6. Business Entities in Michigan

💡

All businesses are connected to some "entity." This "entity" is what pays taxes and gets sued, along with various other responsibilities. By default, this "entity" is the business owner. Most times, it makes sense to create a new "entity" that takes on some (or all) of the responsibilities. If this sounds confusing, that’s because it is. There’s a reason lawyers get paid what they do!

Business Entity Overview:

Framing The Question Of Business Entity

Five reasons why businesses create an LLC in Michigan.

A. Protect Yourself

Without a legal entity, you risk losing all your personal assets: car, house, savings, and more. By creating an entity, you (might) protect these things and help keep them out of reach.

B. Simpler Accounting

Keeping your personal and businesses expenses separate is a must when performing good accounting. By having an entity, it makes it easier to have separate bank accounts, loans, and legal filings.

C. Save On Taxes

Often times having a legal entity will help you reduce your taxes.

D. Marketing Purposes

When you create a legal entity, you become a "real business” in many people's eyes.

E. Insurance

If you are in risk-prone business such as tree cutting or food service, having a legal entity can help you find a better insurance policy.

Different legal entity options in Michigan

What Are the Different Options and Which Ones Do I Pick?

In short, you are going to need a professional to look into your situation to get the correct answer. Michigan has its own laws for every option out there; however, here are some introductory notes.

Sole Proprietor:

This gives you almost no protections and should almost never be used. Simply upgrade to an LLC.

Doing Business As (DBA):

This is a legal name tag that lets you market and act as a seperate business, but provides little legal protection. Normally, you only want to use these in connection with an LLC.

Partnerships

Designed for business with more than one owner. However, opting for a multi member LLC is often better, as it offers more protection and savings for a similar price. Partnerships are hard to run. Read this article by Dave Ramsey.

Limited Liability Company (LLC):

This is a legal entity that provides you with some legal and financial protections. Most businesses beginning in Michigan start here. Cost? $50 paid to the state of Michigan for setup, and $25/year. A lawyer should be able to set one up for you for less than $500.

Limited Liability Company + S-Corporation:

This option builds on the limited liability company to create potential further legal and tax savings. However, it comes at the cost of increased paperwork and does not normally make sense for businesses that gross less than 250k/year.

C-Corporation:

This is what the guys who own skyscrapers have. Very complex and expensive. Not something you need if you are reading this.

✅ Next Steps:

Keep Reading:

1. Business Validation

6. Business Entities in Michigan

7. Insurance And Contracts

Do Something:

Learn More:

‣

Internal Notes