Forming a Corporation in Michigan
Types of Corporations and Formation Process
If you are wondering how to form a corporation in Michigan, the process will depend on the type of corporation you want to form. To form an S Corporation in Michigan, you must file a Certificate of Formation with the Michigan Department of Licensing and Regulatory Affairs and make a valid S Corporation election with the IRS. Your resident agent must be a qualified Michigan resident or a company allowed to do business in Michigan.
Incorporation Documents
The most important step is to file incorporation documents with the state. You will be required to prepare and submit the Articles of Incorporation pursuant to MI Comp L § 450.1202 (2020). You can incorporate online or file the articles by mail with the Michigan Division of Licensing and Regulatory Affairs (LARA), Corporations Division. Some states, including Michigan, allow certain occupations to form Professional Corporations which will provide professional services. The state’s Business Corporation Act defines a professional service as "a type of personal service to the public that requires that the provider obtain a license or other legal authorization as a condition precedent to providing that service."
Choosing the Right Corporation
Choosing a business name for your Michigan corporation is critical in forming one. It must be unique and distinguishable from other existing Michigan corporations, limited liability companies, and limited partnerships.
A corporation’s bylaws provide a roadmap for how the corporation will operate. Michigan law does not specify particular content for bylaws but does state that they may contain any provision for regulating and managing the corporation’s affairs.
Embarking on a business endeavor in Michigan? Reach out to the best LLC formation services in Michigan for professional advice and assistance. The Michigan Corporations, Securities, and Commercial Licensing Bureau requires a fee when filing articles of incorporation or reserving a corporation name. Corporations are also required to pay state and federal income taxes.
Understanding S Corp versus C Corp in Michigan
Taxation and Ownership Differences
The main difference between an S Corp and C Corp lies in federal income tax liability and ownership. S corps are pass-through entities, where profits and losses pass through to shareholders’ personal tax returns. C corps are separate taxable entities, subject to double taxation. S corps have ownership restrictions, while C corps offer more flexibility but potentially higher tax implications.
Tax benefits are among the S corporations’ biggest advantage. S-Corps are pass-through entities, meaning that the business’ profits and losses are "passed through" to the shareholders’ personal tax returns, while C-Corps are taxed as separate entities.
Taxation and Formation Implications
There are three big differences between an S Corp and a C corp: taxation, ownership, and formation. The difference in taxation has the most impact for the majority of small business owners. Taxation: C corp owners pay both personal and business income taxes, while S Corp owners only pay personal income taxes.
However, one major disadvantage of a C Corporation is double taxation. C Corporations are subject to corporate income tax on their profits, and dividends distributed to shareholders are also taxed at the individual level. This can result in higher overall tax liability for both the corporation and its shareholders.
What Is the Difference Between an S Corp and a C Corp? S Corps and C Corps actually have quite a lot in common, including the liability protection of the owners’ personal assets. The biggest draw for business owners is that the S Corp and C Corp business structure both offer this protection.
This guide explains the differences between an S-corp vs. a C-Corp, the pros and cons of each of these entity types, and how you can decide which is right for your business. Otherwise called the small business corporation, S Corp mainly offers the advantages of getting similar tax advantages to a corporation but without double taxation.