Limited Liability Companies (LLC) and
Business Planning in Michigan

When starting a small business there are number of issues a person must consider. These issues include the form of business entity (corporation, limited liability company, partnership, or sole proprietor), taxation, and employees.

There are a number of different entities in which a person can operate a small business. Most small businesses start out as a sole proprietor. This is done by an individual filing an assumed name with the county clerk’s office for a small fee. A person doing business as a sole proprietor is personally responsible for debts and liabilities related to the business. Only one person can be a sole proprietor.

The second entity which is a partnership. The state of Michigan has a partnership act which states how a partnership should be operated if there is no partnership agreement. Most partnerships operate under a partnership agreement which dictates the parties’ rights and obligations as it relates to the business. Typically, profits and losses are divided equally between partners. Each partner can be liable for the debts and obligations incurred by the partnership. As such, if the partnership is a defendant in lawsuit each individual partner may be named in the lawsuit and may be liable for any judgment.

The third most common entity is a corporation. A corporation is started by the filing of articles of incorporation with the Department of Commerce. In addition to articles of incorporation, the bylaws of the Corporation will describe how the businesses is to be run. A corporate entity has a distinct advantage over a sole proprietorship and a partnership based on liability. Shareholders and officers are not personally liable for debts incurred by the Corporation unless the shareholder or officer personally signs for the debt.The most popular business entity in the last ten years is the limited liability corporation (LLC). The LLC entity offers the protection of a corporation and the ease of a partnership – the best of both entities. Additionally, they are not costly or difficult to establish and operate.

The second issue a person must address when starting new business is the registration as a taxable entity. All new business entities must register with the Internal Revenue Service. A form can be obtained at your local internal revenue office or you can call the IRS and have them mail you an employee ID number request form. After you receive your IRS employee ID number you must register that ID number with the Michigan Department of Treasury. Lastly, you need a register with any local taxing authorities. The frequency in which you pay taxes will be based on the amount of your tax liability and number of employees. Instructions will be included with the information you receive from the taxing authorities. There also are number of computer programs that will assist you in payment of taxes or you may use a payroll service. If necessary, you may use the assistance of an accountant or an attorney.