Steps to start a business in Michigan
Michigan is being favored by startups and small business owners due to an environment that is conducive to expanding business operations. There are a variety of industries with strong infrastructure, business incentive programs, innovation, and manufacturing; all of which are considered an integral part of the state’s industrial DNA. If you are wondering how to start a business in Michigan then let’s take a look at some of the fundamental details for establishing your business successfully in this state.
1. Prepare Michigan Business Plan
If you intend to start a business in Michigan then you will need a good business plan. A business plan is a strategic plan that will focus in detail on several of the elements that will have an impact on the short and long-term success and goals of the business. A business plan should be well thought out to prevent mistakes and even help with protecting your investment and that of the shareholders or other investors.
A good business plan should include all the details necessary to start a business in Michigan like financial projections, initial costs, competition, etc. A business plan typically varies depending on the business and industry type, but there are some common components such as:
- Executive summary
- Company description
- Market analysis
- Customer demographics and segmentation
- Competitive analysis
- Products and services
- Branding and marketing
- Cash flow projection
- Logistics and operations
2. Attend Entrepreneurial Training or Development Programs in Michigan
Michigan offers several resources that can be useful during the startup phase or before you register your business in Michigan. One such resource is entrepreneurial training or development programs for small businesses. The primary objective of these training or development programs is to enhance your existing skill sets and arm you with the new skills, information, and tools that will assist you with business growth in the long run. These training programs will not only prepare you to successfully form a business in Michigan but also ensure that the overall operations run smoothly. The entrepreneurial training or development programs in Michigan focus on critical details like:
- Technology business accelerators
- Business development mentoring
- Feasibility study
- Business planning
- Market analysis
- Financial Assistance
- Events connecting purchasers & suppliers
- Capital Access programs
3. Choose a Business Structure for your Michigan Business
One of the first steps to take before you register a business in Michigan is to elect the proper business structure. Different states have different laws pertaining to the type of entities you can choose from, although some entity structures are common across states. Determining the structure has many benefits especially when it comes to taxes and limited liability protection. Some structures like LLCs or S Corporations enjoy pass-through taxation. If you are looking for a company where you have the sole power then sole proprietorships are a good option to look into. You can choose to form a domestic or a foreign business in Michigan. The entity structure options available in the state are:
A top Michigan registered agent like IncParadise can help you to form a new business in the state depending on the structure that you have chosen.
4. Naming Your Michigan Business
It is important to choose the right business name because it will play a major role in how you brand your company. The name of a company is considered to be its identity. You will need to choose a name before you register a business in Michigan. The business name can be based on several elements like an idea or a concept, products, the name of the owners, and services among others. This can be quite a challenging process. Here are some points to consider while naming your company.
- The entity name will vary according to the type of structure e.g., the name of a limited liability company should contain words like “Limited Liability Company” or “limited company” or even abbreviations like “L.L.C.”, “LLC”, or “L.C.”.
- The naming guidelines and process is governed by the 2020 Michigan Compiled Laws. To form a business in Michigan, you will need to adhere to these laws.
- Once you have chosen a name, you will need to conduct a name availability search. This search will let you know if your company name is available or currently being used by another entity.
Most state laws allow you to reserve a business name for a specific amount of time. If you are planning to start a business in Michigan then you can reserve your chosen name for 6 months by submitting the Application for Reservation of Name with the Michigan Department of Licensing and Regulatory Affairs (LARA) – Bureau of Corporations, Securities & Commercial Licensing – Corporations Division.
5. Choose the Location for Your Michigan Business
If you are planning to start a business in Michigan then one of the key elements towards defining success is the location. When choosing your location, it is important to consider critical details such as:
- Accessibility – The office or store should be easily accessible for customers or clients.
- City centers – Some of the most common office spaces are located in city centers or commercialized areas, although the office rental prices may be higher.
- Security – It is always recommended to choose a location that is not affected by crime or where the crime rate is very low.
- Competition – The proximity to competing businesses may play a crucial role in determining your success or failure.
- Skill base – If you want to form a startup or incorporate in Michigan then finding a workforce is important. Choose an area that has a good skill base.
- Zoning/Permit – You will need to check the zoning laws in the cities or counties where you want to operate your business from. Some cities have minimal to zero zoning laws, while others have strict laws.
6. Register Your Michigan Business
If you are wondering how to start a business in Michigan then one of the first and most pivotal steps is registration or incorporation. Each state has its processes, forms, fees, and laws governing the new business formation process. If you want to register a business in Michigan then it is important to note that the process, forms, and fee may also vary according to the business structure. Here is an example for better a understanding:
Example: If you were to incorporate in Michigan or form a C Corporation then you will be required to file Articles of Incorporation pursuant to MI Comp L § 450.1202 – 1205 (2020). The Articles should include the name of the corporation as well as the purpose. The filing fee will vary depending on the number of Authorized Shares like the filing fee for 1-60,000 shares is $50 while that of 5,000,001-10,000,000 will be $500. Similarly, if you were to register a business in Michigan as an LLC then you will be required to file Articles of Organization pursuant to MI Comp L § 450.4203 (2020). The filing fee for an LLC is $50. The new business formation or incorporation documents have to be filed with the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau, Corporations Division.
