SoFi

If you’re thinking about launching a small business in the Peach State, you may want to structure it as a limited liability company, or LLC. In that case, you’ll first have to manage the formation process. Here’s how to form an LLC in the state of Georgia.

1) Choose a Name for Your Georgia LLC

As you set about forming an LLC in Georgia, start by picking your business name. The Georgia secretary of state’s website sets out the state’s standards for name availability.

The first rule is that your new company’s name must be distinguishable from the names of other businesses already registered with the state. Georgia’s standards on this point align with those of nearly 40 other U.S. states. If your desired name differs from another business name only slightly — due to punctuation, plurals, suffixes, and the like — that’s not enough to be distinguishable.

In addition, the use of certain words in your LLC’s name may be restricted. Many words related to insurance, banking, and education are off limits if you don’t have written approval from the relevant state agencies.

Once you decide on your ideal LLC name, use Georgia’s online business search to make sure it isn’t already taken. You can then reserve your business name for up to 30 days through the secretary of state while you finish your LLC formation. The nonrefundable filing fee is $25; additional service charges are $5 for online filing and $10 for filing by mail.

2) Appoint a Registered Agent

An important component of how to create an LLC in Georgia is your choice of a registered agent. A registered agent must be located at a street address in the state, as it’s responsible for receiving official communications on behalf of your business. In Georgia, this role can be held by an owner or shareholder of the LLC or by a third party.

A domestic LLC’s registered agent in Georgia may be any of the following:

•  An individual resident of the state

•  A domestic corporation or LLC

•  A foreign corporation or LLC that is authorized to do business in Georgia

Common third-party options include using an attorney or a professional corporate service company. These professionals will know all the details of how to set up an LLC in Georgia. If you want to change your registered agent later, you can do so either when filing your annual registration or by filing an amended annual registration with the state.

3) File Articles of Organization

One difference between operating a sole proprietorship vs. an LLC in Georgia is that an LLC requires you to file articles of organization. The basic information you need to complete this online form includes:

•  Your LLC name or name reservation number

•  The name and address of the individual filing for the LLC

•  A valid email address

•  Mailing address of the principal office

•  The registered agent’s name and address

•  The name and address of your LLC’s organizer — that is, one or more individuals or companies signing and filing the articles of organization

•  Any optional provisions to your articles of organization — whatever additional information you need to include that’s not required by law

There’s also a registration fee you’ll need to pay via credit card, check, cashier’s check, or money order. Filing online costs $105; mailing in paper forms costs $110.

If you file online, the standard processing time for LLC applications is seven business days. However, two expedited options are available: You can get your application processed in two days for an extra $120 or on the same business day (if your application is submitted before noon on a weekday) for an extra $275.

At this stage you may decide to loan money to your LLC to cover the costs of hiring a registered agent and filing (or refiling) your articles of organization.

Recommended: Top Small Business Grants in Georgia

4) Create an Operating Agreement

You need not file an operating agreement in the state of Georgia, but it’s a good idea to draw one up to guide decision-making processes and other administrative responsibilities, especially if your LLC has multiple owners or shareholders. An operating agreement should create clear guidelines for running the company and managing the finances — servicing any startup loans, for example — in order to prevent potential conflict in the future.

Consider hiring a lawyer to help you create the operating agreement, because once it’s signed by the LLC’s members, it’s considered a binding contract. Here are common components of an LLC operating agreement:

•  Ownership percentages

•  Voting rights

•  Powers and duties of each member

•  Profit and loss distributions

•  Meeting schedules

•  Buyout and sale rules in case a member dies or wants to exit

You can see how important this document is in clarifying how members are paid, how future ownership changes can happen, and how debt decisions are handled. If your company applies for small business loans in the future, potential lenders may want to know these details.

For that matter, even if you’re a single-member LLC, an operating agreement can be useful. It establishes that the business’s operations are separate from your personal affairs. Having this spelled out could be important if you ever apply for an LLC business loan.

Recommended: Equipment Financing

5) Obtain Necessary Licenses and Permits

The state of Georgia does not require general business licenses or permits. The city of Atlanta does, however, as do other cities and municipalities.

