to file the formation paperwork yet, you can reserve the business name using this form. Name reservations cost between $10 and $25 depending on the entity type and last for a period of 6 months.
If you plan on creating a website for your business (we discuss this in Step 6) you may also want to make sure that the domain name you want is available. Even if you don’t plan on creating your website right away, it may be a good idea to go ahead and purchase it so no one else can take it.
Depending on whether you choose to form a corporation or a limited liability company, there are some legal aspects as well (for example, an LLC must include “LLC” or “limited liability company” in the business name, and a corporation must include “incorporated,” “corporation,” “Inc.,” or “Corp.”).
Beyond the basic legalities, you should focus on clearly identifying what your company does in your business name. You can also consider incorporating your values into your business name, like using the word “green” to denote environmental friendliness.
Finally, choose a name that you personally like and take pride in, and one that both sounds good when spoken aloud and looks good on paper.
One big piece of advice we have for naming a business is that you shouldn’t get too focused on one idea until you either form your company or reserve the name.
3) Decide on a Registered Agent
A Michigan registered agent is the person or service in charge of receiving your important government documents, and forwarding them to you. If you plan on operating your business as a sole proprietorship or general partnership you can skip this step and step #4.
According to the Michigan Department of Licensing and Regulatory Affairs, “a resident agent and registered office must be included in the Articles of Organization. A resident agent is someone who is appointed by the company to receive any documents, notices, or demands served upon the company. The resident agent must be a Michigan resident, a Michigan corporation, a foreign corporation with a certificate of authority to transact business in Michigan, a Michigan limited liability company or a foreign limited liability company authorized to transact business in this state.”
This position is vital to any Michigan business because without a registered agent, you could lose your good standing with the state, see your business dissolved by the state, or even remain unaware of a lawsuit proceeding against your company.
The Michigan Secretary of State does not provide a list of commercial registered agents, however, any individual or business that meets the above criteria can serve as a registered agent in this state.
4) Choose a Structure and Form Your Business
It is important to choose a proper business structure that works best for you and your business goals. Most entrepreneurs choose to form either a Limited Liability Company (LLC) or Corporation. Setting up either an LLC or Corporation creates a completely separate entity from yourself and provides liability protection.
If you’re just operating a sole proprietorship or general partnership, you don’t need this step (or several of the others in this guide, including selecting a registered agent), because those business structures don’t require any sort of formal formation process.
This leaves two main options: the corporation or the limited liability company (LLC).
Limited Liability Company (LLC)
The LLC is the more common option, partially because it’s much simpler. There’s not much paperwork involved, and the maintenance requirements basically amount to an annual report.
An LLC is a combination of the flexibility that comes with managing a general partnership and the protections afforded to corporations. An LLC is easy to start, you will need to register your company with the Michigan Secretary of State. You will fill out the certificate of operation which requires you to provide general information, such as your business name, your registered agent, and your management style. You will need to pay some fees and create an operating agreement.
If you are considering forming a Michigan LLC we have a comprehensive guide to walk you through the process of forming your LLC and what needs to be done after your LLC’s formation. Furthermore, LLC owners still receive the personal asset protection that makes a corporation so attractive as a business type in the first place.
For some entrepreneurs, the corporation is the better choice. There’s far more effort involved both in forming one and in maintaining it with the state of Michigan. To form a Michigan Corporation you will have to file your Articles of Incorporation with the Michigan Secretary of State, it requires similar general business information but you also have to give information concerning authorized shares.
In addition to registering your business you must also create bylaws, create a board of directors, and hold annual meetings. Corporations are normally the better option for larger businesses as they allow for more growth and investment than LLCs generally do. If you are considering forming a Michigan Corporation we have a comprehensive guide to walk you through the process of forming your Corporation.
If you would like to know more, check out our “LLC vs Corporation: What Is the Difference?” article. No matter which business structure you choose to form, you can find all the relevant forms on the Michigan Secretary of State’s website or have a professional business formation website do it for you.
5) Get an EIN
The vast majority of businesses operating in Michigan will need an employer identification number (EIN). It is free to get and is required for many different aspects of your business.
Whoever will be the responsible party for the company should register for the EIN. A responsible party is “the person who ultimately owns or controls or who exercises ultimate effective control over the entity.” It must be an individual and may not be another entity.