Preparing the Articles of Incorporation or Organization is the most important part of the registration process. This process can be quite daunting. This is where a reputable Michigan registered agent service like IncParadise can assist you. We can help you register your new business in the state.
Planning to form a Company in Michigan?
7. Get Your EIN
When you start a business in Michigan, you must file the mandatory business taxes. Each state may have different types of taxes, but every company has to file some form of these taxes. To file the taxes properly, you will need to obtain an Employer Identification Number (EIN). This is a unique Tax ID number that is issued by the Internal Revenue Service (IRS). An EIN is also known as a Federal Tax Identification Number (FTIN) and is required by those businesses that have employees or operate as a corporation or a partnership.
8. Open a Business Bank Account for Your Michigan Business
Finances will be an integral part of the company’s day-to-day operations once you form a business in Michigan. Maintaining finance like payments sent or received can be exasperating unless you have a separate business banking account for the company. Here are several other benefits of having such an account:
- It makes bookkeeping easier and helps during tax season
- A business account provides legitimacy status to the IRS
- This makes the process easier to apply for business loans
- A checking account makes the company appear professional
- Different banks provide several additional benefits like business credit cards and merchant services
9. Obtain Michigan Business License and Permits
Michigan is incredibly popular amongst entrepreneurs. It offers a business-friendly environment and boasts a low cost of living. If you want to register a business in Michigan and take advantage of this environment, then you will also need to apply for the necessary business licenses and permits. The importance of a Michigan business license lies in the fact that without it, you will not be allowed to operate your business in the state. However, not all businesses require a license.
The type of business licenses or permits required may vary according to the business activity as well as the location of your company. Let’s take a look at Michigan’s licensing requirements:
- Licenses based on Industry – Unlike many other states, Michigan doesn’t have a provision for a general business license but it can vary according to the type of industry or business activity. Hence, a Michigan business license or permit will be issued by different state authorities depending on the industry. Let’s look at an example to understand this better.
Example: If you register a business in Michigan as an Appraisal Management Company then you will need to apply for a license with the Michigan Department of Licensing and Regulatory Affairs. The filing fee will be $2,000 for the same and renewals will be triennial. Similarly, if you register a food establishment like a coffee shop or a sandwich shop then you will need to apply for the Food Service License Application with the Michigan Department of Agriculture & Rural Development. The fee would vary according to the type of establishment.
- City/County Business Licenses – The second type of Michigan business license that you may require will be based on the county or city you are operating from. The type of license, the licensing regulation, the fees, and the renewal will vary depending on the city or the county. The example below can help you understand this better.
Example: If you are planning to start a business in Michigan as a Health Club in Lansing, MI then you will need to file the Health Club License Application pursuant to the City Codified Ordinances – Chapter 822.01 – 822.99. The license fee is $350 and must be submitted to the Lansing City Clerk’s Office.
You may also be required to apply for and obtain an occupational license depending on the business activity, such as those associated with engineering, architects, real estate brokers, and Appraisal Management Companies (AMCs) among others. The issuance and regulations concerning this type of Michigan business license are governed by the Department of Licensing and Regulatory Affairs (LARA).
Since the business licensing regulations and requirements can be quite complex, IncParadise can provide meaningful assistance. We offer a specialized service known as the “Business License Research Report” service. This is a detailed report containing a list of filing instructions, supporting document requirements, and fees for all business licenses and permits in this state.
10. Register for Taxes
Once you start a business in Michigan, there are certain state requirements that your business or the owner has to be compliant with. Filing your annual business taxes is one of the most important state requirements. The type of tax to be filed by your company is dependent upon the entity structure. The taxes filed by a Michigan LLC might be different from that of a C Corporation.
The most common forms of taxes are the Michigan Business Tax (MBT) and the sales and use tax. You will need a Social Security number (SSN) or an Employer Identification Number (EIN) to file taxes.
11. Annual and Ongoing Requirements
According to the Michigan Compiled Laws, if you start a business in Michigan then you will need to fulfill certain annual requirements. One of Michigan’s biggest requirements is to file your annual report. Most entity structures are obligated to meet this requirement. This report is known as the Annual Statement in Michigan. Filing this statement will guarantee that your business enjoys an active status and remains in good standing with the state. The information required for the annual statement, the filing date, and the fee will vary from one state to another.
In the state of Michigan, the annual statement has to be filed each year by February 15 for LLCs. If you incorporate in Michigan then the filing due date will be May 15 each year. The filing fee for the annual statement is $50 and can be filed via mail, in-person, or even online. It has to be filed with the Michigan Department of Licensing and Regulatory Affairs (LARA) – Bureau of Corporations, Securities & Commercial Licensing – Corporations Division.