How to Start a Business in Michigan

Here's an overview of the key steps you'll need to take to start your own business in Michigan.

1. Choose a Business Idea

Take time to explore and research ideas for your business. At this stage, take into consideration your own interests, skills, resources, availability, and the reasons why you want to form a business. You should also consider the likelihood of success based on the interests of your community, and whether your business idea will meet an unmet need. Read our article for more tips on how to evaluate business ideas.

After you select an idea, consider drafting a business plan to determine your chances of making a profit. When you create a plan, you will have a better idea of the startup costs, your competition, and strategies for making money. Investors and lenders will want to review your business plan before providing financial assistance, and you can be prepared by drafting a plan before you start soliciting funding. To learn more about the benefits of business plans, and how to create one for your enterprise see Why You Need to Write a Business Plan.

2. Decide on a Legal Structure

The most common legal structures for a small business are:

• sole proprietorship
• partnership
• limited liability company (LLC), and
• corporation

There also are special versions of some of these structures, such as limited partnerships and S corporations. You'll want to consider which business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. Read our article for information on how to choose the best ownership structure for your business.

3. Choose a Name

For LLCs and corporations, you will need to check that your name is 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. You can reserve an available name for six months by filing an Application for Reservation of Name with LARA. There are certain name requirements for LLCs and corporations (like including a word such as "LLC" for LLCs or "Company" for corporations). See How to Form an LLC in Michigan and How to Form a Corporation in Michigan for more information.

Do you have a Michigan sole proprietorship or partnership that uses a business name that is different from the surname of the business owner (for a sole proprietorship) or individual partners (for a partnership)? If so, you must file a notarized assumed name certificate with the county clerk where you will do business. The assumed name must be renewed every five years.

If you plan on doing business online, you may want to register your business name as a domain name. See Choose and Register a Domain Name for more information. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. See How to Do a Trademark Search for more information.

4. Create Your Business Entity

• Sole proprietorship: To establish a sole proprietorship in Michigan, you don't need to file any organizational documents with the state. For more information, see How to Establish a Sole Proprietorship in Michigan.
• Partnership: To create a general partnership in Michigan, you must file a Certificate of Copartnership with the county clerk in all counties where your partnership will do business. In addition, while not legally required, all partnerships should have a written partnership agreement. The partnership agreement can be very helpful if there is ever a dispute among the partners. For more information, see What is a Partnership. To form a limited liability partnership (often used by professionals), you must also file a Registration with the LARA. For more information, see Why Choose a Limited Liability Partnership.
• LLCs: To create an LLC in Michigan, you must file articles of organization with LARA. You will also need to appoint a resident agent in Michigan for service of process. Although not required by law, you also should prepare an operating agreement to establish the basic rules about how your LLC will operate. The operating agreement is not filed with the state. For more information, see How to Form an LLC in Michigan and How to Form a Professional LLC in Michigan (for professionals).
• Corporations: To create a corporation in Michigan, you must file articles of incorporation with LARA. You will also need to appoint a resident agent in Michigan for service of process. Although not legally required, you also should prepare bylaws to establish your corporation's internal operating rules. Bylaws are not filed with the state. S Corporations must also file IRS Form 2553, Election by a Small Business Corporation, with the IRS. For more information, see How to Form a Corporation in Michigan.

5. Licenses and Permits

Tax Registration. If you will be selling goods in Michigan, you must register for a sales tax license with the Michigan Department of Treasury (DOT). If you will have employees in Michigan, you must register with the DOT for employer withholding tax. For both kinds of registration, among others, you can use the online e-Registration website.

EIN. If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business's name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application. There is no filing fee.

Regulatory licenses and permits. These cover areas such as:

• health and safety
• the environment
• building and construction; and
• specific industries or services

For regulatory licenses and permits issued by the state, the State of Michigan's website has a section devoted to state licenses and permits. You can either do a search for a particular type of license or click on a link to view an alphabetical list. For information about local licenses and permits, check the websites for any cities or counties where you will do business.

Professional and occupational licenses. These cover people who work in various fields. You can get information about many professional and occupational licenses from the Bureau of Professional Licensing (BPL), which is a division of LARA.

6. Pick a Business Location and Check Zoning

You'll need to pick a location for your business and check local zoning regulations. Before you commit to a location, take time to calculate the costs of running your business in the desired spot, including rent and utilities. You can refer back to your business plan to evaluate whether you can afford your desired location during your company's early months.

It is important to verify that the spot is zoned for your type of business. You might find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department. Read our article for more tips on picking a location.

One alternative to opening your business at a new location is running your company out of your home. If you decide to run a home-based business, again check your local zoning laws. In addition, review your lease (if you rent your home) and homeowners association rules (if applicable), either of which might ban some or all home businesses.

7. File Taxes

Michigan taxes every kind of business. See Michigan State Business Income Tax for more information on state business taxes in Michigan.

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

Partnerships. Partners pay state taxes on 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 report (also known in Michigan as an annual statement) with LARA. See Michigan LLC Annual Report and Tax Requirements for more information.

Corporations. Shareholders must pay states taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on his or her personal state tax return. Moreover, the corporation itself is subject to Michigan corporation taxes. And, finally, corporations must file an annual report with LARA.

If you have employees, you must also deal with employer taxes.

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

8. Obtain Insurance

Business insurance can protect your company and your personal assets from the fallout of unexpected disasters, such as personal injury lawsuits or natural catastrophes. An insurance agent can help you explore the different coverage options for your business, which might include general liability insurance to protect your business against claims relating to bodily injury or property damage. To learn more, see Nolo's article, What Types of Insurances Does Your Small Business Need?

9. Open a Business Bank Account

No matter the type of business you form, you should consider opening a separate business account to make it easier to track your income and expenses. For some business types, like LLCs and corporations, a separate bank account is necessary to maintain your liability protection. To learn more, see Opening a Business Bank Account.