Michigan is home to 902,131 small businesses, which make up 99.6% of all businesses in the state. With a favorable corporate tax rate, a low cost of living, and a range of incentives for entrepreneurs, the Great Lakes State could be the perfect place to launch your service business.

Follow our step-by-step guide and learn how to start a business in Michigan, the Great Lakes State.

Checklist: start a business in Michigan

  1. Create a business plan
  2. Choose a business name
  3. Check zoning requirements
  4. Choose a business structure
  5. Register your business
  6. Open a business bank account
  7. Secure small business funding
  8. Arrange permits and licenses
  9. Insure your business
  10. Invest in business software
  11. Understand your tax obligations
  12. Build your team

How to start a business in Michigan

1. Create a business plan

Every successful business starts out as a business plan. Although it’s tempting to skip this step, a detailed business plan is a resource that can help you:

  • Identify startup costs and ongoing business expenses
  • Define your niche and target customer
  • Analyze and outperform your competition
  • Create smart business goals
  • Know when to hire and build a team
  • Attract investors and raise capital

First time writing a business plan? Download a business plan template from the Small Business Administration (SBA). The SBA also has other excellent business resources that can help you run and grow your Michigan business.

2. Choose a business name

In Michigan, sole proprietors can use their full, legal name(s) as their business name. Other business structures must choose a name that conforms to Michigan’s business name rules.

Michigan business name rules

  • No two businesses can have the same name
  • Every business or company name should be “distinguishable from one another” (duplicate names are not allowed)
  • You cannot use restricted words in a company name (inappropriate words, words that refer to a government agency)

How to name a business in Michigan

  1. Check availability. Check if your chosen trade name is available using the Michigan business entity database.
  2. Claim the name. If the name is available, LLCs and corporations can claim it at the time of business formation. Sole proprietors and general partnerships must file for an assumed business name or DBA with the state.

How to reserve a business name in Michigan

You can reserve an entity name in Michigan for 6 months by filing an Application for Reservation of Name and paying a $25 processing fee to the Michigan Department of Licensing and Regulatory Affairs (LARA). This can be a good option if you’re not ready to make your business official just yet.

3. Check zoning requirements

Every business location will be affected by zoning laws. Zoning keeps businesses from having a negative impact on residential areas, so check the Michigan Zoning Database and make sure you understand the zoning that applies to your future business address.

Some local governments also place zoning restrictions on home-based businesses. Check with your local city to make sure your intended home-based business is allowed.

4. Choose a business structure

Every type of business needs to choose a business structure. Also known as a “business entity” or “legal structure,” your business’s legal structure will impact several aspects of your business—setup, business taxes, the types of business insurance you need, future growth potential, and more.

You can choose one of the following business structure types in Michigan:

  • Sole proprietorship
  • General partnership
  • Limited partnership
  • Limited liability partnership
  • Limited liability company (LLC)
  • S corporation
  • C corporation
  • Corporation

Although it’s easy to get started as a sole proprietor, many service business owners choose to start their businesses as a Limited Liability Company (LLC) due to the tax flexibility, personal asset protection, and personal liability protection this business type provides.

Check out our guide to business structure types and work with a CPA or business attorney to determine the best business structure for your service business.

5. Register your business

You can register your Michigan business online with the Michigan Department of Treasury. Business registration involves paperwork, formation documents, and other legal documents. Unless you know what you’re doing, it’s best to hire a CPA or business formation service to take care of this step for you.

Here are the key steps to registering a business in Michigan:

  • Elect or hire a registered agent. Every Michigan LLC needs to appoint a registered agent. This is an individual or business entity that agrees to accept legal papers on the LLC's behalf if someone sues the company.
  • File forms and pay fees. Depending on your legal structure, you will need to file several forms (e.g., articles of organization) and pay a filing fee or two with the Michigan Department of Licensing and Regulatory Affairs (LARA).
  • Get a Federal Employer Identification Number (FEIN or EIN). You can apply for an EIN online. This is a federal tax registration requirement. You’ll need an EIN for paying taxes, setting up business accounts at a bank, and hiring employees.
  • Apply for a Michigan sales tax license. Generally, if you hire employees or plan to sell goods and collect sales tax, you'll need to register with the Michigan Department of Treasury (DOT).

6. Open a business bank account 

Almost all business owners are legally required to keep personal finances and business finances separate. To do that, you’ll need to open dedicated business bank accounts.

Open a business checking account for day-to-day transactions and a business savings account to store funds for tax payments. You may also want to consider a business credit card to build your business’s credit score over time (just be sure to pay it off in full every month).

National banks, credit unions, and neo banks all have perks and privileges. Shop around for the provider that best suits your business banking needs.

