How to Incorporate in Michigan (August 2024 Update)
Incorporating a business in Michigan establishes it as a separate legal entity from its owners and can provide advantages like limited liability protection. This post will cover the key steps involved in forming a corporation in Michigan, like choosing a business structure, checking name availability, filing articles of incorporation, establishing corporate bylaws and records, obtaining tax IDs and licenses, and staying compliant with annual filings.
Choosing a Business Structure
When starting the incorporation process, one of the first decisions is whether to form a C-corporation or S-corporation. A C-corporation is taxed separately from its owners under Subchapter C of the Internal Revenue Code, while an S-corporation has a "pass-through" taxation structure where income and losses flow directly to the shareholders’ personal tax returns.
S-corps were created to give small, closely held companies the liability protection of a corporation with the tax benefits of a partnership or sole proprietorship. To qualify for S-corp status and avoid double taxation, your corporation must meet requirements like having 100 or fewer shareholders and having only one class of stock issued.
Forming an LLC (limited liability company) is another option to consider. LLCs provide personal liability protection like a corporation but have fewer formalities and often simpler tax treatment. However, corporations can be better suited for attracting outside investors because ownership shares are more easily defined and transferred.
Name Availability and Reservation
Before filing any formation documents, it’s essential to check that your desired corporate name is available for use in Michigan. Conducting a business entity search on the Michigan Department of Licensing and Regulatory Affairs website will uncover any potential conflicts.
If your business name passes the initial availability check, you can reserve the exclusive right to use that name for the next six months by filing a name reservation application with the state. Reserving a name isn’t strictly required but can prevent any issues if someone else tries filing with the same name after you’ve done your initial availability check.
Appointing a Registered Agent
Michigan corporations are required to continuously maintain a registered agent - an individual or business entity designated to receive service of process and official government notices on behalf of your company. Many business owners appoint themselves, a company officer, or their legal counsel to serve as a registered agent.
Using a registered agent service can also fully satisfy this requirement while avoiding hassles like tracking renewal dates or changes in your personal address. Some registered agents provide complimentary state forms and document delivery as part of their standard services.
Filing Articles of Incorporation
The Michigan Department of Licensing and Regulatory Affairs provides clear instructions for preparing and filing articles of incorporation to formally create your corporation.
You’ll need to include standard pieces of information like your corporation's official name, the street address of its initial registered office, the purpose or nature of the business, and the total number of shares the company is authorized to issue. The articles must also name at least one incorporator - this can be you as the business owner or another acting party.
Once your articles of incorporation are completed, you can submit them by mail with the $60 filing fee to Michigan's Corporations Division. Online and expedited filings are also available for additional fees if you want faster processing. Expect to receive your company's endorsed articles back within 5-7 business days.
Establishing Bylaws and Corporate Records
Bylaws act as an operating manual for your MI corporation, detailing important internal regulations like director and shareholder meeting procedures, voting guidelines, officer duties, and more. While not strictly required, adopting corporate bylaws is highly recommended.
In addition to bylaws, your corporation needs to maintain thorough records like director and shareholder meeting minutes, stock ledgers, tax returns, annual filings, and other official documents. Failing to keep accurate records can directly lead to loss of limited liability protection.
An online records management system makes properly tracking, accessing, and securing your company's important documents much simpler over the full lifetime of operating your MI corporation.
Getting Tax IDs and Licenses
Even if you don't plan to hire employees, your Michigan corporation still needs to obtain an Employer Identification Number (EIN) from the IRS to handle federal tax obligations. An EIN acts like a Social Security Number for your business and only takes a few minutes to get online.
At the state level, you’ll need to register for taxes with the Michigan Department of Treasury and possibly secure permits and licenses relevant to your industry. For example, companies conducting sales in Michigan typically need a sales tax license even if much of their merchandise has a 0% sales tax rate. Consult the Small Business Administration's licensing & permits tool to find requirements specific to your corporation's activities and location.
Ongoing Compliance
On top of all required filings related to federal, state, and local taxes, Michigan corporations must submit an annual report each year to stay in good standing. The state sends annual report reminder forms to your corporation's registered agent automatically. But using an automated compliance service can provide extra assurance that your business doesn't miss critical filing deadlines that could jeopardize your incorporation status.
Conclusion
Forming a corporation in Michigan gives small business owners helpful liability protections under both state and federal law. But gaining corporate status also involves meeting various legal and regulatory requirements before and after incorporation is approved. By methodically executing the key steps covered in this guide, including reserving your business name, designating a registered agent, filing articles of incorporation, obtaining EINs and licenses, and maintaining thorough corporate records, your Michigan corporation will start on solid footing.