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Editorial 8 MIN READ

Michigan in December 2017: a $50 formation, a $25 February bill, and a tax code built around one industry

The Corporations Division charges less than almost anyone else to form; the Department of Treasury is where the real cost lives

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance: the $25 annual statement, due February 15
  3. The tax code, three moving parts
  4. Timing, naming, and the Detroit question
  5. Who this state actually makes sense for
  6. Sources

Michigan LLC costs $50 to form and $25 a year to keep. The paperwork goes to the Corporations, Securities & Commercial Licensing Bureau inside the Department of Licensing and Regulatory Affairs, which every lawyer in the state calls LARA and every small-business owner learns to spell eventually.

This is a guide for someone forming a Michigan LLC in December 2017. The filing mechanics are unusually cheap; the tax treatment has three moving parts that catch founders who form here expecting a clean pass-through story.

The mechanics

You file Form CSCL/CD-700, Articles of Organization, with LARA's Corporations Division. The form runs a single page. It asks for the company name (which must include "Limited Liability Company," "LLC," "L.L.C.," or an approved abbreviation under MCL 450.4204), the purpose of the business (a general-purpose clause is allowed and used by almost everyone), the duration (perpetual unless you pick a date), the street address of the registered office in Michigan, the name and Michigan address of the resident agent, and a signature from an organizer.

The filing fee is $50. That is the number whether you file by mail, walk it into the Lansing office, or send it through LARA's online system at the Corporations Online Filing System (COFS). Standard turnaround by mail runs several weeks in most months and longer around the year-end crunch; online filings are typically processed within a handful of business days. Expedited service is available as a separate fee schedule: $50 for 24-hour, $100 for same-day, $500 for two-hour, $1,000 for one-hour. The two-hour and one-hour tiers are meaningful for transactional lawyers closing deals, and essentially no one else uses them.

After the Articles are accepted, you get an EIN from the IRS using Form SS-4, which you can complete online in the time it takes to find your social security number. You write an operating agreement, which Michigan does not require you to file but which the LLC Act assumes you have (MCL 450.4308 lets the operating agreement govern most internal affairs, and a single-member LLC is still well advised to have a one-page version for bank and lender purposes). You decide how you want the entity taxed federally: disregarded entity for a single-member, a partnership for multi-member, or an S-corp or C-corp by election. For most operating businesses in Michigan the default pass-through is the right first answer and you revisit when revenue justifies the payroll machinery of an S-corp.

The authorizing statute is the Michigan Limited Liability Company Act, MCL 450.4101 et seq., enacted in 1993 and amended repeatedly since. The 2002 amendments brought the Act in line with most of the rest of the country on operating-agreement freedom; the 2012 corporate tax overhaul rewrote what sits downstream of it. Both matter for what follows.

Maintenance: the $25 annual statement, due February 15

Michigan does not call its yearly paperwork an annual report. It is the "annual statement," and for LLCs the fee is $25, due on or before February 15 every year. LARA mails a pre-printed form to the registered office in the fall. You can file the statement online through COFS, by mail, or in person. The statement asks for very little: the name, the resident agent, the registered office, and a signature confirming the information is current.

Miss the deadline and the consequence is gradual rather than punitive. The entity is not immediately dissolved; it is flagged as delinquent, and after two consecutive years of missed annual statements the LLC is automatically dissolved under MCL 450.4909. Reinstatement is available for up to five years after dissolution, and the cost to reinstate is the accumulated back fees plus a modest penalty, which usually totals in the low three figures rather than the four. This is one of the more forgiving compliance regimes in the country, which is partly why Michigan has so many dormant LLCs on the books.

Professional LLCs (PLLCs) formed under MCL 450.4901 file an equivalent annual statement for the same $25 fee. Domestic LLCs doing insurance or banking business sit under different chapters and have their own reporting; almost no reader of this article will be forming one of those.

There is no franchise tax. Michigan had one once. It was replaced by the Single Business Tax, which was replaced by the Michigan Business Tax, which was mostly replaced in 2012 by the Corporate Income Tax. What remains at the entity level for an LLC is the $25 statement, and whatever income tax applies to the owners or, for LLCs taxed as C-corps, to the entity itself.

The tax code, three moving parts

Michigan's operating tax story sits in three layers, and getting them straight is where most founders trip.

