Between January 2020 and January 2022, Michigan saw a 24% small business revenue increase compared to 6.9% for the rest of the country. This demonstrates that Michigan has worked hard to be a small business-friendly state and that it is a good time to launch your business. There are a lot of steps involved in starting your business. While you don’t always need to do them in order, you do want to complete each step to make sure your business is properly registered and set up. This guide will help you find out how to start a business in Michigan.
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Before You Start
Before you go through the steps of establishing a business, you should take the time to flesh out your idea for your company. Think about what you will do, who you will serve and how the company will work. It’s a good idea to write a business plan to have a blueprint of what you want to do and how you will do it.
The business plan will cover what the business does, how it is marketed and what the expected finances will look like for the first couple of years of business. The more detailed the plan can be, the better it is for your overall strategic planning. Once you have a business plan, you’ll refer to it regularly to make sure that you are putting energy into activities that drive the business forward and generate more revenue.
Choose Your Entity
Don’t register your company until you have chosen an entity or business structure. The most common entities are:
- Sole proprietorship
- Partnership
- Limited liability partnership (LLP)
- Limited partnership (LP)
- Limited liability company (LLC)
- Corporation
You may want to consult a tax advisor and business lawyer to make sure that you choose the entity that provides you with the best tax advantages and liability protection for your business.
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Register Your Company
Registering your company means registering the business entity with the Corporations Division. While sole proprietorships and partnerships don’t need to file organizational documents, you may be required to file a doing business as (DBA) with the counties in which you do business.
For LLCs, LPs, LLPs and corporations, you’ll need to file articles of organization, certificate of partnership, application to register an LLP or articles of incorporation with the Department of Licensing and Regulatory Affairs (LARA), respectively. It costs $10 to $100 to file these forms and register.
Mail documents to:
Michigan Department of Licensing and Regulatory Affairs
Corporations Division
P.O. Box 30054
Lansing, Michigan 48909
Or submit in person at:
Michigan Department of Licensing and Regulatory Affairs
LARA
2407 N. Grand River Ave.
Lansing, MI 48906
Set Up Your Finances
Setting up your finances starts with getting a federal employer identification number (EIN) from the IRS. You can do this online for free by going to the IRS website. You will use this number to establish bank accounts, unemployment accounts and tax accounts with the state and federal governments. You want to keep your personal finances separate from your business finances to prevent commingling, which reduces your liability protection from the business structure.
Acquire Funding
Consider how the business will be funded. Your business plan should outline how much capital is needed to start and run the business until it is profitable. There are three ways to finance a new business: bootstrap it with your own money, get a small business loan or find one or more investors.
You can use the business plan when you talk to small business lenders at a local bank or Small Business Administration (SBA) office. The business plan is also useful when speaking with investors about your business idea.
You need to make sure that you have enough capital to ride out the initial months or years of business when you are developing your brand and starting to make money. You might not be profitable immediately, so funding helps fuel the business while growing.
Choose Your Location
If you haven’t already done so, this is the time to secure a location for your business. If you are leasing a location, make sure that you understand the terms and conditions of the lease agreement. Some lease agreements may require you to take care of all building maintenance, including HVAC systems. This could be a big cost if something goes wrong.
If you have questions, have a business or real estate attorney read through and advise you on the agreement.
Get Licenses and Permits
Keep in mind that you may need specific permits or licenses to run certain companies in certain locations. For example, if you have a marijuana dispensary, you will be required to obtain a Medical Marijuana Facilities License for a retailer, which has a $3,000 application fee, a $15,000 licensure fee and an annual $15,000 fee.
If your business sells any type of product or offers certain services, you may be required to get a sales tax license from the Michigan Treasury Department. It’s free to get and will allow you to resell goods to consumers and collect the applicable sales tax.
Obtain Insurance
Depending on your business type, you may be required to obtain one or more business insurance policies. In Michigan, if you have three or more employees at any time, or one employee working at least 35 hours per week for 13 weeks or longer in the past 52 weeks, you will be required to obtain workers’ compensation insurance.
If you rent or lease a space, you likely want commercial renter’s insurance. You should also consider general business liability insurance. Other state and federal licensing might require you to have certain insurance policies.
Consult with a commercial insurance agent to fully understand insurance requirements. It’s important to note that even if you aren’t required to get insurance, it is a wise idea to get the protection it offers for what can be devastating financial losses.
Bottom Line
Starting a business in Michigan is exciting but requires establishing the right entity, getting your financials in order and securing the perfect location. Forming a business entity doesn’t cost a lot, making it easy to start your business. All of these details should be outlined in your business plan, which is an internal document that you refer back to regularly and use to help secure funding for your business.
Find Legal Answers For Your Small Business
Nolo offers hundreds of consumer-friendly do-it-yourself legal products written in plain English.
Frequently Asked Questions (FAQs)
How much does it cost to start a business in Michigan?
It costs $100 or less to file business formation documents with the state of Michigan. You may also need to pay to get certain business licenses in the state.
Does Michigan require a business license?
Not every Michigan business will need a business license. Those selling products or services may need to get a seller’s permit, while certain professionals, such as those in the medical industry, may require state licensing to operate.
Is an EIN the same as a tax ID?
An Employer Identification Number (EIN) is a federal tax identification number that contains nine digits to uniquely identify a company. These are similar to Social Security numbers, just for businesses.
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