Do you have a great business idea, but you’re not quite sure how to get from the idea phase into owning and operating your own business in Michigan? You’ve come to the right place! There are many important aspects to running a company, and like any other state, Michigan has its own rules and regulations to consider.
In this guide to starting a business in Michigan, we’ll discuss all the relevant details to business ownership in this state. By the time you’re done reading, we think you’ll have a strong grasp on the necessary steps involved.
How to Start a Business in Michigan (in 10 Steps)
1) Create a Business Plan
The first step to creating any business in any state is to plan what products and services you’ll sell, set your operational budget, and figure out how you want to market your company.
Your business plan doesn’t have to be fancy at all, you just need to make sure you spend enough time considering these important aspects before you actually launch your business. To get started, SBA.gov has a great free tool.
2) Choose a Name
The name of your business is an extremely important attribute because it’s often how you make your first impression to potential customers.
Legal Considerations
Depending on whether you choose to form a corporation or a limited liability company, there are some legal aspects as well (for example, an LLC must include “LLC” or “limited liability company” in the business name, and a corporation must include “incorporated,” “corporation,” “Inc.,” or “Corp.”).
Explanatory Naming
Beyond the basic legalities, you should focus on clearly identifying what your company does in your business name. You can also consider incorporating your values into your business name, like using the word “green” to denote environmental friendliness.
Something You Love
Finally, choose a name that you personally like and take pride in, and one that both sounds good when spoken aloud and looks good on paper.
One big piece of advice we have for naming a business is that you shouldn’t get too focused on one idea until you either form your company or reserve the name.
In Michigan, it is easy to find out if your desired name is available by running a business entity search right here. If you need extra time to file your formation paperwork, you can reserve a business name in Michigan for a period of 6 months. You must file an Application for Reservation of Name with the Michigan Department of Licensing and Regulatory affairs.
3) Decide on a Registered Agent
A Michigan registered agent is the person or service in charge of receiving your important government documents, and forwarding them to you.
According to the Michigan Department of Licensing and Regulatory Affairs, “a resident agent and registered office must be included in the Articles of Organization. A resident agent is someone who is appointed by the company to receive any documents, notices, or demands served upon the company. The resident agent must be a Michigan resident, a Michigan corporation, a foreign corporation with a certificate of authority to transact business in Michigan, a Michigan limited liability company or a foreign limited liability company authorized to transact business in this state.”
This position is vital to any Michigan business because without a registered agent, you could lose your good standing with the state, see your business dissolved by the state, or even remain unaware of a lawsuit progressing against your company.
The Michigan Secretary of State does not provide a list of commercial registered agents, however, any individual or business that meets the above criteria can serve as a registered agent in this state.
Rocket Tip: We recommend designating an online service to handle these requirements. This eliminates junk mail and keeps your personal and/or business address off public record. ZenBusiness and IncFile both offer a free registered agent service when you use them to form a business online.
4) Choose a Structure and Form Your Business
If you’re just operating a sole proprietorship or general partnership, you don’t need this step (or several of the others in this guide, including selecting a registered agent), because those business structures don’t require any sort of formal formation process.
This leaves two main options: the corporation and the limited liability company.
The LLC is the more common option, partially because it’s much simpler. There’s not much paperwork involved, and the maintenance requirements basically amount to an annual report. Furthermore, LLC owners still receive the personal asset protection that makes a corporation so attractive as a business type in the first place. For more specific information about starting an LLC, check out our full article on the topic.
For some entrepreneurs, the corporation is the better choice. There’s far more effort involved both in forming one and in maintaining it with the state of Michigan, but for larger businesses they’re usually the better option, as they allow for more growth and investment than LLCs generally do.
If you would like to know more, check out our “LLC vs Corporation: What Is the Difference?” article. No matter which business structure you choose to form, you can find all the relevant forms on the Iowa Secretary of State’s website or have a professional business formation website do it for you.
5) Take Care of Tax Obligations
The vast majority of businesses operating in Michigan will need a federal tax ID number (EIN), which can be acquired from the IRS.
As of 2007, Michigan businesses must pay a 4.95% business income tax and a 0.8% gross receipts tax, though there is a special rate for insurance companies and financial institutions. In addition to these taxes, there are a variety of tax registration requirements that may or may not apply to your company, depending on the nature of your business. These include taxes like corporate income tax, sales and use tax, withholding tax, tobacco tax, IFTA tax, severance tax, etc.
Thankfully, the Michigan Department of Treasury makes the business tax process relatively simple, as they offer e-Registration for businesses to file taxes online. You can find out more about e-Registration at this link.
Keep in mind that your city and/or county may have taxation requirements as well, so make sure to check with them to make sure you aren’t missing anything.
Here are some business resources for each of the largest cities in Michigan:
6) Acquire Business Licenses and Permits
Not every business in Michigan is required to obtain a statewide license. However, many Michigan businesses will need to acquire a Sales Tax License. You can register your business for a sales tax license here.
Additionally, there are hundreds of state-level, industry-specific licenses and permits ― from a ballast water & port operations permit to a motor vehicle sales license ― that may apply to your company depending on the nature of your business. To search through the full database of business licenses and permits, you can use Michigan’s convenient business license search tool.
Much like with taxation issues, there’s also the matter of local licenses to consider. You can learn more about county-level occupational licenses right here.
7) Obtain Required Insurance Policies
In order to operate a Michigan business with one or more employees working at least 35 hours per week, you are legally required to obtain workers’ compensation insurance. This insurance helps protect both employers and employees in the event of a workplace accident.
You can learn more about this insurance and how it applies to Michigan businesses by visiting the Michigan State License website.
It is the employer’s responsibility to get these policies to protect your employees, regardless of what line of business you’re in. Of course, it’s probably a good idea to acquire industry-specific policies to protect your company in other ways, but unemployment and workers’ comp are the ones strictly required by law.
8) Open a Business Bank Account
Whether you start a limited liability company or a corporation, you’ll need to keep your business and personal assets separated.
This is where opening a business bank account comes in. While having a separate checking account for your company isn’t a legal requirement, it makes separating your assets considerably easier, and we always advise that any business owner does so.
9) Develop a Business Website
In this day and age, even strictly local businesses should have a website, because the internet is your first point of contact for many of your customers. Your site doesn’t need to be fancy, but you should put some thought into your domain name, and make sure it’s something memorable and easy to type without misspellings.
If you’re not comfortable designing a site yourself ― and if you also don’t have the budget to hire a professional designer ― there are plenty of website builder tools that can help you put together a solid website. WordPress and Weebly are very easy to use.
10) Don’t Be Afraid to Ask for Help
If you run into problems with any of the steps outlined in this guide, remember that you can always find help.
In this state, the Michigan Small Business Development Center exists solely to (in their own words) “provide consulting, training and research to assist small business to launch, grow, transition and innovate.” With centers serving 12 different regions across Michigan, the SBDC is ready and willing to help if you need assistance.
Another excellent resource is the Michigan chapter of the U.S. Small Business Administration. Their website has information regarding small business events, business resources, press releases, SBA programs, and more.
Conclusion
While there are several vital steps in the process of starting a business in Michigan, taken individually these steps aren’t terribly complex.
It can seem overwhelming if you consider the entire process all at once, but if you break down these steps and take care of them one at a time, they’re all quite manageable. Keep in mind that you don’t need to go it alone with the DIY option ― if this process becomes overwhelming, or if you simply don’t have the time and energy to devote to these steps ― assistance is available.