Michigan is the home of both American cars and the important cultural and musical traditions of Motown. It also features miles of beaches and an international border. With all that going for it, Michigan presents a ton of opportunities for people seeking to start their own LLCs. If you’re reading this, you’re likely one of those people.
First, though, you will have to put down some money if you want to get started. That might sound ominous, but it’s relatively painless if you know what you’re doing. We’re here to help you figure out where you need to spend your money, as well as optional purchases you’ll want to make that can make your life easier, both now and in the future.
This article will help you make a budget for starting an LLC in Michigan. Be sure to also check out our How to Start an LLC in Michigan article for more general information.
- The required costs for every LLC
- Extra costs we recommend you incur
- The different ways you can form your LLC, as well as the pros and cons of each
Basic Michigan LLC Cost – $50
The Michigan Department of Licensing and Regulatory Affairs (LARA) requires only that you file articles of organization to create an LLC. This filing will cost you $50, and it’s the bare minimum you have to pay to get started.
Keep in mind that you will likely need to do more than just legally form your business. Many owners find that they need to pay local costs for licenses and permits. Several optional services are often crucial to getting a company off the ground. We’ll discuss these in greater detail below.
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How Much it Costs to Start a Michigan LLC
Just as with anything else, paying the least you can get away with is not a great idea when starting your LLC. There are likely many costs that you’ll need to think about if you want to make your experience easier and more efficient.
Articles of Organization Filing Fee – $50
Your Michigan LLC articles create the company. Without them, the company doesn’t exist. After they’ve been filed, your LLC can buy, sell, borrow money, and conduct other lawful business. Thus, making sure that you have this document correctly drafted and filed is your first major step.
Maybe you think drafting the articles sounds hard, but it doesn’t have to be. LARA gives you a form with the minimum required details, along with instructions, on its website. While you’re there, you can also file the articles online.
Of course, if you, your LLC formation service, or your lawyer want something more involved, you’re free to draft your own. But keeping things simple with LARA’s form is a good way to get started.
Michigan LLCs – Optional Costs to Consider
Starting a business involves more than just paying money and forming a company. You also need to think ahead regarding the needs of your LLC and how to ensure its health and survival when the unexpected happens. To cover your bases, here are some different products and services we strongly recommend you think about buying.
Expedited Processing Fee – $50 to $1000
The normal processing time for articles of organization is 10-15 business days. That can translate to three calendar weeks, plus more time for mailing if you file that way. While some businesses can afford that leisurely pace, you may have contracts to sign and inventory to sell. In that case, Michigan offers a lot of expedited service options.
Those options and their costs are as follows:
- 24-hour service: $50
- Same-day service: $100 (must be by the office by 1:00 p.m. Eastern Time)
- Two-hour service: $500 (must be received by 3:00 p.m. Eastern Time)
- One-hour service: $1000 (must be received by 4:00 p.m. Eastern Time)
For more information, see the form articles of organization and the LARA online filing system.
Business License – $50 and up per year
The state does not require a general statewide Michigan business license. Your LLC may need a local business license, though, depending upon where it is set up. Detroit, for example, has a long list of business types that need to carry licenses. Some businesses, like cigarette shops, only cost $55 per year. Others, like arcades, will pay over $800, depending on their equipment.
You should contact your county and city governments to make sure you comply with all local laws.
Resident Agent Fee – $100
Every state has some version of a resident agent law. Michigan law isn’t any different. A resident agent is a person or company you name that makes their address publicly available. You need to have a resident agent so that, if the state or someone else needs to contact your company, there is one place they can always go.
(In other states, a resident agent is known as a “registered agent.” The two terms mean the same thing.)
Your agent will receive the legal papers if your LLC is ever sued. That might not be fun to think about, but if it happens, you need to know as soon as possible.
Many LLC owners are tempted to serve as their companies’ agents. This is usually not a good idea. It involves making your address public and being constantly available just in case someone wants to sue your company.
It’s an easier and cost-efficient plan to hire a Michigan registered agent service for your company. These agents usually charge $100 per year and take care of all your company’s registered agent needs. It’s money well spent.
Check out our Best Registered Agent Services article for some of our recommendations.
Operating Agreement — Variable
An operating agreement sets down the rules of your LLC. It says how the people in charge should do their jobs, when meetings must be held, how members can enter and exit the company, and almost any other matter you might need to address.
Michigan law won’t force your business to have an LLC operating agreement, but if you do, it must be in writing. We strongly recommend that you take the time to get one. Without a binding contract, you have much less control over what happens to your company if and when something unexpected happens.
If you choose to have an operating agreement, the good news is you don’t have to file it with the state. You can write it yourself, but unless you are a lawyer or know exactly what it’s supposed to look like, we don’t recommend that option.