Occupational licenses from the state may be mandatory for LLCs operating in certain industries. Georgia has separate licensing boards for these lines of work:

•  Animal care

•  Athletics and entertainment

•  Auctioneering

•  Cosmetology and barbering

•  Building and contracting

•  Counseling and assistance

•  Environmental

•  Funeral homes and cemeteries

•  Transportation and security

•  Wellness, including nursing and optometry

•  Various types of therapies, including athletic training

There is also a separate licensing process for any businesses related to selling alcohol, tobacco, or motor fuel. Complete information is available from the secretary of state’s licensing division.

Depending on your business, you may need to renew your occupational licenses in Georgia each year to continue operating your LLC in compliance with the law. You can log into your Georgia business registration account to find out the requirements for your own company.

Securing the proper licenses and keeping them current is essential to get your business started. If you later need a business line of credit to keep your LLC growing, lenders may want to see that your company’s licenses are in order to ensure it can continue to generate revenue.

6) Review Georgia Tax Requirements

In addition to learning from the secretary of state’s website how to set up an LLC in Georgia, you also need to register with the state’s department of revenue to take advantage of any applicable LLC tax benefits.

To begin, you must get a federal employment identification number (EIN) from the IRS. With an EIN, you can create an online account with the Georgia Tax Center using the following details about your business:

•  Business structure

•  Legal name of your LLC

•  North American Industry Classification System (NAICS) code

•  Date of first Georgia sales

•  Information about the LLC’s officers and responsible parties

•  Business mailing address

After you submit your form, you’ll get a state taxpayer identification number; you’ll then be able to log in and pay your business taxes either monthly or quarterly.

The Takeaway

Georgia provides plenty of online resources to make the LLC formation process as straightforward as possible. There’s no state requirement for a general business license, but you may need certain professional or occupational licenses. To manage your company’s tax payments, you can easily set up an account with the state’s revenue department online.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What steps are involved in forming an LLC in Georgia?

There are six steps for forming an LLC in Georgia. Before filing any paperwork, you need to choose a business name and appoint a registered agent. Then you’ll need to file your articles of organization, create an operating agreement if you wish, obtain business licenses required for your industry, and register with Georgia’s Department of Revenue.

How much does it cost to file LLC formation documents in Georgia?

The cost to file LLC formation documents in Georgia varies depending on your filing method. The cheapest option is to file online, which costs $105. Filing paper forms by mail costs $110. You can also expedite the approval process for an additional fee.

Do I need a Georgia business license to operate an LLC?

Whether or not you need a Georgia business license to operate an LLC depends on your industry. LLCs must be registered with the state, but only certain industries require specific business licenses in order to operate. Start by checking out Georgia’s online list of licensing boards to determine if any apply to your LLC. If you have additional questions, consider consulting a lawyer.

What is the role of a registered agent in forming an LLC in Georgia?

A registered agent is required of any LLC doing business in Georgia. This individual or business is responsible for receiving documents and official communication on behalf of your LLC. It can be an owner of the LLC or a third party; however, the registered agent must be located in Georgia.

How do I file an annual report for my LLC in Georgia?

LLCs are not required to file an annual report in Georgia, but you do need to file an annual registration. If there are no changes to your LLC, you can use the state’s One Click annual registration, or you can log into your account with the secretary of state to make any changes.

Photo credit: iStock/gguy44

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSMB-Q424-097

Securing a loan for a business acquisition can be more complicated and time-consuming than getting other types of loans. Lenders will want to evaluate not only your existing business (if you have one) but also the business you plan to purchase. You’ll likely have to document both businesses’ valuations, credit history, operating expenses, existing assets, cash flow, and more.

But taking the extra steps to get a business acquisition loan can be worthwhile even if you have cash on hand. Using a loan to buy an existing business can help you skip the startup stage and move right into established operations. Plus, an acquisition loan can help you purchase a higher-priced business that you can’t afford with cash alone, or it can provide a convenient way to buy out a partner in your current company.

Types of Loans for Business Acquisition

Numerous types of business loans are available to help you purchase a business. Each lender has its own borrower requirements and application process, but there are many similarities among them.

In general, even though they require more paperwork, business acquisition loans are easier to obtain than startup loans.