The first layer is the Michigan Corporate Income Tax (CIT), a flat 6% on C-corporations with nexus in the state, enacted in 2011 and effective for tax years beginning January 1, 2012. The CIT is not a franchise tax. It is calculated on apportioned federal taxable income with Michigan-specific adjustments, and it is administered by the Department of Treasury separately from LARA. A pass-through LLC does not owe CIT. An LLC that has elected C-corp treatment does, at the full 6%.

The second layer is the Michigan individual income tax, which applies to the members of a pass-through LLC on their share of the entity's Michigan-source income. The rate is a flat 4.25%, the number set by 2012 legislation and unchanged in 2017. A single-member Michigan LLC treated as a disregarded entity reports its income on the owner's Schedule C for federal purposes and on the Michigan MI-1040 at 4.25%. A multi-member LLC files a federal Form 1065 and a Michigan MI-1065 as an information return, with each member picking up their share on an MI-1040. There is no separate entity-level filing fee for the partnership return.

The third layer, and the one most founders do not know exists, is the legacy Michigan Business Tax (MBT). When the CIT replaced the MBT in 2012, the legislature let taxpayers who were carrying certain valuable credits elect to continue under the MBT rather than move to the CIT. The election is generally available only to taxpayers who had those credits in place when the CIT took effect, and most new formations in 2017 will have no path to it. If someone tells you to "form in Michigan and elect MBT," ask what credits they are preserving. If the answer is vague, the election is not available to a fresh formation.

Cities are the fourth thing to watch, even though they are not part of the state code. Detroit, Grand Rapids, Flint, Lansing, and a dozen others impose local income taxes on residents and on nonresidents earning income within city limits. Detroit's is the largest: a 2.4% resident rate and a 1.2% nonresident rate in 2017. An LLC operating in Detroit with members who work there needs to budget for a city return on top of the state one.

Timing, naming, and the Detroit question

Name availability is checked through LARA's Business Entity Search. The rules under MCL 450.4204 require distinguishability from existing entities and reservation of certain words (bank, insurance, and trust require agency consent; "cooperative" requires Subchapter T compliance if used in that sense). Name reservation is $25 and holds the name for six months.

Filing in December is uneventful as long as you are not trying to close the formation by year-end; LARA's mail queue slows in the last two weeks of December as the Corporations Division staffs down for holidays. If you need a clean December 31 effective date, file online through COFS or pay for expedited. If you are indifferent between a December formation and a January one, form in January. A December 2017 formation picks up a full 2017 tax year and an annual statement due February 15, 2018. A January 2018 formation picks up one fewer return to file.

The Detroit question is worth naming directly. Michigan's formation interest skews toward the automotive corridor, the medical and research cluster in Ann Arbor, and the growing tech concentration in Grand Rapids. For an auto-adjacent supplier considering whether to form in Michigan or somewhere cheaper, the answer is almost always Michigan: the physical-presence nexus into the OEMs' purchasing systems, the state's network of specialized attorneys and CPAs around the auto trade, and the practical reality that the customer lives here all argue for home formation. The same logic applies, less dramatically, for health-system vendors, university spinouts, and tier-one suppliers of every description.

For a fully remote business whose owner happens to live in Michigan, the analysis is ordinary: form here, pay the 4.25% personal income tax on your pass-through share, and spend the money you would have spent on an out-of-state registered agent on an in-state CPA instead.

Who this state actually makes sense for

Michigan's pitch is cheap formation, cheap maintenance, a flat personal rate, and a forgiving delinquency posture. The pitch is best for exactly the businesses already located here. An Ann Arbor software firm with a Michigan-resident founder and a handful of local employees has no sensible reason to form anywhere else; the Delaware premium buys case law it will not use and the Wyoming pitch buys a privacy posture that evaporates the moment it foreign-qualifies in Michigan to operate at its actual address. See our Delaware LLC formation guide for the other side of that trade and our note on choosing a state when you don't live there for the narrow cases that cut the other way.

Michigan is a worse pitch for venture-scale companies headed toward an institutional round. Those formations belong in Delaware for the same reasons they always have, and a Michigan-first formation followed by a pre-raise conversion costs more than forming in Delaware on day one.

The company that most benefits from Michigan formation is the one that already operates here, files here, pays its people here, and will never have a reason to look elsewhere. The state has priced its formation rules for that company, not for the Delaware arbitrageur or the Wyoming privacy shopper, and the $50 plus $25 is what that pricing looks like when the state is not trying to extract more than it needs from businesses it already has.

If you are forming this month, file online through COFS, pay the $50, calendar February 15 forever, and spend the rest of your entity budget on a CPA who knows the difference between CIT and MBT before the first return is due.

Sources

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