The EIN is required if your business is required to pay federal taxes. The EIN number can be used for your business licenses and permits which are filed through the Michigan Department of Revenue and will determine if you pay certain Michigan state or city taxes.
You will also need an EIN if you plan to hire employees, open a business bank account, or take advantage of a self-employed retirement 401(k). It is also a good idea to get an EIN for privacy purposes, so you are not constantly filling out paperwork using your social security number.
Getting an EIN takes about 5 minutes. You just have to visit the IRS website and can get your EIN almost instantly.
6) Develop a Business Website
In this day and age, even strictly local businesses should have a website, because the internet is your first point of contact for many of your customers. Your site doesn’t need to be fancy, but you should put some thought into your domain name, and make sure it’s something memorable and easy to type without misspellings.
Creating websites has become easier than ever. Many softwares out there are very intuitive and can be learned with a little research. If you’re not comfortable designing a site yourself ― and if you also don’t have the budget to hire a professional designer ― there are plenty of website builder tools that can help you put together a solid website. GoDaddy is very easy to use.
All you have to do is get the domain (below) and then you’ll have the option to build the business website whenever you’re ready.
7) Take Care of Tax Obligations
In Michigan you are responsible for a state income tax and potentially a state corporate tax rate if you operate as a corporation. To take care of your federal income taxes you will need to use your EIN and go through the IRS.
As of 2007, Michigan businesses must pay a 4.95% business income tax and a 0.8% gross receipts tax, though there is a special rate for insurance companies and financial institutions. In addition to these taxes, there are a variety of tax registration requirements that may or may not apply to your company, depending on the nature of your business. These include taxes like corporate income tax, sales and use tax, withholding tax, tobacco tax, IFTA tax, severance tax, etc.
Thankfully, the Michigan Department of Treasury makes the business tax process relatively simple, as they offer e-Registration for businesses to file taxes online. You can find out more about e-Registration at this link.
Keep in mind that your city and/or county may have taxation requirements as well, so make sure to check with them to make sure you aren’t missing anything.
Here are some business resources for each of the largest cities in Michigan:
8) Acquire Business Licenses and Permits
Not every business in Michigan is required to obtain a statewide license. However, many Michigan businesses will need to acquire a Sales Tax License. You can register your business for a sales tax license here.
Additionally, there are hundreds of state-level, industry-specific licenses and permits ― from a ballast water & port operations permit to a motor vehicle sales license ― that may apply to your company depending on the nature of your business. To search through the full database of business licenses and permits, you can use Michigan’s convenient business license search tool.
Much like with taxation issues, there’s also the matter of local licenses to consider. You can learn more about county-level occupational licenses right here.
9) Obtain Required Insurance Policies
In order to operate a Michigan business with one or more employees working at least 35 hours per week, you are legally required to obtain workers’ compensation insurance. This insurance helps protect both employers and employees in the event of a workplace accident.
You can learn more about this insurance and how it applies to Michigan businesses by visiting the Michigan State License website.
It is the employer’s responsibility to get these policies to protect your employees, regardless of what line of business you’re in. Of course, it’s probably a good idea to acquire industry-specific policies to protect your company in other ways, but unemployment and workers’ comp are the ones strictly required by law.
10) Open a Business Bank Account
Whether you start a limited liability company or a corporation, you’ll need to keep your business and personal assets separated.
This is where opening a business bank account comes in. While having a separate checking account for your company isn’t a legal requirement, it makes separating your assets considerably easier, and we always advise that any business owner does so.
To open a business bank account you will need to provide the bank certain documentation in order to qualify. Some documentation varies depending on the type of entity that you create. This information includes, but is not limited to:
- Your EIN
- Your articles of organization/incorporation
- Bylaws and meeting minutes if you form a corporation or nonprofit
- A partnership agreement
- Michigan Business license
11) Don’t Be Afraid to Ask for Help
If you run into problems with any of the steps outlined in this guide, remember that you can always find help.
In this state, the Michigan Small Business Development Center exists solely to (in their own words) “provide consulting, training and research to assist small businesses to launch, grow, transition and innovate.” With centers serving 12 different regions across Michigan, the SBDC is ready and willing to help if you need assistance.