SBA Loans for Buying a Business

You can use an SBA 7(a) loan for a variety of purposes, including acquiring all or part of a business, securing equipment financing, or buying a business partner’s share of your existing company. Loan amounts max out at $5 million and terms can be as long as 25 years. They may require a minimum down payment of 10%.

You apply for SBA loans directly through private lenders, but because the funding is backed by the federal government, the SBA still has to approve your application. Working with one of the agency’s preferred lenders can expedite the process. This could be a good option to consider if you’re trying to buy a business within a tight timeline.

Traditional Bank Loans

Many banks will also operate outside the SBA’s 7(a) system to offer small business loans for an acquisition. Most will likely be packaged as traditional business loans.

However, you can also find specifically designed business acquisition loans. In these cases, lenders focus on the financial health of the target company. The application and approval process often requires additional due diligence.

Other options include a business line of credit, which may have a faster approval time. Another advantage of a business line of credit: Depending on the lender, credit limits can reach $500,000 or even more, providing more room for a business to expand.

Personal business loans also exist. However, they typically top out at $100,000, which may not be enough for you to buy the business you want.

Seller Financing Options

Another way to buy a business is with seller financing, a type of loan that doesn’t involve a formal lender. Instead, you generally make a down payment and then pay off the seller over time. Rather than receiving a lump sum, the seller gets regular payments on the debt, including both principal and interest. This can be a convenient method of buying out a business partner.

This kind of financing (also known as owner financing) may seem less formal, but it typically comes with a promissory note, a legally binding document that outlines the terms of the deal. With seller financing, the repayment term tends to be about seven years. You may also need a larger down payment of 30% or more, which is much higher than for SBA or bank loans.

The benefit is that it may be easier to qualify for seller financing than for a bank loan. You may also be more likely to receive information and support from the previous owner, since they have a financial interest in the business’s ongoing success.

Qualifying for a Business Acquisition Loan

When you’re figuring out how to get a loan to buy a business, bear in mind that every lender and type of financing will have different eligibility criteria. Still, there are some basic requirements you can expect no matter how you choose to fund your acquisition. Here are many of the documents you’re likely to need.

•  Credit scores: Lenders typically review both your business and personal credit scores as part of the financing decision. Minimum personal credit scores vary by lender, but many set it between 650 and 690.

•  Letter of intent: When you’re applying for a business loan to purchase a business, you may need to already be under contract with the seller. A signed letter of intent outlines the terms of the transaction. Just like when buying a home, you can include a clause that the deal is contingent to being approved for financing.

•  Business and personal tax returns: You’ll very likely need to provide several years’ worth of tax filings for yourself and for the business you’re aiming to buy.

•  Business financial statements: Expect to provide up to three years’ worth of documents for the company you’re buying, including profit and loss statements, balance sheets, and cash flow statements.

•  Business plan: Outlining your plan for the business along with your management experience gives the lender more confidence that you’ll be able to successfully manage the newly acquired company.

•  Debt service coverage ratio: This number compares the business’s net operating income versus its current debt obligations (including interest and leases). A higher ratio is better because it indicates there is more cash than debt.

•  Down payment: Down payment requirements are usually reserved for seller financing and SBA loans. It can range anywhere between 10% and 30% of the loan amount and demonstrates to the lender that you’re financially invested in the business you plan to buy.

Preparing Your Loan Application

Given the many different types of loans to buy a business, plus alternative financing options to consider, the application process can be complex and even confusing. You can get started with a basic to-do list including these steps:

•  Have an offer in place. Before you can qualify for financing, you’ll likely need your offer accepted by the seller with terms finalized in the letter of intent. That means you should have gone through the review and valuation process with the business to make sure you’re happy with the deal.

•  Work with the seller. As you saw from the loan application requirements, you need quite a few financial documents from the seller. Ideally, you’ve already acquired those documents during the negotiation stage, but it’s still smart to maintain ongoing communication in case the lender requests additional statements.

•  Know your credit scores. Checking your personal and business credit scores well ahead of your business purchase gives you more time to improve in case they’re lower than you expected. Plus, you can check for errors and get a rough sense of the interest rates you qualify for.

