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Sole proprietorship vs. LLC (Michigan)
A sole proprietorship is considered the same legal entity that owns it as its owner. If you own a sole proprietorship, you are personally liable for any debts incurred while operating the business. Also, an LLC is protected by limited liability protections, meaning that you cannot be sued individually for any actions taken during the operation of the business.
There are several benefits to forming an LLC instead of operating under sole proprietorship in Michigan.
Limited Liability Company (LLC) is one of the most common ways individuals form businesses in the United States. In fact, it’s the easiest way to start a business without having to go through the hassle of registering a corporation. If you are considering starting a business in Michigan, here are some reasons why you should consider forming an LLC over a sole proprietorship.
1. Limited Liability Protection
A limited liability company does not protect owners from personal liabilities. Instead, it limits the owner’s exposure to the business’s debts and liabilities. This protection is called limited liability because it applies only to the business itself. For example, let’s say that Joe Smith owns a restaurant named “Joe’s Diner.” He could open up a checking account at his local bank and deposit $100 into it. Then he could write checks against that account and use those funds to pay suppliers, rent, utilities, etc. However, if someone slips and falls while dining at Joe’s Diner, Joe would still be personally liable for paying medical bills. A limited liability company eliminates this risk. Because Joe is just a member of the LLC, he cannot be held responsible for the company’s debts and liabilities.
2. Pass-Through Taxation
Pass-through taxation is another benefit of operating under an LLC. When you operate as a sole proprietor, you must file tax returns on your individual income. You must also report all of your business’s profits and losses on your personal return. This makes sense since you are the only person working for the company. However, pass-through taxation allows you to take advantage of certain deductions. For example, suppose that you purchase supplies for your business every month. These purchases cost $5,000 per month. As long as you keep track of how much you spend each month, you can deduct the full amount from your taxable income.
3. Easier To Establish Than Other Entities
If you plan to incorporate, you will likely have to hire a lawyer and pay fees to register your business name. After you do this, you will need to apply for a federal Employer Identification Number (EIN). An EIN is essentially like a Social Security number for small businesses. It helps companies comply with regulations set forth by the IRS, such as filing quarterly reports and paying payroll taxes.
Steps to convert from sole proprietor to limited liability company (LLC)
If you are considering starting up a business, it might make sense to consider forming your company as an LLC rather than a sole proprietorship. You may want to do this because some tax benefits are associated with being an LLC. There are also advantages to having an LLC over a sole proprietorship, such as limited liability protection. If you decide to start a business as an LLC, here are the steps you must take to convert your existing sole proprietorship into an LLC.
1. Determine whether you need to incorporate.
You may already know whether you need to incorporate, but if you don’t, check out our article on “Do I Need To Incorporate?” to determine whether incorporation makes sense for you.
2. File Articles of Organization.
Once you’ve determined what you need to incorporate, you’ll need to file articles of organization. This document serves as proof that you’re officially incorporated. Once you complete the process, you’ll receive a certificate of filing.
3. Obtain a federal Employer Identification Number (EIN).
An EIN is required by law if you plan to hire employees. For information on how to obtain one, please see our article “How Do I Get an Employer Identification Number?”.
1. Check your business name
Choosing a business name is one of your most important decisions. If you don’t choose wisely, you could end up losing money and customers due to confusion over your brand.
– Trademark infringement occurs when someone uses another person’s mark in commerce. This includes making products or services similar to those offered by the sport’s owner. For example, if you sell shoes under “Jimmy Choo,” you cannot register the mark “Choo Shoes.”
– A federal court found that “Ferrari” is generic and cannot be registered as a trademark.
– In addition to federal law, state laws regulate many aspects of business operations. These laws include:
– Anti-discrimination laws protect people against discrimination based on race, religion, national origin, age, sex, sexual orientation, gender identity, disability, marital status, genetic information, veteran status, etc.
2. File articles of organization
Fill out an official form called Articles of Organization, which outlines information about you and your business. You must pay a filing fee to file the articles. In most states, it costs between $40-$1,000.
An LLC is very similar to Corporation, except that there is just one owner. If you are thinking of forming an LLC, here are some things to consider:
– How much money do you want to keep separate from your finances?
– Do you plan to sell products or offer services?
– Are you planning to hire employees?
– Will you have multiple owners?
– What type of business entity do you want to start?
3. Write an LLCAgreement
An LLC is a limited liability company. It is the most common form of business organization in the United States and has many advantages over other forms of business ownership. The main advantage of forming an LLC is that you can limit your liability for debts incurred by the company to the amount of money invested.
4. Announce Your LLC
The process of forming an LLC is relatively simple. However, there are a few things you need to know before you get started. The first thing you should do is decide whether or not you want to be taxed as a corporation or a partnership. If you choose the latter, you must file Form 8832 with your state’s Department of Revenue.
5. Get a New Bank Account
The first thing you need to do is get a new bank account. You can use the same one, but it’s better to have your separate account for this purpose. If you don’t already have an account with a local bank, then you will need to open one. Many banks offer free checking accounts and others that charge fees for them.
6. Get EIN
The IRS has a process for obtaining an Employer Identification Number (EIN) if you are not currently in business. You can apply online or by mail, and the application is free of charge. The IRS will send your EIN to you within 10 days after receiving your completed form.
7. Get Licenses and Permits in Michigan
The City of Detroit, Michigan is a large city with over 700 square miles. The city has many different areas that are home to various businesses. Some of the most popular business districts include downtown Detroit, Midtown, Corktown, Eastern Market, Downtown Ferndale, New Center, North End, West Village, Woodbridge, and others. Each area has its own unique set of rules and regulations.
Frequently Asked Questions
What will happen when you amend your Michigan LLC?
If you are filing an amendment to the Articles of Organization, then it is important that you understand how this document is handled. The amendment must be filed with the Secretary of State’s office in Lansing and not with the county clerk where the original articles were filed. If you file a paper copy of the amendment with the county clerk, they cannot accept or return the amendment for filing.
Should I get an EIN for my LLC?
Yes. You must file an application with the IRS to obtain your EIN. The IRS will assign you an EIN and issue it to you. If you have not yet obtained an EIN, you can do so by filing Form SS-4 (Application For Employer Identification Number).
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.