How to Start a Business in Michigan

Opening a business typically requires coming up with an idea, filing some paperwork with the state, getting the required licenses and permits, and registering for taxes. While not required, there are some other tasks you should take care of before you open.

Here are the key steps to starting your own business in Michigan.

1. Choose a Business Idea

Before filing any paperwork or even naming your business, you should start with an idea. Think about your own skills and resources. Consider the resources available to you and the time you can commit.

You should also look outward. If your business depends on in-person sales or a physical presence, evaluate the landscape. Think about the companies already doing business in your community. Which ones are successful? Is there stiff competition in your industry? Can your business meet an unmet need? If your business will be mostly online and service and isn't restrained to a geographic area, your analysis and strategy will be different. For more tips, read our article on how to evaluate business ideas.

After you've taken the time to select an idea, it's a good idea to come up with a business plan. Your business plan should set out your initial and ongoing business expenses. It should ideally provide a profit forecast and give you a good idea of your chances of making a profit. Apart from the financial information, your plan should also list out your staffing needs, explore different marketing strategies, and examine your competition.

When drafting your business plan, you should also think about how you'll pay for the initial costs of starting a business and surviving your business's early months. Will you need to apply for a business loan or raise capital? Check out our section on business financing, loans, and capital for ideas and guidance on financing your small business.

2. Decide on a Business Legal Structure

Once you have your business idea and have a written business plan, you should pick a business structure. The entity structure you choose will determine how your business is managed and taxed. It'll also, in general, determine the owners' liabilities for the business's debts and obligations. Some business structures have more upfront filing requirements and costs. So you should weigh the pros and cons of each business type before registering your business.

The most common legal structures for a small business are:

• sole proprietorships
• partnerships (called "copartnerships" in Michigan)
• limited liability companies (LLCs), and
• corporations.

You can also form a limited partnership or a limited liability partnership (LLP), which are types of partnerships where some partners have limited liability. Michigan also gives licensed professionals the option to form a professional corporation (also called a "professional service corporation") or professional LLC (also called a "professional service LLC").

You might have the option of forming an S corporation, a tax entity. Different types of businesses, such as LLCs and corporations, can elect to be taxed as S corporations but legally remain corporations or LLCs. You should talk to a tax attorney or other tax professional about your tax options.

3. Choose a Name for Your Michigan Business

Choosing a business name is an exciting step to starting your business. Your business name should be unique. Michigan law requires that your company's name be distinguishable from the names of other business entities already on file with the Michigan Department of Licensing and Regulatory Affairs (LARA). You can check for available names by using the LARA name availability search webpage.

Entity name designators: Michigan's laws around business names require that your business include an entity designator. Your business name must include certain words or abbreviations that identify your business structure (like "L.C." for LLCs or "incorporated" for corporations). See our article on how to start a Michigan LLC for more information.

Reserving your business name: In Michigan, you can reserve an available business name for six months by filing an Application for Reservation of Name with LARA. You can also reserve your name online using LARA's Corporations Online Filing System (COFS).

Filing an assumed name certificate: If your Michigan business plans to do business using a name that's different from your legal name, then you must register that name—called an "assumed name," "trade name," or "DBA" (short for "doing business as"). For sole proprietors and general partnerships, your legal name is the business owners' real names. The legal name of corporations, LLCs, and other registered entities is the name that appears on the business's formation paperwork. Sole proprietors and general partnerships must register their assumed names with their county clerk. A corporation, LLC, or other incorporated entity must file a certificate of assumed name with LARA.

If you do business online, you should consider registering your business name as a domain name. In addition, to avoid trademark infringement issues, you should do a federal and state trademark search to make sure the name you want to use isn't the same as or too similar to a name already in use.

4. Register Your Business Entity With the Michigan Department of Licensing and Regulatory Affairs

Now that you know your business's name and entity structure, it's time to register your business. How you register your business in Michigan depends on your chosen business structure.

• Sole proprietorship: You can start a sole proprietorship in Michigan without filing organizational paperwork with the state.
• Copartnership: Michigan's procedure to form a copartnership are unique. To create a copartnership, you must file a Certificate of Copartnership or Certificate of Persons Conducting Business Under Assumed Name with the county clerk in all counties where your partnership will do business. In addition, all partnerships should have a written partnership agreement that declares how the partnership will be run and the profits divided among the partners.
• Limited partnership: To form a limited partnership in Michigan, you must file a Certificate of Limited Partnership with the LARA.
• LLP: If you've already formed a copartnership by filing the appropriate forms with your county clerk, you can register your partnership as an LLP by filing an Application to Register a Limited Liability Partnership with LARA.
• LLC: To create a Michigan LLC, you must file Articles of Organization with LARA. You'll need to appoint a Michigan registered agent for service of process—that is, to accept legal papers on your LLC's behalf. While not legally required, you should prepare an operating agreement for your LLC that establishes your business's basic operating rules.
• Professional service LLC: If you provide professional services, you can form a professional service LLC in Michigan by filing Articles of Organization that are specific to professional service LLCs. File Form CSCL/CD-701 with LARA. Some professions, like physicians, doctors, and lawyers, are required to form a professional service LLC.
• Corporation: To form a Michigan corporation, you must appoint a registered agent and file Articles of Incorporation with LARA. You should also draft corporate bylaws to establish your corporation's internal operating rules.
• Professional service corporation: Licensed professionals can form a Michigan professional service corporation by filing Articles of Incorporation (Form CSCL/CD-501) with LARA.