•  Prepare your tax returns. You’ll need three years of tax returns when applying for a business acquisition loan. But you (or the company you’re buying) may also need to finish filing for the current year if you’re applying for a loan during tax season.

The Takeaway

Getting a loan to buy a business is likely to involve a few more steps than a general working capital loan. Whether you’re looking for an SBA loan, owner financing, or a traditional bank loan, you can take some actions in advance that could make the process smoother. For example, even before you apply, it’s prudent to pull together important financial documents and make sure your business plan is on point.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What types of loans are available for buying a business?

Loans you can use to buy a business include SBA 7(a) loans, traditional bank loans, and seller financing.

How do I qualify for a business acquisition loan?

To qualify for a business acquisition loan, you’ll need a letter of intent outlining the terms of the sale, financial statements from the business, a sound business plan outlining your ability to run the new business, and both personal and business credit scores, tax returns, and bank statements.

What documents do lenders require when applying for a loan to buy a business?

Lenders require an array of documents when you’re applying for a loan to buy a business. Among them will be a letter of intent, tax returns, profit and loss statements, cash flow statements, debt disclosures, and more.

What are the advantages of using an SBA loan to buy a business?

Using an SBA loan to buy a business may help you strike a deal with the seller since the loan is guaranteed by the U.S. government. Benefits to you also include competitive interest rates, the potential for large loan amounts, and longer periods for repayment.

How much down payment is typically required for a business acquisition loan?

The down payment you need depends on the type of business acquisition loan you get. SBA loans usually require a 10% minimum down payment, while seller financing may call for as much as 30%.

Photo credit: iStock/FG Trade Latin

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q424-100

Small businesses are thriving in Illinois. In 2023, businesses with fewer than 20 employees created 74% of jobs in the state. Creating an LLC in Illinois for your new business requires just a few steps and comes with a number of potential tax benefits. If this business structure sounds like the right fit for you, keep reading to learn how to set up an LLC in Illinois.

1) Select a Name for Your Illinois LLC

Start your LLC name designation by making sure another business doesn’t already use your idea. The state of Illinois makes it easy with an online name search of existing corporations and LLCs.

You can also submit a corporate name availability inquiry form for a preliminary check on existing company names. The form lets you include three potential names for your business. You should get a response by the end of the next business day.

Once you decide on an LLC name, you can submit a name reservation form to keep it on hold for you while you finish the process of forming an LLC in Illinois. Names will be reserved for up to 90 days at a cost of $25 per name. This step isn’t mandatory, but does help guard against someone else registering your ideal name before you do.

Recommended: What Are the Tax Benefits of a Limited Liability Company (LLC)?

2) Choose a Registered Agent

Prior to submitting your LLC application to the Illinois Secretary of State, you must assign a registered agent to your LLC. This person or corporation accepts correspondence from the secretary of state on behalf of your company. You can act as your own registered agent in Illinois as long as you’re in one of the following categories:

•  A person residing in Illinois

•  A corporation authorized to act as a registered agent in Illinois

The registered office must match the business office address of the registered agent and must have a street or road address or a rural route and box number. (Just having a P.O. box is not enough.) It’s important to keep this address up to date. If your LLC doesn’t maintain a registered agent and office on file, you risk having your company dissolved by the state.

3) File Articles of Organization

After finalizing your business name and designating your registered agent, setting up an LLC in Illinois requires filing articles of organization. The Illinois secretary of state outlines seven requirements:

1.   LLC’s name

2.   Address of the principal business location

3.   Effective date of the LLC’s articles of organization

4.   Registered agent’s name and registered office’s address

5.   LLC’s purpose

6.   LLC’s term of existence

7.   Names and business addresses of initial managers or members

You’ll need to submit two copies: one signed original document and one copy. You must also pay a $150 filing fee via credit card, certified check, cashier’s check, money order, Illinois attorney check, or certified public accountant’s check. For expedited 24-hour service, the fee jumps to $250. Otherwise, the approval process should take 10 business days.

To avoid getting your articles of organization returned, make sure your documents are complete and signed legibly. Also, your LLC’s purpose clause should also be as specific as possible; if it’s too broad, the state may not accept your filing.

