How to Start a Business in Michigan
There are multiple steps to starting a business in Michigan.
We’ve broken them down below to walk you through turning your business idea into a successful business.
Step 1: Create a Business Plan
The first step is to develop your business idea into a business plan. This doesn’t have to be a formal document, but there are some important details to think about before you jump in.
Once you have a business idea, you should decide whether to work by yourself or to have business partners.
If you get stuck working on your business plan, you can contact the local office of the Small Business Administration for help: Michigan District Office.
You should decide other details during this first step, such as:
- business model
- marketing ideas
- business address
Your business model is how your business plans to make money – what you will sell, how is it made and delivered, etc. Your business plan should consider your business location, and whether you will run your business online.
Think about whether you plan to hire employees. And you should conduct market research to ensure your business has a good chance of success.
Review the NAICS codes list to find the standard name for your industry. Selecting your industry ahead of time is important. Applications for business licenses and tax registrations often ask for this information (or the NAICS code). Choosing your industry upfront will reduce confusion when you complete those forms.
It’s a good idea to think of marketing ideas early on to help your business succeed. A good marketing plan can include developing a logo and brand name, deciding how and when to advertise, building a website, and developing a social media strategy.
You should choose a primary business address. This can be an actual office address, but it doesn’t have to be. It could be your home address or one of your business partners’ home addresses. You could even rent a mailbox or a PO box. The purpose is to have one designated address where all mail for the business is sent, and that you can use on official documents.
Step 2: Choose a name for your business
The next step is to choose a name for your Michigan business. We recommend taking your time to choose a business name people will remember and positively associate with your business.
The best business names are:
- easy to spell
- easy for people to remember
- easy to pronounce
- original and unique
- not too many words
- not easily confused with other businesses
For additional business name tips, check out how to choose a business name.
After you’ve thought of a few business names, you should search them on the Michigan Business Entity Search to make sure they are available. This is because two entities can’t have the same business name in the same state.
Search for your domain name
We recommend coming up with a business name that’s available as a domain name and as a social media username. It’s okay to look at variations of your business name – the domain name and social media username don’t need to exactly match your business name.
You can search for domain names with GoDaddy for your business website.
Find a domain name
Tip: If you need help coming up with more names, check out TRUIC’s Business Name Generator.
Step 3: Choose your business structure
Next, you’ll need to select a type of legal business entity for your Michigan business.
The most common business entities are:
- Sole Proprietorship
- Limited Liability Company (LLC)
A Sole Proprietorship in Michigan (aka Sole Prop) is an informal business structure with one owner.
This business structure isn’t a separate legal entity. Instead, it happens when you operate your business as yourself.
The advantage of a Michigan Sole Proprietorship is that they are easy to set up. You don’t have to file a document to “form” your Sole Prop with the state. However, if you’d like, you can file paperwork to request an EIN from the IRS, and reserve a DBA with the state or county.
Another benefit is that they have pass-through taxation. This means the owner reports the business income or loss on their personal tax return.
The disadvantage of a Sole Prop is that the owner is personally responsible for the business debts and obligations (there’s no personal asset protection).
A Michigan General Partnership (aka Partnership) is similar to a Sole Proprietorship, but this informal business structure has 2 or more people.
Like a Sole Prop, the advantage of a Partnership is pass-through taxation. This means the owners report the business income or loss on their personal tax returns.
The disadvantages of a General Partnership are that they require more paperwork to set up, and the owners are personally responsible for the business debts and obligations.
A Michigan Corporation is a legal business entity that must have a board of directors, corporate officers, and shareholders.
The advantage of a Corporation is liability protection for the owners. The disadvantages are added complexity of management, double taxation, and the requirement to hold annual board meetings.
Additionally, Corporations aren’t very common for most small business owners. They are more commonly used by companies that are looking to raise capital, take the company public, or have large healthcare expenses.
An example of companies that operate as Corporations are high-growth technology and startup companies.
Limited Liability Company (LLC)
A Michigan LLC is a hybrid business entity that combines the benefits of a Corporation and a Sole Proprietorship or Partnership.
Meaning, LLCs have personal liability protection for their owners. If the business is sued, the personal assets of the owners are protected.
LLCs also have pass-through taxation, and therefore avoid the double taxation that Corporations face.
LLCs are also a lot easier to set up and maintain than Corporations. For these reasons, LLCs are the most common choice for small business owners.
For more information, please see LLC vs Sole Proprietorship vs Corporation.
Step 4: Register your business with the Michigan Secretary of State
Depending on which business structure you choose, you may need to file paperwork with the Michigan Department of Licensing and Regulatory Affairs (LARA).
If you’re starting an LLC or Corporation, you’ll also need to choose a Registered Agent.
The filing fee to form a Michigan LLC is $50.
(See Michigan LLC Cost to learn about all the fees.)
The filing form is called the Articles of Organization (Form 700). It can be filed by mail or it can be filed online.
The filing fee to form a Michigan Corporation starts at $60.
The filing form is called the Articles of Incorporation (Form 500). It can also be filed by mail or it can be filed online.
Michigan Sole Proprietorship
If you want to operate as a Sole Proprietorship in Michigan, there’s no paperwork to file with the state. You can simply begin business activities. However, if you want to do business under a name other than your first and last name, you should file a DBA name.