A lawyer would likely charge you by the hour for drafting a Michigan LLC operating agreement. While that contract would likely be a good one, that could also run you at least a few hundred dollars. You can have a good one drafted, though, for as little as $39 when you use a formation service.
DBA fee — $25
Not all LLC owners will be able to get exactly the LLC name they want. If you find yourself in that situation, it’s not a big deal. All you need to do is file for an assumed business name (also known as a DBA), and you can use that name for your company.
This is a very common process. Michigan Compiled Laws section 450.4206 tells you exactly what you need to do, and it’s not hard. All you have to do is file a certificate with LARA giving the details of your LLC and the business name you want.
Michigan state provides a helpful form certificate you can use. There will be a $25 filing fee due with the certificate. Your DBA is good for five years, at which point you will have to renew your registration.
A Michigan DBA expires on December 31 of the fifth full calendar year after the year in which you file your certificate.
Name Reservation Fee — $25
Maybe you have a great business plan and the perfect LLC name, but you’re not quite ready to start yet. If you want to make sure that a certain name is still available when you want it, you can file an Application for Reservation of Name with LARA. The filing fee for an LLC is $25.
The reservation is good for six months following the month you filed your application.
Domain Name — about $20 per year
In this day and age, small businesses need a presence on the Internet. The first step in creating a good website is to get your own domain name. While this might have been pricey in the past, it is now quite affordable.
You should secure your domain name as soon as possible, even if you don’t have plans for a website right now. If you don’t, a competitor could buy your ideal domain and its variations to block you from using them. Domain squatters also sift through newly registered LLC names and will buy their domains only to relist them with huge markups.
In general, a domain ending in .com will be more expensive than a .net or .info domain, and some names will likely be taken, meaning you will have to do some searching (and maybe compromising).
A domain name from GoDaddy.com or a similar registrar may cost you between $20 and $50 per year, with regular specials and sales where you can get substantial discounts.
Registering with the State Tax Office — Free
All new businesses should register with the Michigan Department of Treasury so that they can pay their taxes, like employer withholding tax and sales and use tax. For further details about any Michigan LLC taxes that could be due for your business, contact the Department of Treasury.
Getting an Employer Identification Number (“EIN”) — Free
An EIN is a tax ID number created by the Internal Revenue Service and assigned to a business for paying federal taxes. (Think of an EIN as a social security number for a business.)
While some LLCs don't need them, we still recommend that you get one. Many banks won’t allow your LLC to have its own business bank account unless it has an EIN. Having an EIN can also simplify the process of getting credit.
You can apply online and get an EIN for free in minutes, or you can apply for one through the mail or fax. Whatever you do, don’t pay someone else to get an EIN for you. It’s too easy to pay someone else to do it unless it is part of a broader service package.
Read More: How to Get an Employer Identification Number in Michigan
Foreign LLC Qualification Fees — about $100 per extra state
If your LLC does well, you may want to expand to new locations. If one of those places is in another state, you’ll have to pay to do business there. You won’t have to re-form your company, but you will have to register with the Secretary of State there and pay some extra fees.
The exact fees will depend on the state in which you are registering. As a rule of thumb, expect to pay about $100 in filing fees to register your limited liability company as a foreign LLC in another state.
Writing Formation Costs Off
Because it takes money to start your business, you can write off many, if not all, of your costs on your taxes for a deduction. The IRS has a lot of guidance on this matter, and you should compare your specific costs to the materials on the IRS website.
Keep in mind that, in most cases, an LLC is taxed by both Michigan and the IRS as a pass-through entity. Generally speaking, LLC owners can deduct up to $5,000 of their business startup expenses in the first year.
Megan wants to start a limousine service in Detroit. She already has the car and just needs to take care of LLC formation. She will be the only person working for the LLC. After a quick name search, she settles on ML Limousine LLC as her company name but wants to use the name “Meg’s Limo” on the side of her car.
Megan’s LLC formation costs are as follows:
- Michigan Articles of Organization filing fee: $50
- Michigan Articles of Organization expedite fee: $500
- Detroit Motor Vehicle for Hire License: $432
- Resident agent service fees: $100
- DBA fee: $25
- DBA expedite fee: $500
- Operating Agreement: $39
- Web domain costs: $50
Megan has elected to have her LLC taxed as a pass-through entity by both the IRS and the state. This means that she will claim both her business income and deductions on her personal tax returns.
Megan’s startup costs, which will form her deduction, total $1,696. Her taxable income before the deduction was $30,000, which puts Megan in the 12% income tax bracket. Michigan also has a flat 4.25% income tax rate.
With the deduction, Megan’s taxable income in Michigan will be reduced to $28,304. That saves her $203.52 in federal taxes and $72.08 on her federal state taxes, for a total savings of $275.60.
