Michigan is a fantastic place to live, and can also be a great place to do business. The state has a fairly low cost of living, a low sales tax rate, and excellent access to funding and venture capital — all of which help make Michigan a business-friendly state.
Are you looking to start a new company in Michigan? This guide will help you join the ranks of Michigan entrepreneurs. We’ll go over how to start a business in Michigan, including all the specific steps that you will need to take to form a new business entity, and create the company of your dreams!
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Michigan business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
The first step is to choose a name for your new company. You should not take this step lightly, because it’s important to choose the right name. You will want to find a name that is appropriate and relevant for your business, and that’s also memorable for your clients or customers.
It’s also important that the name be unique, meaning distinguishable from other businesses already registered in the state. You must choose a name that is not already taken by another business, and it must also be substantially different enough from already registered names. You can search a database of business entity names online here. Use this online tool to confirm whether or not your desired name is available.
There are other business naming rules to consider, as well:
- The business name must be unique from other businesses already registered in the state
- Names for LLCs need to contain “limited liability company”, or select approved abbreviations such as “LLC” or “L.L.C.”
- Names for corporations need to contain “corporation”, “incorporated”, or select approved abbreviations such as “corp” or “inc”
- The use of certain financial words, such as “bank” or “trust”, may require additional written permission
- Other rules may apply. See the Michigan business name rules PDF for details
You can move on to the next step once you’ve found a business name that you would like to use.
Or, if you’re not quite ready to form your business, you can reserve your desired business name for up to 6 months. This gives you some time to think about the name before moving forward. There is a $10 or $25 fee for a reservation, depending on the type of business entity.
Michigan trade names
Michigan allows already established firms to register trade names, otherwise known as assumed names or DBAs. These are secondary names that are different from the primary name used on the business formation documents.
Using a trade name allows you to legally do business under a second name. This offers more flexibility in how you market and brand your company. Find out more about Michigan DBAs here.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Michigan
Actually registering your new business in Michigan is the next step to tackle. This process will involve working with the Michigan Department of Licensing and Regulatory Affairs, either through the online LARA portal or through the mail. You’ll need to submit some paperwork, and ensure you’ve met all the various requirements to start a business in MI.
When forming a new Michigan company, there are two basic options:
- Entrepreneurs can file the necessary paperwork themselves (see below)
- Entrepreneurs can hire a professional business formation service to help them
It’s often a good idea to use a service because this can help save you both time and hassle. It will cost a bit extra, but the process will be much quicker and simpler — and using a service reduces the risk of making a mistake on your paperwork, or missing an important step.
These services can also be your Resident Agent, which is a position tasked with receiving important legal documents and notice of lawsuits on behalf of your company. It’s required to appoint a resident agent, so this is another way that these services can help you.
If you do choose to use a service, some great options include Northwest Registered Agent, ZenBusiness, and Bizee. All three offer low-cost services, quality customer service, and an efficient business formation experience.
If you do end up completing the work on your own, the required steps are outlined below. Keep in mind that the process is a bit different for different types of business entities (LLCs, corporations, etc.)
Form a Michigan sole proprietorship
Follow these steps:
- Decide if you will operate under your legal name, or use a trade name
- If you use a name other than your own, you may need to register a trade name
- Apply for a business license and/or other necessary permits from local governments (city/county)
- More information here
Form a Michigan LLC
Follow these steps:
- Name your new LLC
- Choose a Michigan Resident Agent (or use a service such as Northwest Registered Agent)
- File the LLC Articles of Organization online, and pay the $50 filing fee. You can also choose to file this form by mail, with the same $50 filing fee
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form a Michigan corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation
- Choose a Resident Agent (or use a service)
- Hold an organizational meeting and appoint directors
- File the Michigan Articles of Incorporation online, and pay the filing fee ($50 to $500+, depending on the number of shares issued). You can also choose to file this form by mail
- Apply for an EIN from the IRS
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Michigan may require additional permits and/or licenses in order to operate legally in the state. Check the Michigan State License search for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
An employer identification number is a primary requirement for employers on the federal level, but there are also state-level requirements to satisfy.
Whenever you hire a new employee, you must report the new hire to Michigan within 20 days of the initial hire. You’ll also need to ensure that the employee holds all appropriate licenses and permits (foodservice workers will need health permits, for example).
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Michigan business FAQs
Still have questions about running a business in Michigan? Here are some answers to frequently asked questions.
What are some business resources in Michigan?
Business owners in MI have a wide variety of useful resources at their disposal. A great place for business owners to start is at the website of the Michigan Small Business Development Center (SBDC). This free resource provides free business advisor services, webinars and training, and many other useful resources. SCORE SE Michigan is another quality resource, as is the Michigan Economic Development Corporation.
What is the minimum wage in Michigan?
The Michigan minimum wage is $9.65 per hour. Tipped employees may be paid as little as $3.67 per hour, so long as their cash wages + tips equal the full $9.65 per hour minimum wage.
Minors age 16 and 17 can be paid 85% of the minimum wage, which is $8.20 per hour. There is also a training wage of $4.25 an hour for newly hired employees between ages 16 to 19 for their first 90 days of employment. More info here.
Individual cities or counties are also able to impose their own minimum wage laws that may exceed Michigan’s minimum wage. Check with local government officials in your area to ensure your business is compliant with all local rules.
What business taxes does Michigan have?
Businesses in Michigan must pay a variety of business taxes. Any business that sells taxable goods or services must pay the Michigan sales tax, and taxable goods consumed by a business may be subject to use tax.
Michigan businesses may also be subject to Michigan business tax (MBT), unemployment insurance tax, withholding tax, and potentially others. See the Michigan Department of Treasury business taxes page for more information.
How do I dissolve an LLC or Corporation in Michigan?
If you end up needing to close a Michigan business, you will need to “dissolve” it. This process involves filing some voluntary dissolution paperwork, closing down business tax accounts, and ensuring that all outstanding tax returns have been filed. More information can be found here.
It’s recommended to work with a CPA for this process, as closing a business can be complex.
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