At this stage you may decide to loan money to your LLC to cover the costs of hiring a registered agent and filing (or refiling) your articles of organization.

Recommended: Top Small Business Grants in Illinois

4) Create an Operating Agreement

An operating agreement isn’t required when you’re creating an LLC in Illinois, but it can be helpful to have on hand, especially if the company has more than one owner or member. An operating agreement should create clear guidelines for running the company and managing the finances — servicing any startup loans, for example — in order to prevent potential conflict in the future.

Here are some common clauses you may want to include in your operating agreement to ensure all owners understand their rights and responsibilities:

•  Each member’s ownership percentage

•  Voting rights

•  Duties and rights of management and members

•  Profit distribution process

•  Provisions for buying out members or transferring ownership

It can be helpful to consult a lawyer during the process, as the operating agreement is a legally binding contract. If your company later applies for additional small business loans, potential lenders may want to know these details.

Even if you’re a single-member LLC, an operating agreement is useful to prove that the business is separate from your personal affairs. This could be important if you ever apply for an LLC business loan.

5) Obtain an EIN and Required Licenses

A federal employer identification number (EIN) is required for any LLC that has employees. It’s not a must for single-member LLCs.

It’s easy and free to get an EIN from the IRS. You just need your business entity type; the Social Security number of the LLC’s responsible party; and signed authorization for a third-party designee, if you have one.

Illinois doesn’t require any general business license at the state level, but certain industries do require specialized licenses or permits in order to operate. Here are some examples; you can view the full roster online at Illinois.gov.

•  Pilots

•  Assisted living and shared housing companies

•  Asbestos abatement services

•  Emergency medical services

•  Waste management services

•  Kennel or pet shop

•  Bar or restaurant serving liquor

•  Wholesale aquatic life dealer

•  Wholesale fur buyer

•  Mussel dealer

•  Breeding wild game/birds

•  Animal imports

•  Taxidermy

•  Plumbers and outfitters

Getting and renewing the proper licenses is essential to get your business off the ground. If you later need a business line of credit to keep your LLC growing, lenders may want to see that your company’s licenses are in order to ensure it can generate revenue to repay the loan.

6) Review Illinois LLC Tax Obligations

Once you figure out how to set up an LLC in Illinois and begin operating your business, you must file taxes with the state revenue department. You can use your EIN to register your business with the Illinois Department of Revenue.

Taxation is different when you have an LLC vs. a sole proprietorship. There are different forms to fill out based on how you want your LLC to be treated by the IRS; the business structure for an LLC may be a partnership, C corporation, or S corporation.

In addition to paying state taxes, you must also file an annual report along with a $75 fee. This report verifies your LLC information and allows you to update ownership details and contact information.

The Takeaway

Setting up an LLC in Illinois involves several steps, and once it’s established, you’ll need to stay on top of your paperwork and deadlines in order to remain compliant each year. Starting with a strong foundation, including assigning a registered agent and maintaining an operating agreement, is a smart way to ensure long-term success for your LLC.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What are the filing requirements to start an LLC in Illinois?

In order to file for an LLC in Illinois, you need an available business name, a registered agent and registered office, and articles of organization. While an operating agreement is not required, creating one can help prevent future conflicts among LLC members.

How long does it take to form an LLC in Illinois?

Once you submit your LLC articles of organization, you should receive a response within 10 business days. You can, however, expedite the process by paying $250 for 24-hour service, rather than the standard $150 fee.

Do I need to register for an Illinois business tax ID after forming an LLC?

First, you must register with the IRS to obtain an Employer Identification Number (EIN). After that, you must register your business with the Illinois Department of Revenue (IDOR). You can do so electronically, by mail, or in person. With your registration, you will get an IDOR account ID number for tax purposes.

What is the process for reserving an LLC name in Illinois?

Illinois offers a name reservation form that safeguards your preferred LLC name for up to 90 days. The cost is $25 per name (up to three), payable upon submission.

Are there any specific legal requirements for LLC operating agreements in Illinois?

No, Illinois does not require LLCs to have operating agreements, so there are no legal requirements to include. But you may wish to consult a lawyer when creating an operating agreement to make sure all members or partners are fairly represented in the document.