And if you want to use an EIN instead of your SSN, you should file paperwork to get your EIN with the IRS.
If you want to operate as a Partnership (aka General Partnership) in Michigan, there’s no paperwork to file with the state. You and your partner(s) can simply begin business activities by drafting a Partnership Agreement.
However, if you want to do business under a name other than the business’s legal name, you should file a DBA name.
And the Partnership needs to file paperwork with the IRS to get an EIN.
Michigan DBA (Assumed Name)
If you want to do business under a name different from your business’s true and legal name, you should file a DBA.
Using a DBA can be helpful for branding and marketing.
LLCs and Corporations in Michigan file DBAs at the state level. The form is called the Certificate of Assumed Name (Form 541).
Sole Proprietorships and Partnerships in Michigan file DBAs at the county level. You’ll need to contact the county where you’re doing business to check on their filing requirements.
Need to save time? We recommend hiring MyCompanyWorks ($99 + state fee) to file your DBA.
Michigan Secretary of State (LARA)
If you have any questions about registering a business in Michigan, you can contact the Michigan Department of Licensing and Regulatory Affairs (LARA): Michigan Secretary of State: LARA – Contact Us
Step 5: Get an EIN Number
An EIN Number (Federal Employer Identification Number) is also known as a Federal Tax ID Number. It is used by the Internal Revenue Service (IRS) to identify your business for tax purposes.
An EIN Number will also be used to open a business bank account.
You can get an EIN for your Michigan business by mail, fax, or online. Getting your EIN online is the fastest option, since it only takes about 15 minutes to complete the application.
For instructions on how to complete the EIN application for a Michigan LLC, please see Michigan EIN Number.
Note: If you have a formal business structure, like an LLC or Corporation, make sure it is approved by the state before applying for an EIN Number.
Step 6: Open a business bank account
After your business structure is set up, it’s a good idea to open a separate business bank account.
This is important because it keeps personal and business accounts separate. Personal and business expenses should be paid from these separate accounts.
All of this helps protect your personal assets. And it makes accounting and bookkeeping easier for your business.
You can learn how to open a bank account here: LLC business bank account.
Once the account is opened, the bank will give you a debit card. And you can get a business credit card to earn rewards if you’d like.
And if you need business funding, the bank may be able to help.
Tip: To keep your personal finances and business finances organized, we recommend using a tool like Quickbooks, Mint, or a simple spreadsheet.
Step 7: Business license and permits
After starting your business in Michigan, you may need to obtain a business license or permit.
Your requirements are determined by the industry you are in and where your Michigan business is located.
You can use the search tools below, contact your local municipality, or hire a company for help.
And check out the Small Business Administration’s Licenses and Permits page for a full list of industries with federal license requirements.
Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.
Sales and Use Tax License
If you sell products to consumers in Michigan, you may need to collect sales tax and have a sales tax license.
You can get this sales tax license from the Michigan Department of Treasury.
You can read more about sales tax here:
Step 8: Income taxes
Depending on your business, you’ll likely need to file federal, state, and local taxes.
You can file these yourself or you can hire a business accountant for help. Check out our How to find an accountant guide.
Step 9: Purchase Business Insurance
For most small business owners, business insurance isn’t required, however, it may be a good idea.
The main type of business insurance is called General Liability Insurance. This covers accidents that occur at your place of business, like property damage and personal injury.
Your business may also need specialty insurance like Professional Liability Insurance (for example, Errors and Omissions Insurance or Malpractice Insurance). These provide coverage for more specific claims that arise from professional services (like claims against accountants, consultants, and healthcare providers).
Starting a Michigan Business FAQs
Sole Proprietorship: Because there is no state filing to form a Sole Proprietorship in Michigan, the cost is $0.
General Partnership: Because there is no state filing to form a General Partnership in Michigan, the cost is $0.
Limited Liability Company: Filing the LLC Articles of Organization costs $50.
Corporation: Filing the Articles of Incorporation starts at $60. It can cost more depending on how many authorized shares your Corporation issues.
Source: Michigan LARA Filing Fees
You may also have other fees, like business license application fees or DBA filing fees.
However, certain professions require a license, and municipalities have different license and permit requirements.
However, your business may need a state-level industry-specific license or municipal-level license or permit to operate. The filing fee for licenses will vary depending on where you’re doing business and what industry you’re in.
And you might not need a business license at all!
Unfortunately, we can’t say what your business license costs would be, because it depends on several factors and the cost of Michigan licenses varies.
However, the most important factors in deciding where to start a business are where you live and where you’re doing business.
Meaning, if you live in or do business in Michigan, then you should start your business in Michigan. While many websites talk about tax rates and advantages of certain states, none of that applies if it’s not the state where you live and do business.
For example, if you form an LLC in Ohio, but live in and conduct business in Michigan, you’ll also need to register your Ohio LLC in Michigan (and pay fees). And you’ll end up paying Michigan taxes anyway. This ends up leading to more costs and more headaches with no advantages.
In summary, if you live in and do business in Michigan, then yes, Michigan is a good state to start a business. If you don’t live in and do business in Michigan, then no, Michigan isn’t a good state to start a business.
For more information, please see Best state to form an LLC.