You can elect to be taxed as an S corporation after you've registered your business with LARA. File IRS Form 2553, Election by a Small Business Corporation, with the IRS to elect S corporation tax status.

5. Apply for Michigan Licenses and Permits

You'll probably need to apply for at least one license, permit, or registration for your business. For more details, read our article on Michigan business licenses.

Tax registration. If you're going to be selling taxable goods or services in Michigan, you must register for a sales tax license with the Michigan Department of Treasury (DOT). If you have employees in Michigan, you must register with the DOT for employer withholding tax. You can register your business with the DOT using Michigan Treasury Online.

Employer identification number (EIN). If your business has employees or is taxed separately from you, you must obtain an EIN from the IRS. Even if you're not required to get an EIN, there are often business reasons for doing so. For instance, banks often require an EIN to open an account in the business's name and other companies you do business with could require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There's no filing fee.

Regulatory licenses and permits. You might need to obtain permits or licenses related to health and safety, the environment, building and construction, and specific industries or services. These types of regulatory licenses are typically issued by state agencies. The State of Michigan's website has a state license search available on its website. For information about local licenses and permits, check the websites for any cities or counties where you will do business.

Professional and occupational licenses. The Bureau of Professional Licensing (BPL), a division of LARA, regulates and licenses many, but not all, professions and occupations in the state. You can find extensive information related to your license on the BPL website.

6. Pick a Business Location and Check Zoning Regulations

Before opening your business, you need a place to put it. You should choose a location that fits your business's needs and budget. You can choose to have a dedicated spot for your business or run your company out of your home. Your decision will likely depend on your local zoning laws and whether you can run your business out of your desired location. You can usually find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department.

You should also consider the amount of space you need and the community you'll serve. If you need a place for a fleet of commercial vehicles, then you should probably choose a commercial space with a designated parking area. If you rely heavily on in-person sales, consider a central, downtown location.

You should pick a place you can afford, especially during your company's early months. If you lease a commercial space, make sure you negotiate terms that'll work for your business in the short and long terms.

7. Register and Report Business Taxes

Michigan taxes every kind of business. Most new businesses must register with the DOT to file and pay business taxes.

Sole proprietorships: Sole proprietors pay state taxes on business income as part of their personal state income tax returns (Form MI-1040).

Partnerships: Partners pay state taxes on their share of the partnership income on personal tax returns.

LLCs: Members pay state taxes on their share of LLC income on personal tax returns. In addition, the LLC itself must file an annual statement. See our article about Michigan LLC annual report and tax filing requirements for more details.

Corporations: Shareholders must pay state taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on their personal state tax return. Moreover, the corporation itself must pay Michigan's Corporate Income Tax. And, finally, corporations must file an annual report with LARA to renew the corporation's status.

Check out the business taxes section of the DOT website for more information related to your business's tax obligations.

And, apart from Michigan taxes, there are always federal income taxes. Check IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business.

8. Obtain Insurance for Your Michigan Business

While not usually required, it's a good idea to invest in some type of insurance for your small business. Business insurance can protect your business and your personal assets from unexpected events, such as personal injury lawsuits and natural catastrophes. Some common types of business insurance are general liability insurance, property insurance, and cyber liability insurance.

For more, see our article on what types of insurance your small business needs.

9. Open a Business Bank Account

No matter the type of business you form, you should think about opening a bank account for your business. A dedicated business account can make it easier to track your company's income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection.

Additional Help With Starting Your Michigan Business

LARA's Corporations Division website is a great resource for small business owners. The website is easy to navigate and you can find links and information related to:

• form submission methods
• entity types (including the applicable forms, laws, and firing procedures)
• online searches (like the business entity search)
• online services (such as name reservations and payment accounts)
• frequently asked questions and instructions, and
• other government resources.

LARA also offers an Entrepreneur's Guide, a rich resource for anyone looking to start a business in Michigan. The guide has in-depth instructions and information for forming each type of business structure. The guide also has contact information for various state government authorities and links to the state's business laws.