Photo credit: iStock/filo

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q424-098

Many small business owners in Michigan choose to operate as a limited liability company, or LLC, rather than a sole proprietorship. LLC status helps shield their personal finances from business risk. As of late 2024, the state had more than 840,000 limited liability companies in good standing.

Taking the steps below can help business owners stay on top of the documents, requirements, and fees they’ll face when creating an LLC in Michigan.

1) Choose a Name for Your Michigan LLC

Your LLC’s name must be unique among businesses in the state. If you’ve already got some possible names in mind, you can check online to see if they’re taken: Michigan’s Department of Licensing and Regulatory Affairs (LARA) maintains a database of existing business entities.

Once you’ve chosen a name, you can reserve it for 180 days (much longer than other states’ 30-, 90-, or 120-day holding periods). The reservation fee is $25.

There are a few rules for your LLC’s name:

•  It must be distinguishable from other business entities’ names.

•  It may not contain a word or phrase indicating purposes other than the ones stated in the articles of organization.

•  It may not include the words corporation or incorporated or their abbreviations.

Recommended: Top Small Business Grants in Michigan

2) Designate a Registered Agent

In order to file your LLC formation documents, you must select a resident agent, known in other states as a registered agent. In Michigan, your LLC’s resident agent is responsible for receiving documents, notices, or other demands on behalf of the company.

Eligible resident agents include any of the following:

•  A Michigan resident

•  A Michigan corporation

•  A foreign corporation that has a certificate of authority to do business in Michigan

•  A Michigan LLC or authorized foreign LLC

That means you can either act as your LLC’s own resident agent or hire a third party for the role. You also need to include the address of a registered office that’s associated with your resident agent.

3) File Articles of Organization

One difference between operating an LLC vs. a sole proprietorship in Michigan is that an LLC requires you to file articles of organization with the state. Michigan’s brief LLC form includes the following information:

•  Name

•  Purpose of the LLC

•  Duration (if it’s not perpetual)

•  Name of resident agent

•  Mailing address of registered office

•  Any additional provisions

•  Your signature

The fee is $50. For an additional $50, you can get 24-hour service; for $100, there’s same-day service if you submit the form before 1pm.

LARA recommends waiting to purchase any business marketing materials until your articles of organization are filed and approved. You may want to take out a small business loan at this stage to pay for those marketing materials and your other startup needs.

Be aware that an LLC designed to provide certain services (dentistry, for example) would take the form of a professional limited liability company (PLLC). PLLCs’ articles of organization use a different form.

4) Create an Operating Agreement

Getting an LLC in Michigan up and running doesn’t require an operating agreement, but it’s smart to draw one up during your formation process. This document provides details on how you (and any of your LLC partners or members) will run the company, and may be useful later when approaching lenders for a startup loan.

Some points you may choose to include are:

•  Ownership percentages

•  Voting rights and procedures

•  Responsibilities and duties of LLC members

•  Profit and loss distribution plans

•  Buyout rules

Having an operating agreement in place can also help protect LLC partners and members from potential liability stemming from the business’s activities. For example, the company — not individual members — is obligated to pay back an LLC business loan.

Also, the separation between members and the LLC comes into play if, say, you decide to loan money to your LLC. The loan would involve a binding contract for repayment. You may want the LLC’s operating agreement to contain rules or conditions governing such transactions.

5) Obtain Necessary Licenses and Permits

Many types of businesses are subject to additional licensing and permit requirements in Michigan. The state website divides them into the following categories:

•  Adult and child care

•  Health professionals

•  Occupational professionals

•  Commercial licenses

•  Cannabis licenses

•  Skilled trades

•  Fire safety

•  Unarmed combat professionals

•  Liquor control

The site also lists various types of permits your business may need, such as those for wastewater construction, building in high-erosion areas, campground construction, and many more.

It’s important to get the proper licenses and keep them current as your business grows. If you later need to secure a business line of credit, lenders are likely to insist that all licenses be in order so that the company can continue to generate income.

Recommended: Equipment Financing

6) Review Michigan Tax and Regulatory Requirements

In order to file, pay, and manage your business’s state taxes, create an online account with Michigan Treasury Online (MTO). Registration will be quicker if you already have a federal employer identification number from the IRS. MTO can then process this online registration application within 48 hours.

