In Michigan, you may incorporate a S corporation (S corp) by founding a limited liability company (LLC) or a corporation and then choosing S corp status from the IRS when applying for an EIN.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
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In our How to Start a S Corp in Michigan tutorial, we’ll walk you through the steps.
Woman reviewing papers to form a S company in Michigan.
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S corporation limitations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a S Corporation the Best Business Structure for You?
Restrictions on S Corporations
S corporations are restricted to one class of stock and 100 stockholders, among other things. For more information, see our What Is a S Corporation? guide.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
How to Form a S Corporation
There are two major methods to form a S corporation:
When requesting your employee identification number, organize an LLC and obtain S corp tax status from the IRS (EIN)
By creating a company and applying to the IRS for S corp status
We do not advocate forming a company with the S corp tax status since it undermines all of the advantages of forming a corporation.
Forming an LLC and Choosing S Corp Status in Michigan
It is simple to form a Michigan LLC and choose S corporation tax status. You may form an LLC with the S corp status yourself using our recommendations, or you can engage a service provider like Collective to handle it for you.
To form an LLC and elect S corp status, follow these five simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit the Articles of Incorporation.
Create an Operating Agreement in Step 4
Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in Michigan is deciding on a name.
Make sure your name conforms with Michigan naming regulations and is readily searched by prospective customers.
1. Follow the Michigan LLC naming guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC, L.L.C., LC, or L.C.).
Your name cannot indicate that the LLC was formed for any reason other than the one specified in its articles of incorporation.
The terms “corporation,” “incorporated,” or the acronyms “corp.” or “inc.” are not permitted in your name.
Michigan has a broad list of banned terms that your LLC may need to get permission to use in its name. The whole list is available on the State of Michigan’s website.
The words “low-profit limited liability company” or the abbreviation “L.3.C.” or “l.3.c.,” with or without periods, must appear in the name of a low-profit LLC.
For further information, see the Michigan state legislation on LLC name rules.
2. Does the name exist in Michigan? To determine whether your selected LLC name is available, utilize the business entity search on the Michigan Department of Licensing and Regulatory Affairs website.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select a Michigan Registered Agent
For your Michigan LLC, you must choose a resident agent, also known as a registered agent.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Articles of Organization, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Step 3: Submit the Articles of Organization for the Michigan LLC.
To properly register an LLC, the Michigan Articles of Organization are utilized.
Step 4: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.