SO YOU WANT TO DO BUSINESS IN MICHIGAN?
In the State of Michigan, the law allows the formation of a corporation,
a Limited Liability
Company (LLC), or a partnership (with
various types of partnerships available). Our clients tend to favor
the corporation and the LLC. The primary reason is to protect their
personal assets as much as possible from claims that people will or
may have against their companies. A partnership, on the other hand,
does not offer such protection.
Let us suppose for a minute that you form either a corporation
or a LLC
to do business in this state. Let us further suppose that one of its
employees is negligent in some respect and causes someone injury.
If and when the injured person sues, they will generally not be allowed
recovery against your personal assets. Rather, their recovery, if
any, will be confined to the assets of the business (thusly, it is
important that the business is properly insured). This is because
the corporation, or LLC, if operated
according to the law, shields its owners' assets. An exception would
arise if the owner was personally at fault somehow (perhaps for carelessly
driving an automobile, or for not training his employees properly,
etc.)
Such protection for the owner is called the limited liability shield, and is a feature of both the corporation and LLC. A claimant can attempt to go behind the business entity after the owners' personal assets, if he can show that the entity was just a sham. By a sham, we mean that its operation was indistinguishable from that of its owners. The accusation you often hear in that type of situation is that the owners were really running the business out of their own wallets, rather than out of the business's segregated assets.
The business owner, when signing checks for the business, should always signify that he or she is signing in the capacity as president or officer of the business. In Michigan, a person can still do business in their individual name, and some do. Such an individual can get an "assumed name" from the local county official, though it offers no protection. A corporation or a LLC, however, should always get its assumed name from the State of Michigan. If the owner of a Michigan corporation or LLC were to get an assumed name from the local county official, he or she could be accused of doing business in their own individual capacity, rather than behind the protection of a business entity.
You may have heard that there are such things as "C" corporations and "S" corporations. This is not a distinction made in state law, but, rather, by the United States tax law. One advantage of having an "S" corporation is that the profits or losses flow directly onto the U.S. individual tax return and are taxed there. In the case of a "C" corporation, the corporation will have to pay a tax on the profits, if any, before they are passed on to the shareholders, at which point the shareholders will then have to pay personal tax on their dividends. Furthermore, an "S" corporation can have only one class of shareholder.
There are times when a corporation should have more than one class of shares, given the way it is capitalized (that is, how its investors contribute their funds and depending on what type of return they want on their investments). A LLC allows for more than one class of investors, and still allows the so called “flow through” treatment of income to its owners.
This office can form a corporation or LLC very quickly, due to our being part of the State of Michigan's Electronic Filing System (ELF). There is much more to Michigan business law than what has been described above. Please contact us if you would like assistance in starting a Michigan business.