LLCs can choose one of several different tax filing statuses. It’s helpful to consult with an experienced accountant to select the filing status that will maximize your LLC’s tax benefits.

In addition to submitting your LLC’s annual tax return, you must file and pay quarterly tax estimates if you expect to owe at least $800.

The Takeaway

Once you’ve chosen a name and a resident agent, creating an LLC in Michigan calls for just a few forms and fees. Your LLC application can be handled within 24 hours if you pay for expedited processing. Having an operating agreement in place, plus the needed permits, should help your business run smoothly.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What steps are required to form an LLC in Michigan?

In order to form an LLC in Michigan, you must choose a name that’s distinguishable from existing businesses, select a resident agent and registered office, and submit the appropriate articles of organization to the state’s Department of Licensing and Regulatory Affairs. Once your LLC has been approved, you can register with the Michigan Department of Treasury in order to file and pay your business taxes. That process is likely to be faster if you already have an EIN from the IRS.

How much does it cost to form an LLC in Michigan?

The cost for LLCs to submit articles of organization in Michigan is $50. If you need expedited processing for your new business, you can pay an extra $50 for 24-hour service or $100 for same-day service. You just need to submit your articles of organization and service request by 1 pm to qualify.

How do I choose a registered agent for my LLC in Michigan?

After brainstorming some ideas, check to see if they’re taken already. You can do this using LARA’s online business entity search. Your LLC name can’t reference industries or services your company doesn’t provide and you can’t use words like corporation or incorporated.

Do I need to file an operating agreement when forming an LLC in Michigan?

When you’re forming an LLC in Michigan, you’re not legally required to submit an operating agreement to LARA. Your agreement, should you create one, is considered an internal document and a binding contract within your LLC.

What are the annual reporting requirements for an LLC in Michigan?

You must file an annual report — known in Michigan as an annual statement — within 90 days of the due date; there’s also a yearly $25 fee. In the statement, you can update any information from your LLC’s original articles of organization, such as changes in ownership, the resident agent, or the registered office.

Photo credit: iStock/Grafissimo

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSMB-Q424-099

In the United States, anyone can start a new business. One of the first steps is choosing the best type of business entity for the company you’re starting. Let’s take a look at the types of business entities and the business entity definitions.

💡 Recommended: How To Incorporate

Sole Proprietorships

A sole proprietorship is the simplest type of business entity. Creating one requires little or no paperwork, and it isn’t a corporation. The owner is the business.

Definition and Characteristics

A sole proprietorship is an unincorporated business in which the owner is the only employee. There’s no need to register with the state, but to operate in certain industries, you may have to obtain a business license or permit. If you’d prefer not to do business under your legal name, you can create an alias known as a DBA, which stands for “Doing Business As.”

The advantages of a sole proprietorship are its simplicity and the low cost of creating it. Handling taxes is straightforward: You report the business’s profits on your personal tax return using Schedule C. The disadvantage is that you are personally responsible for any business losses, since there’s no legal separation between your individual and business finances.

Partnerships

A partnership will have multiple owners. This type of business entity has two kinds of legal structure: general partnerships and limited partnerships.

General Partnerships

A general partnership is basically a sole proprietorship with two or more owners. As with a sole proprietorship, you won’t need to file any paperwork with the state. But you will want to draw up a partnership agreement among the owners. The agreement should specify how the business partners will divide any profits or losses, which will be reported on the partners’ personal tax returns. General partnerships also do not shield participants from personal liability.

Limited Partnerships (LPs)

A limited partnership, or LP, requires registration with the state. This type of partnership specifies which people will operate the business and assume liability — called general partners — and which ones will act only as investors. The investors are known as limited partners or silent partners. If additional capital is needed, general partners can raise it via small business loans.

An LP structure makes it easy for general partners to run the business and raise money from limited partners, who aren’t liable for debts beyond their initial investment. If a limited partner decides to leave, the business can continue. Profits are shared based on the terms of the partnership agreement, which should include how and when profits are distributed.

