The first step to forming a professional service corporation in Michigan is to file the “Certificate of Incorporation” (sometimes referred to as “Charter”) with the government agency of the Secretary of State.
The Secretary of State will then register your company and issue you a corporate Identification Number (“CID”). You can also send one or more authorized representatives to complete the process by mail; however, only an authorized representative may submit all initial filings for your new business.
How to Form a Corporation in Michigan
1. Choose a Corporate Name
If your corporation is doing business in Michigan, you must register a corporate name with the state. This means that you must choose one of the following:
- The name of your corporation, or
- A “Doing Business As” name (DBA), or
- A combination of both
The Secretary of State has a website to help you decide on a business name for your new organization. Please use this link: Name Availability. You can also request an expedited review by calling (517) 241-6470. If you’ve already chosen a name for your corporation and it is available according to the website, simply complete an application through the online filing system at www.michigan.gov/biz. If your name is not available online, you must complete a Request for Name Availability form and file it with the Secretary of State’s office. This process will take an additional five business days for review.
2. File Articles of Incorporation
Articles of incorporation are available at the Secretary of State’s website, or you can call (517) 322-1473 to request one by mail. This document must contain:
- your business name,
- names and addresses of all incorporators,
- your corporation’s purpose,
- if it is a stock corporation or nonstock corporation, and
- the duration of your organization (if less than perpetual).
After you complete this form and submit it to the Secretary of State with your filing fee either online at www.michigan.gov/biz, you will receive back an original “Articles of Incorporation,” which may be kept as part of your permanent records. Within five days of submitting your articles, you must file a document called “Incorporator Attestations.”
This form verifies that all incorporators have signed the Articles of Incorporation. You can then apply for an Employer Identification Number (EIN) through filing online at www.irs.gov. Before filing your Articles of Incorporation, be sure to review the Right to Do Business in Michigan Without Residency Requirements.
3. Appoint a Registered Agent
The corporation’s resident agent (registered agent) is the person who receives important legal documents on behalf of your corporation when it is sued or involved in a lawsuit. After you’ve formed your new company, the Secretary of State’s office will mail you a Certificate of Status that includes the name and address of your registered agent.
To change the name or address for this registered office, you must file an “Annual Statement to Update Name/Address.” This form may be found at https://www.michigan.gov/documents/sos/Fictitious_Biz_Name_918500_7.pdf.
4. Create Corporate Bylaws
Corporate Bylaws are the rules that govern your corporation – they state the rights and responsibilities of your company’s shareholders, directors, officers, employees, and agents. Your corporate bylaws may include information like:
- the purpose for which the corporation was formed
- procedures to amend or repeal bylaws
- how many shares each shareholder is entitled to
- how much each share is worth
- how often meetings will be held and who can call a meeting or remove a director from the board of directors.
If you have selected a stock structure for your new company, you must also choose between two different types of bylaws: The Certificate of Incorporation states whether you have chosen “Sole Proprietorship” bylaws, which means that you are the sole owner of your organization, or “Joint Tenancy” bylaws which means that two or more people own the company equally.
5. Appoint Directors and Hold First Board Meeting
Your company’s Directors are responsible for making important decisions for your new organization. Once you’ve appointed all of the directors, they must hold their first official meeting within 20 days. This initial director’s meeting is typically referred to as a “First Board Meeting.”
In Michigan, this meeting does not have to take place in person. The only requirement is that all of the members of your board sign a document called “Incorporator Attestations,” which verifies that they have been elected as a director and attended their First Board Meeting.
6. Issue Stockholders’ Certificates
If you have chosen a stock structure for your new transact business, it’s time to decide how many shares each shareholder will receive and how much those shares are worth. Then your board members must sign a stock certificate for each issued share of their company.
Stock certificates are proof that shareholders own a part of your new corporation, and they should be kept as permanent records by both the shareholder and the business entity.
7. Draft Corporate Minutes
Corporate minutes are an important document that all corporations – regardless of size – should have to help them create a paper trail that documents important decisions made by officers or directors of the entity. These minutes may include items like:
- date and time of the meeting
- list of attendees
- motions made and how they passed (or failed)
There is no required form for corporate minutes, but some limited liability companies choose to use a meeting journal. This documentation can be an important reference in case of future disagreements about how decisions were made in the past.
8. Hold First Shareholders’ Meeting
If your company’s structure is a sole proprietor, partnership, or limited liability company (LLC) with no more than 2 members, then you are not required to hold annual shareholders’ meetings. However, if you have three or more shareholders, then you are required by law to hold one meeting annually.
This is sometimes referred to as a “First Annual Meeting,” and it’s usually held on the anniversary of when the business entity was incorporated. At this meeting, directors will elect officers, adopt bylaws, make important financial decisions like approving corporate budgets or dividends and conduct any other business specified by your company’s charter.
9. Obtain an EIN
An Employer Identification Number (EIN) is a nine-digit number that all companies are required to have before they hire any employees. It’s the equivalent of your Social Security Number at the office. Your EIN will be used by companies to identify you as an employer for tax purposes, which means that it is crucial to keep this number private and secure.
10. Register with your state
If your new business has chosen to operate as a corporation or partnership in Michigan, then you must register your business entity with the Michigan Department of Licensing and Regulatory Affairs. You can do this either online or by mail, whichever is more convenient for you.
11. Get your business license
If you are ready to start making sales, then it’s time to pick up your new business’s market tax license. You can do this online through the Michigan Department of Treasury.
Pros and cons of organizing your business as a corporation
When deciding whether or not to form a corporation, it’s important to learn the advantages and disadvantages of each type of business structure. Some of these benefits include:
The company is a separate business entity from its shareholders, which separates the owners’ personal assets from business debts. If your organization closes down, then you do not have to worry about losing your house or car.
Only the money that is invested in a shareholder’s stock can be lost if corporate debt exceeds corporate assets. In other words, if an individual invests $10,000 in their own home and another $10,000 in their business, then he or she will only lose the $10,000 from the business if it fails.
Corporations are taxed separately from their owners, so they must file taxes on any profit or loss made during each fiscal year. Additionally, Corporations Division can usually claim many tax deductions that individuals cannot, including ” meal and entertainment,” depreciation of property used in the company’s operations, and home office expenses.
The law requires much more paperwork to maintain a corporation than an unincorporated business, which means that managing your own business becomes much more complicated. If you’re not prepared for this increased level of complexity, then you may find yourself bogged down with unnecessary administrative work.
Costly to set up
Initial formation costs for a corporation are usually much higher than the costs of setting up an unincorporated business.
How much does it cost to form a corporation?
The total amount of money that you will need to begin your own business depends on which legal structure you choose. For example, if you are planning to be the sole shareholder in an unincorporated business, then it costs $125 to file articles of incorporation. If you plan on incorporating with 2 or more other individuals, then the filing fee increases to $250.
Although a corporation is more difficult to set up and manage, the benefits of operating as separate legal business entities from its owners make it an attractive choice for many businesses.