7. Secure funding

Your business plan will tell you how much you need to start a business in Michigan. If you have enough personal savings to start your business today, you’re in great shape. If not, don’t give up hope—you can still secure startup funding to get your service business off the ground.

Consider the following small business funding options in Michigan:

You could also approach investors that work with Michigan companies:

8. Licenses and permits

Michigan doesn’t impose a statewide general business license for businesses. But you may need to apply for specific licenses and permits depending on the nature of your service business. For instance, a food truck will have certain licensing requirements that a landscaping business won’t, and vice versa. 

Refer to the Michigan State License Search and the Bureau of Professional Licensing to check which licenses and permits apply to your service business.

9. Get insured

Having insurance is essential when operating a small business. There are multiple types of insurance to consider when starting a business in Michigan.

Here are the main types of small business insurance to be aware of:

  • General liability insurance. This catch-all insurance is ideal for small, home-based businesses and covers some losses that your business causes to another company, client, or vendor.
  • Workers compensation insurance. This is required for Michigan businesses with one or more employees and covers claims resulting from work-related injuries.
  • Professional liability insurance. This type of insurance is most important for Michigan businesses that sell professional advice, consulting, or accounting services. It covers financial losses caused by your company’s negligence or malpractice.

A business insurance broker can help you determine which type(s) of insurance your business needs.

10. Invest in business software

Running a business isn’t fun if you’re stuck in the back office. Investing in business software and tools can save you time, money, and more than a few headaches.

Consider automating the following tasks with business software:

  • Invoicing. Create beautiful invoices in minutes with free invoicing software. Using an invoicing tool that can accept credit card payments online will save you and your customers time.
  • Customer reviews. Learn the importance of reviews as a marketing platform with Durable’s free review management software.
  • Customer relationships. Free customer relationship management software will automatically track every customer interaction. With your client’s buying history at your fingertips, you can pitch upsells and new sales when the time is right.
  • Scheduling. If you’re always booking meetings with customers, eliminate hours of email back-and-forth with meeting scheduling software. Check out Calendly or TidyCal to make client scheduling easy.

11. Understand your tax obligations

Taxes have to be paid at local, state, and federal levels, and tax codes can be tricky. Hiring a financial pro will cost you money in the short term, but it can save you money and hassle during tax season for years to come.

Here are some key business tax obligations in Michigan:

  • Income tax. Most businesses must pay income tax to the state separately from the income tax paid to the federal government.
  • Sales and use tax. You may need to collect and remit sales tax on goods sold. Some services are also subject to use tax. You may need to collect and remit these taxes.
  • Employment taxes. If you hire employees, you’ll also need to manage withholding tax, unemployment insurance tax, payroll tax, and more.
  • Local tax. Some local cities and jurisdictions impose an additional tax on business transactions. Consult the revenue department in your area to find out what your obligations are.

Few people get into business because they love to file taxes. Unless you know what you’re doing, work with a CPA or accounting service to outline and handle your business’s tax obligations—tax rates, filing deadlines, and more.

For more detail, and check out Michigan’s business tax resource hub, Tax Guide for Small Business, and Taxpayers Starting a Business.

12. Build a team

Hiring employees can be tricky. Most service business owners choose to work with an independent contractor or two when they’re just starting out.

If you decide to hire employees, make sure you comply with federal and state employment laws before you start interviewing candidates.

Here are some key employer responsibilities to keep in mind:

  • Obtain an EIN. You’ll need an EIN from the federal government to hire employees.
  • Verify employee eligibility. Each new employee must fill out the I-9, Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services. The I-9 Form is used to confirm citizenship and eligibility to work in the U.S.
  • New hire reporting. The State of Michigan New Hire Reporting Form can be submitted online to the Michigan Office of Child Support. This information is recorded in the State Directory of New Hires and the National Directory of New Hires (NDNH) to locate parents who owe child support.
  • Payroll taxes. After hiring employees, payroll taxes will need to be paid. Payroll taxes include Federal Income Tax Withholding (Form W-2, Wage, and Tax Statement with the IRS. Additionally, IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due);  State Income Tax Withholding (Form MI-W4, Employee’s Withholding Exemption Certificate); Social Security & Medicare; and Unemployment Insurance.
  • Workers’ compensation insurance. All businesses with employees are required to carry workers’ compensation insurance. Worker’s Compensation Insurance is filed through the Michigan Workers’ Compensation Commission.
  • Labor law posters. Michigan businesses must display Federal and State of Michigan labor law posters where they are visible by employees.  Michigan labor law posters can be downloaded from the Michigan Department of Labor and Economic Opportunity’s website.

This list of employer obligations is not comprehensive. To stay on top of any changes, work with a business attorney and be sure to visit the Michigan Department of Labor and Economic Opportunity and the U.S. Department of Labor.

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