As a Grand Rapids business lawyer, great folks routinely call our office and say “I need to form an LLC.” When I ask them why, the answers range from “because I want to start a business,” to “my buddy started one and said it was the best way,” to “my CPA suggested I form one.” This lets me know that there is some confusion among business owners and entrepreneurs about what, exactly, a LLC is.
As you can tell by the title of this post, LLC is the abbreviation for Limited Liability Company. The law on Michigan LLC’s can be found here. In short, a LLC is a form of legal business structure under which you can operate your business. Some other well-known forms of business structure are corporations and partnerships.
Michigan LLCs are typically more flexible in their formation and operation than corporations and typically provide a greater level of liability protection than a partnership. The “owners” of a LLC are called “Members.” There can be as little as one Member (referred to as a single-member LLC or SMLLC) and up to as many Members as you want (collectively referred to as multi-member LLCs or MMLLCs).
LLCs, like corporations, offer a certain level of liability protection for the owner’s personal assets if certain legal and practical steps are taken. This, combined with the flexibility mentioned above, is why many business owners choose to formally operate as a LLC.
This brief explanation would not be complete without mentioning everyone’s favorite topic…taxes. By default, LLCs are taxed as a “pass through entity.” That means that the profits and losses “pass through” the entity down to the owner(s) personal tax return…the LLC does not pay the taxes, the owner(s) does. Although that is the default, there are elections that can be made to be treated differently for tax purposes.
It is important to keep in mind that a LLC is not always the best way to form your Michigan business. The considerations mentioned above are just the “tip of the iceberg.” Starting a Michigan business without talking with a relationship-based Michigan business attorney could cost you (and your business) dearly down the road.
Looking to start a business or want to make sure your business has the correct foundation for continued success? Call us at 616-827-7596 for a comprehensive Small Business Strategy Session. Mention this blog post and we’ll waive the strategy session fee (a $1,250 value!).
Michael Lichterman is a relationship-based business attorney who leverages his business and legal knowledge to help business owners and entrepreneurs create a foundation for success™. This goes beyond merely drafting a set of documents – it’s about proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business. He best serves small business owners (less than 50 employees) and entrepreneurs. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients and their businesses – many of which have become great friends and trusted confidants.