LLC vs S-Corp in Michigan


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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LLC vs. S Corp in Michigan

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in Michigan. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in Michigan. Before you start Michigan LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with Michigan LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in Michigan.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in Michigan?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in Michigan gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in Michigan?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in Michigan?

In Michigan, forming a business is crucial since you need to be adequate in your decision, especially when you think if Michigan LLC or an S-Corporation in Michigan is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in Michigan doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

LLCBuddy Editorial Team

Tax Difference Between Michigan LLC and S-Corp in Michigan

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in Michigan is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Michigan. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in Michigan are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Michigan are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Michigan to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in Michigan with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a Michigan S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

Michigan State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Michigan, it costs $25 that can be paid to the MN Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $50.

On the other hand, you also need to pay taxes if you form an S-Corporation in Michigan; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the MN Secretary of State to pay this.

How do Michigan LLCs and S-Corporations Handle Liability Protection?

In Michigan, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in Michigan. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in Michigan.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your Michigan LLC or Michigan S-Corp.

Which is Easier to File in Michigan: LLCs or S-Corporations?

Filing an LLC or S-Corporation in Michigan takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by Michigan Resident Agent. However, in order to establish an LLC in Michigan, you must submit a Articles of Organization to the Michigan Department of Licensing and Regulatory Affairs. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the Michigan S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in Michigan because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in Michigan, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Michigan, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

FAQs

What are the benefits of forming an LLC in Michigan?
Forming an LLC in Michigan provides several advantages, including limited personal liability protection, pass-through taxation, and flexibility in management.
What are the benefits of forming an S-Corp in Michigan?
Forming an S-Corp in Michigan offers several advantages, including the potential for lower self-employment tax, asset protection, and the ability to issue stock to shareholders.
What is the filing fee for an LLC in Michigan?
The filing fee for an LLC in Michigan is $50.
What is the filing fee for an S-Corp in Michigan?
The filing fee for an S-Corp in Michigan is $50.
What are the LLC taxes in Michigan?
LLCs in Michigan are subject to state income tax and may be subject to federal income tax depending on the number of members.
What are the S-Corp taxes in Michigan?
S-Corps in Michigan are subject to federal income tax and may also be subject to state income tax.
Is an LLC required to have a registered agent in Michigan?
Yes, all LLCs in Michigan are required to appoint and maintain a registered agent.
Is an S-Corp required to have a registered agent in Michigan?
Yes, all S-Corps in Michigan are required to appoint and maintain a registered agent.
Are LLC members in Michigan personally liable for debts?
Generally, LLC members in Michigan are not personally liable for the debts of the LLC.
Are S-Corp shareholders in Michigan personally liable for debts?
Generally, S-Corp shareholders in Michigan are not personally liable for the debts of the S-Corp.
Does an LLC in Michigan have to have an operating agreement?
While it is not required by law, it is highly recommended that LLCs in Michigan have an operating agreement.
Does an S-Corp in Michigan have to have an operating agreement?
While it is not required by law, it is highly recommended that S-Corps in Michigan have an operating agreement.
What is the procedure for dissolving an LLC in Michigan?
The procedure for dissolving an LLC in Michigan includes filing a Certificate of Dissolution with the Michigan Department of Licensing and Regulatory Affairs, settling all debts and obligations, and distributing assets to the members.
What is the procedure for dissolving an S-Corp in Michigan?
The procedure for dissolving an S-Corp in Michigan includes filing a Certificate of Dissolution with the Michigan Department of Licensing and Regulatory Affairs, settling all debts and obligations, and distributing assets to the shareholders.
Are there any special requirements for an LLC in Michigan?
LLCs in Michigan are required to maintain records of all members and provide a copy of the Articles of Organization to the Department of Licensing and Regulatory Affairs.
Are there any special requirements for an S-Corp in Michigan?
S-Corps in Michigan are required to register with the Department of Licensing and Regulatory Affairs and maintain records of all shareholders.
What are the advantages of an LLC in Michigan?
An LLC in Michigan offers limited liability protection for its owners, flexible management structures, and the ability to choose between federal and state taxation.
What are the advantages of an S-Corp in Michigan?
An S-Corp in Michigan offers limited liability protection for its owners, liability limitations for directors and officers, and the ability to be taxed like a partnership or a corporation.
What is the difference between an LLC and an S-Corp in Michigan?
An LLC in Michigan offers limited liability protection for its owners and flexible management structures while an S-Corp offers limited liability protection for its owners, liability limitations for directors and officers, and the ability to be taxed like a partnership or a corporation.
Is it required to register an LLC or S-Corp in Michigan?
Yes, in order to form an LLC or an S-Corp in Michigan, you must file the appropriate paperwork with the Michigan Department of Licensing and Regulatory Affairs.
What taxes does an LLC or S-Corp in Michigan need to pay?
An LLC or S-Corp in Michigan must pay federal taxes as well as Michigan state taxes, including income, franchise, personal property, and excise taxes.
What are the filing requirements for an LLC or S-Corp in Michigan?
All LLCs and S-Corps in Michigan must file an annual information return with the Michigan Department of Licensing and Regulatory Affairs.
Does an LLC or S-Corp in Michigan need to have a registered office?
Yes, all LLCs and S-Corps in Michigan must have a registered office in the state.
Does an LLC or S-Corp in Michigan need to have a registered agent?
Yes, all LLCs and S-Corps in Michigan must have a registered agent in the state.
How does an LLC or S-Corp in Michigan keep its records?
All LLCs and S-Corps in Michigan must keep accurate financial records, including ledgers, journals, and financial statements.
What are the reporting requirements for an LLC or S-Corp in Michigan?
All LLCs and S-Corps in Michigan must file an annual report with the Michigan Department of Licensing and Regulatory Affairs.
What are the dissolution requirements for an LLC or S-Corp in Michigan?
All LLCs and S-Corps in Michigan must file a dissolution form with the Michigan Department of Licensing and Regulatory Affairs and pay all outstanding debts and taxes before final dissolution can be granted.
Can an LLC or S-Corp in Michigan have foreign members or shareholders?
Yes, an LLC or S-Corp in Michigan can have foreign members or shareholders.
Can an LLC or S-Corp in Michigan operate in multiple states?
Yes, an LLC or S-Corp in Michigan can operate in multiple states.
Does an LLC or S-Corp in Michigan need to have an operating agreement?
Yes, all LLCs and S-Corps in Michigan must have an operating agreement.
What are the renewal requirements for an LLC or S-Corp in Michigan?
All LLCs and S-Corps in Michigan must file an annual report with the Michigan Department of Licensing and Regulatory Affairs in order to renew their registration.
What are the penalties for not filing the appropriate paperwork for an LLC or S-Corp in Michigan?
Any LLC or S-Corp in Michigan that fails to file the appropriate paperwork with the Michigan Department of Licensing and Regulatory Affairs may be subject to fines and penalties.