Another excellent resource is the Michigan chapter of the U.S. Small Business Administration. Their website has information regarding small business events, business resources, press releases, SBA programs, and more.
In addition, here are more resources that are incredibly helpful to new entrepreneurs:
- Michigan Secretary of State: Doing business in Michigan will require you to continually interact with the Secretary of State. The Secretary of State’s website is where you can find almost all forms you may need when creating your business and while managing your business on an annual basis. They also provide some general information about doing business in Michigan.
- Michigan Department of Treasury: If you need information on taxes or tax payments the Michigan Department of Treasury is the best place for information. This department is in charge of all these aspects of business in Michigan.
- 5 Top Rated & Best Online Incorporation Services: If you are considering forming a corporation you may want to consider using an incorporation service. Incorporation services will handle all the paperwork for incorporating your business. We have put together a list of the 5 top rated and best online incorporation services of 2021.
- SCORE: Score is a nationwide nonprofit that partners with the SBA. They have the largest network of volunteers and business mentors. If you want more personal one-on-one guidance with any aspect of your business you may want to consider reaching out to your local branch of SCORE they can provide you with a personal business mentor. They also have training available online and in person. SCORE has 24 locations within the state of Michigan.
- SBDC: America’s Small Business Development Centers is the “most comprehensive small business assistance network in the United States and its territories.” They provide a large amount of resources such as cyber and data protection awareness training, and how to protect your business. They have also partnered with Google to teach business owners how to grow their business with Google. They provide a large amount of resources for anyone starting a business. Michigan has 11 locations in the state that you
- Small Business Association of Michigan: If you are looking for more training and business resources to get started in Michigan you may want to look into the Small Business Association of Michigan (SBAM). They are the only state-wide resource supporting small businesses in Michigan. Joining SBAM gives you access to many member only benefits that can help you start and expand your business.
- Michigan Association for Female Entrepreneurs: If you’re a woman looking to start a business in Michigan and want more training and networking opportunities you may want to consider joining the Michigan Association for Female Entrepreneurs (MAFE). They have three different membership options depending on whether you are starting a new business or are looking to grow your current business.
- National Minority Supplier Development Council: If you are a certified minority business, you can utilize the National Minority Supplier Development Council. They provide programs and events for entrepreneurs. They will help you connect to their corporate members so you have access to unique opportunities for growth.
While there are several vital steps in the process of starting a business in Michigan, taken individually these steps aren’t terribly complex.
It can seem overwhelming if you consider the entire process all at once, but if you break down these steps and take care of them one at a time, they’re all quite manageable. Keep in mind that you don’t need to go it alone with the DIY option ― if this process becomes overwhelming, or if you simply don’t have the time and energy to devote to these steps ― assistance is available.
Frequently Asked Questions
If I have a business completely online do I need to follow these steps?
Yes! Even if you do not have a physical store or office Michigan still requires you to have a business license and pay taxes. If you sell things online you may be subject to sales or use taxes. It may also be a good idea to consider forming an LLC or Corporation to provide you some protection.
What’s the best business structure if I want to operate in other states in addition to Michigan?
This depends on the size of your business and the goals you have set for yourself and your business. An LLC is overall the easiest business structure to form and maintain. If you plan on expanding you will be required to file your company as a foreign entity within the new state.
Do I need another registered agent if I expand my business outside of Michigan?
You need a registered agent in each state you do business in. So if you expand your business into another state, you will need a registered agent who has a permanent address in your new state. It is usually not the best idea to be your own registered agent long term, there is a lot of paperwork involved and you may not want to use your home address to be the place for you to be served government documents.
This is why we recommend using a registered agent service over hiring individuals to be your registered agent. Registered agent services already have offices setup in order to serve all 50 states. You won’t have to go searching around for a new registered agent.
How do I choose between an LLC and Corporation?
Choosing between an LLC and a Corporation is difficult. There is not a one size fits all solution to this issue. Some things you may want to take into consideration include, how much up front capital you need, how large you want to grow your business, and what kind of ownership structure you want. Luckly, you will not be stuck with one business entity. You can change the structure of your business if you find that it is not the right fit for you.