For tax purposes, LPs are considered “pass-through” or “flow-through” entities. This means that the enterprise’s taxes are paid by the individual partners via their personal income tax returns, rather than separately by the partnership.

Another type of limited partnership is a limited liability partnership, or LLP. This is a type of partnership often used by professional services companies, such as law firms or dental practices. It shields each partner from extensive personal liability in cases of, say, malpractice. LLPs involve written partnership agreements and must typically file annual reports in most jurisdictions.

Recommended: Sole Proprietorships vs LLC: How to Choose

Corporations

Corporate types of business entities have more complicated legal structures. The two main types are C corporations and S corporations. The IRS automatically considers all corporations to be C corporations. To secure S corporation status, owners must take additional steps.

C Corporations

C corporations are owned by shareholders, operated by management, and overseen by a board of directors. As a business entity that’s legally separate from its shareholders, a C corporation files its own tax returns and pays income taxes at the corporate rate. Shareholders pay taxes on their share of the profits when they file their personal tax returns. This so-called “double taxation” is a disadvantage of C corporations.

S Corporations

A C corporation can become an S corporation — or “S corp,” as it’s commonly known — by filing IRS Form 2553 and meeting certain IRS eligibility requirements. S corps provide some tax advantages to their owners. In most states, the shareholders can pass the business’s profits and some losses through to their personal income taxes.

Like C corps, S corps still need to create bylaws and hold board meetings and shareholder meetings. But unlike C corps, S corps are limited to 100 shareholders and can issue only one class of stock.

You may have heard of B corporations. That’s not actually a type of business entity. Instead, B corp status is a certification issued by a third party. It’s meant to recognize a company’s commitment to public transparency and the highest standards of verified social and environmental performance.

Close corporations, also known as closely-held corporations, are typically smaller companies. They have less formal corporate governance and cannot publicly trade shares. A close corporation could be operated by a small group of shareholders without a board of directors.

Limited Liability Company (LLC)

A limited liability company, or LLC, has some features of unincorporated sole proprietorships and partnership, as well as elements of more formal S corps and C corps. Like a corporation, an LLC is a separate business entity that limits the liability of an individual. But LLCs require less paperwork, as you don’t need to have shareholders or a board of directors. As for taxes, owners of an LLC can choose to have the income taxed directly (as with a C corp) or pass it through to their personal tax filings.

Forming an LLC is more expensive than creating a sole proprietorship or partnership. The cost of creating an LLC can range between $35 and $300. And while some states don’t charge an annual fee to renew an LLC, most do; California’s annual $800 fee is the highest.

An LLC can have one member or multiple members. For a multi-member LLC, you need to create an operating agreement that sets out the rules and structure for the business.

Licensed professionals such as doctors and lawyers have the option of creating a professional limited liability corporation, or PLLC. The specific criteria vary by state.

Recommended: What Are the Tax Benefits of a LLC?

Factors to Consider When Choosing a Business Entity

Given the many types of business entities, it’s important to carefully choose the one that best suits your needs. For people who are just starting a business on their own, a sole proprietorship offers a speedy, simple and low-cost solution that enables them to begin doing business immediately. There are few tax implications, but also no liability protections.

It’s easy to convert a sole proprietorship into a partnership as your business grows, if that’s what you choose. That way, even with more than one owner, the company retains all of the advantages of a sole proprietorship.

For other businesses, creating an LLC will make more sense. Choosing LLC status offers you a way to quickly register your business, and it allows for the eventual hiring of employees. An LLC’s key advantage over a sole proprietorship or a partnership is the owner’s limited exposure to liability and loss.

A C corp can be a wise choice for businesses that anticipate substantial growth. It requires the creation of a board of directors; protects the owners from personal liability; and allows you to sell shares, making it easier to raise funds. However, profit from a C corp is subject to corporate taxes in addition to personal taxes paid by the shareholders. If your company qualifies as an S corp, you can escape this double taxation.

The Takeaway

The various types of business entities come with different advantages, costs, levels of complexity, and tax challenges. Not all of them will be suitable for your new business. As you consider your options, research their financial, legal, and recordkeeping details to ensure you choose the one that makes the most sense for your business needs.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

Photo credit: iStock/visualspace

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOSMB-Q424-046