Also Read

Why Michigan LLC Vs S Corp is So Important

One of the primary reasons why the choice between a Michigan LLC and an S Corp is so important is the issue of taxation. LLCs are typically taxed as pass-through entities, meaning that the business’s profits and losses are passed through to the owners’ individual tax returns. This can be advantageous for many small businesses, as it simplifies the tax reporting process and allows for more flexibility in how profits are allocated among owners.

On the other hand, S Corps have a unique tax structure that allows for “pass-through” taxation while also providing the option for owners to be treated as employees of the company. This means that owners can receive a reasonable salary from the company and then take additional income as distributions, which can potentially result in tax savings. However, S Corps are subject to strict rules regarding the number and type of shareholders, which may not be suitable for all business models.

Another factor to consider when choosing between a Michigan LLC and an S Corp is the level of corporate formalities required. LLCs are generally known for their flexibility and simplicity in terms of governance, with minimal paperwork and fewer regulatory requirements than corporations. This can be appealing for small businesses looking to avoid the burdensome formalities that come with a traditional corporation.

On the other hand, S Corps have more rigid corporate formalities, including holding formal meetings, keeping detailed records, and adhering to certain operational guidelines. While some entrepreneurs may see these requirements as a drawback, others may appreciate the structure and discipline that they provide. It is important to weigh the pros and cons of each business structure based on your specific needs and preferences.

In addition to tax considerations and corporate formalities, there are other factors that can influence your decision between a Michigan LLC and an S Corp. Asset protection, control and management, fundraising capabilities, and continuity planning are all important factors to take into account when choosing the right business structure for your company. Each business structure has its own set of advantages and disadvantages, and it is important to carefully evaluate your options in light of your business objectives and long-term goals.

Ultimately, choosing between a Michigan LLC and an S Corp is a decision that can have significant implications for your business’s success. It is important to seek advice from legal, tax, and financial professionals to ensure that you fully understand the implications of each business structure and make an informed decision that best serves your business needs. By taking the time to carefully consider your options and seek expert guidance, you can set your business on a path to long-term success and sustainability.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in Michigan, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a Michigan LLC and S-Corp in Michigan, read our other business guides.

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