Keep in mind that if Megan had more than $5,000 in expenses, she would likely be able to claim those, but she could not deduct them all in the first year. Also, in Michigan, if she had more than $55,000 in startup expenses, she would have to amortize (spread) those expenses over 15 years rather than take a deduction upfront.
Cheapest Way to Start an LLC in Michigan
Now that you know all the basic costs, it’s time to shop around. Not every business needs to be formed in the same way, and you can save both time and money by picking the best option for you.
Formation Service – $39 + state fees
A business formation service is a popular and inexpensive way for new LLC owners to get started.
These companies are dedicated to helping entrepreneurs bring their visions to life. They have not only the knowledge of all the state laws you need to know, but also forms, documents, and procedures to make your life as easy as possible.
Formation services are quick and complete ways to handle formation needs for most LLCs.
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
While formation services can be great for most people, they are not always the best choice. Some cons for these services are:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
Attorneys are licensed, reliable, and powerful resources for business formation. They are also quite expensive. For business formation services, most lawyers will charge by the hour, with fees that will at least cost you several hundred dollars per hour. After only a little bit of work, that means that you could have a lawyer bill well over $1000.
That’s not an effective way to spend your money. A business owner with more money, though, could benefit from having an attorney if their business was at all complicated. For that reason, some owners choose to go this route.
Despite the expense, sometimes hiring a lawyer is the best choice.
- Lawyers help you manage risk. An LLC with complicated legal issues needs a lawyer. In Meg’s case, let’s say she wanted to buy a fleet of limousines and hire several workers, and to get the money, she had to raise it from investors. In this case, there are a lot of issues at play, and a lawyer could help with those.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
For most people, getting an attorney comes with considerable downsides that outweigh any benefits.
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very caring people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Many people, after searching the Internet for the information they need, decide to try forming their new LLCs themselves. This process can give you a lot of personal expertise, but remember that time is money. If you are spending hours on your business formation, that’s time you’re not spending on the substance of your business.
In most instances, then, it is more cost-effective to just pay an LLC formation service, with confidence that everything has been done correctly, rather than try to reinvent the wheel yourself.
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t figure out the value of your time, a DIY solution is the cheapest option.
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that then costs them more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Michigan LLC Fees: How Much Will it Cost to Maintain your LLC?
Even after you’ve formed the LLC, there are annual costs for which you will have to budget. These include both government fees and amounts paid to third parties, like:
- Local Business License, depending on exact location: $50 and up
- Annual report fee: $25
- Registered agent fee: $100
- Domain name: $20
Your annual report should be filed before February 15 every year.
Also, keep in mind that any small business should have an accountant. Costs for accounts vary significantly, but you should spend an average of $2,000 to $3,000 per year on an accountant in most cases.
How Much are LLC Taxes in Michigan
If the IRS treated your LLC as a pass-through business entity, Michigan will do so too, and will not tax your LLC’s income directly. Instead, you will pay taxes on the amount you receive from the LLC in the amount of 4.25%.
You will likely have to pay other taxes associated with your business. For example, if your LLC hires workers, you will have to pay employment taxes. If it sells goods and services (and it almost certainly will), you'll also have to collect sales and use tax. You can learn about all of these by contacting the Michigan Department of Treasury.
Michigan LLC Formation Costs Quick Links
- City of Detroit — Business License Guides
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
- Michigan Bureau of Workers’ Disability Compensation — An Overview of Workers’ Compensation in Michigan
- Michigan Department of Treasury — New Business Registration
- Michigan Department of Treasury — Taxes
- Michigan Department of Treasury — Withholding Tax
- Michigan LARA — Application for Reservation of Name
- Michigan LARA — Bureau of Professional Licensing
- Michigan LARA — Business Entity Search
- Michigan LARA — Fee Schedule
- Michigan LARA — Form Articles of Organization
- Michigan LARA — Form Certificate of Assumed Name (DBA)
- Michigan LARA — Online Filing System
- Michigan Limited Liability Company Act
Michigan LLC Formation Costs FAQs
How much does it cost to start an LLC in Michigan?
The minimum cost is $50. You must pay at least this amount to file your LLC’s articles of organization with the state.
What is the cheapest way to start an LLC in Michigan?
A do-it-yourself approach will have the lowest price tag, but it isn’t the cheapest in terms of your time. The best balance of price and time, for most people, is to use an LLC service for your business formation.
Do I need to hire an attorney to form an LLC in Michigan?
No. Most people will not need to invest the considerable expense and time of hiring a lawyer. A formation service or a DIY approach will work for most business owners.
Can I pay to form an LLC more quickly in Michigan?
Yes. Formation services will generally complete formation tasks faster than business owners acting on their own. For an extra state fee, Michigan will also process any document you file within one hour to 24 hours, depending on the amount you are willing to pay (between $50 and $1000).