What Are the Legal Implications of Starting a Business in Michigan?

Starting a business can be an exciting and fulfilling experience. Michigan provides a vibrant and diverse business environment for innovation and economic growth. However, there are many legal considerations before putting up your venture.

Michigan has numerous business laws you should familiarize yourself with, which Bloomfield Hills business and estate planning attorneys can help you explore. They can provide an overview of legal and regulatory considerations affecting your compliance, liability, governance, and success.

Overall, here are the legal considerations to consider when starting a business to help you navigate the legal and business landscape:

Choose a Business Structure

Business law lawyers in Bloomfield Hills describe a business structure as a legal framework on which you plan the crucial components of your business, such as:

  • Who owns the business
  • How you are allowed to fund the business
  • Payment of taxes
  • Distribution of profits
  • Liability

Some business structure options you can consider when starting a small business include the following:

  • Sole proprietorship: The simplest structure requires minimal paperwork and is flexible if you decide to do it part-time. For tax purposes, you can apply for a Taxpayer Identification Number attached to your business or operate under your Social Security number. There is no personal liability protection.
  • Limited Liability Company: LLCs are a middle ground between a corporation and a sole proprietorship. They provide limited liability for a corporation while allowing for the pass-through taxation of a sole proprietorship. LLCs are simple and flexible, yet they provide strong legal protections to shield personal assets.
  • S Corporation: Also known as an S-Corp, your profits and losses pass through the shareholder’s personal tax return to avoid taxing the business. The shareholder must receive a fair market value wage, but additional profits are not subject to self-employment tax.
  • C Corporation: You are the majority shareholder in a C corporation. This business structure provides limited liability and enables you to separate personal and professional assets. The downside it profits are taxed twice – once at the corporate level and again as income when distributed to shareholders.
  • Limited partnership: This business type has general partners who own and manage the business and carry its liability, as there is no separation between them and the company. It also has limited partners who don’t manage the company but fund it, and their liability is limited to the amount of investment they make in the company.
  • General partnership: A general partnership is a non-registered entity co-owned by two or more partners who share the same entity for legal and tax purposes. The structure is simple and inexpensive, allowing multiple owners to run a business. There is no personal liability protection.

Several considerations must be made when deciding on the most suitable small business structure. Enlist the help of experienced business law attorneys in Bloomfield Hills to help you navigate the legal intricacies.

Register the Business Entity

The Michigan Licensing and Regulatory Affairs recommends filing the legal documentation through the LARA Corporations Division online portal. Whatever type of business structure you choose, you must file a name for the company within the state.

Registering a business name lets your local or state government know the name under which you operate your business. You can also use the name for branding without having to incorporate it. If you wish to file a legal entity, ensure you file an application with the state for either Articles of Incorporation or Articles of Organization.

Appoint a Registered Agent in Michigan

All registered businesses in Michigan must designate a registered agent within the state. The agent must have a physical address and be available to accept “service of process,” which refers to legal papers and official government documents on behalf of the business. You risk serious legal consequences if your business fails to maintain a registered agent.

Obtain an Employer Identification Number

If you plan to have employees in your company, ensure you get an Employer Identification Number from the IRS. The number identifies your company for tax purposes, and you can use it to open a business financial account, apply for business licenses, and file tax returns.

Understand Michigan’s Business Taxes

Business taxes can be complex, and it would be in the best interests of your business to retain skilled business law attorneys in Michigan to help you navigate tax laws. Michigan has a flat 6% corporate income tax rate applicable to C-Corps and LLCs.

You must register your business with the Michigan Tax Online (MTO) portal to pay corporate tax in the following categories as applicable:

  • State sales tax for businesses that sell taxable property and services
  • State income tax
  • Local income taxes
  • Employer taxes
  • Unemployment insurance

There are circumstances under which your tax obligations may differ, depending on the business structure. Besides, whether or not your business was profitable in the previous year could also be a factor. Consult extensively with your business attorneys to be on the right side of the law.

Acquire Business Permits and Licenses

Depending on the type of business, you will need specific licenses, permits, and other government authorizations at the local, state, and federal levels. Federal licenses are crucial for companies supervised or regulated by a federal agency. State permits and licenses depend on location. Your business attorneys can guide you effectively.

A Skilled Business Attorney Providing Legal Counsel for Business Start-Ups

A lot goes into creating a start-up, and you must consider several legal factors to avoid conflicts of law. Everything about your business, right from its name and structure, can have legal implications, and the more you understand Michigan business laws, the better your chances of succeeding in establishing and running your business.

Knowledgeable business and estate planning attorneys in Bloomfield Hills can provide proper legal counsel to help you start on the right footing. Kendal Law Group PC has dedicated attorneys willing to assess your start-up plan and ensure you avoid mistakes that could have costly legal ramifications. Call us at 248-609-1718 for a FREE case evaluation.