Michigan LLC Operating Agreement

When starting their business companies, many people opt for a limited liability company, one of the most popular entity structures. Unlike a sole proprietorship, an LLC prevents you from suffering substantial monetary losses, as it provides liability protection to its members. Suppose there is a lawsuit against the business entity, or it is subject to certain liabilities. In that case, the assets of the business owner(s) are most likely to be safe from those liabilities. An LLC is inexpensive and relatively simple to form and even manage. About the general steps to take while creating an LLC read in our full article. We encourage you to read till the end to understand the peculiarities of the process and learn all possible requirements for starting an LLC.

An LLC is one of the most appropriate entity formations because it requires much less paperwork than other types of business structures. Apart from the Articles of Organization and other important documents, the LLC formation paperwork package also includes an LLC operating agreement, an internal document we will focus on in this article.

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It is worth mentioning that regardless of the number of business owners, it is important to have such a form in place, as it will help you make your LLC function as it is supposed to. The importance of an operating agreement for a multi-member limited liability company is more apparent because the document describes the following issues:

  • each member’s roles in the company
  • what happens in case of disagreements between the members
  • the responsibilities of each shareholder
  • how profits are distributed
  • how the business is going to be managed, etc.

Therefore, it is only understandable that for an LLC with more than one member, it is essential to record the relationships of the owners with one another and with the entity.

Many people have doubts about whether a single-member LLC where one business owner is in charge of everything and is unlikely to disagree with themselves needs an operating agreement. Let us explain why this document is essential even when forming the type of LLC mentioned above.

An LLC typically acts as a separate entity from the owner itself. The operating agreement’s primary purpose is to show that the LLC operates as a separate entity and that the owners should not be liable for the LLC’s debts and lawsuits. Thus, if you are the only member of your LLC, you should have your assets protected by drafting the paper.

There is a lot of information on LLC operating agreements on the Internet. Still, we recommend seeking legal advice from a licensed attorney to ensure that all issues that may come up are addressed adequately in the document.

If you don’t know where to obtain the relevant template, consider using our form-building software. You can also generate your own as Michigan does not mandate one and, therefore, doesn’t provide an official form.

Creating your own template is easy. All you need to do is include the following mandatory sections:

  • Entity’s Information. The company’s name, location, purpose, registered agent, type of activity, and foundation date.
  • Proprietors’ Details. The members’ full legal names, their contributions, interest in percentage, and signatures.
  • Conditions. All agreements between the members concerning tax matters, management, responsibilities, benefit distribution, LLC dissolution, etc.
  • Agreement Basic Details. The effective date, the state where it is created, and the type of the agreement.

It is vital that all the shareholders understand the purpose of completing the operating agreement, every aspect of the document and have no disagreements on the conditions mentioned in the paper. If any dispute arises or there is a need to make changes, you should turn to an attorney’s assistance.

Popular Local Operating Agreement Forms

An LLC operating agreement sets guidelines for an LLC in the same way articles of incorporation govern the operation of a corporation. Below are some of the most requested regional operating agreements looked up by our visitors.

Michigan LLC Definition and Laws

No matter what state you decide to form an LLC and complete an operating covenant, it is highly advisable to check out local laws regulating the document and the formation procedure.

A Michigan resident is encouraged to look over Act 23 of the Michigan Compiled Law, also known as the Michigan Limited Liability Company Act. Below are the most significant parts of the Act that outline general information about the issues under discussion:

  • Article 1. Section 450.4102. It provides all the necessary definitions of the terms you might need to use.
  • Article 2. It contains general information about limited liability companies and the documents they require.
  • Article 3. Section 450.4308. It comprises information on LLC members’ responsibilities if they break the operating agreement’s terms (notably conditions related to the amount of distribution).

To better understand how various LLC types are operated, LLC members’ rights, and other details related to this type of business formation, look through the different parts of the Act (in total, it contains 11 articles). All the sections are named, so it will be easy for you to find the information you are interested in within a few minutes. We will refer to some particular sections in the guide on LLC formation.

Steps to Forming an LLC in Michigan

In this article, we will also educate you on the issue of starting an LLC in Michigan. We hope that our guide will help you avoid mistakes and confusing situations and save your time.

1. Select a Name for Your Business Entity

First and foremost, you need to decide on the name of your LLC.  The name should comply with the state’s rules:

  • Following Section 450.4204, the LLC name should include some indication that the company belongs to this type of business entity (the phrase “limited liability company” or such abbreviations as LLC or L.L.C.).
  • The name must not include words that may lead to confusion and uncertainties regarding the type of the company. According to the Michigan statutes, you need to avoid the words “corporation” (“corp.”) or “incorporated” (“inc.”). Do not use state and government agency (or institution) names and abbreviations.
  • The name must be unique, i.e., not registered by another company.
  • It must not contain words that are not allowed by the state.

If you are unsure about the availability of the name you have chosen, you can conduct a name search on the official website of LARA (Michigan Department of Licensing and Regulatory Affairs).

2. Designate a Registered Agent

A registered agent is a person or entity who acts on behalf of the company. If the LLC is sued, the other party will need to serve the LLC with the court documents. Keep in mind that a registered agent doesn’t have any proprietorship interest or rights to make management decisions. Your registered agent can be a member or manager of the entity or a corporation offering the service (Section 450.4208). They need to meet several requirements. The person you want to appoint as an agent should:

  • be over 18 years old
  • be a Michigan resident
  • agree to act as the registered agent.

3. Submit the Articles of Organization

Now that you know the company’s name and have designated the registered agent, you can proceed to the Articles of Organization. This legally binding document helps you form the business.

The form typically includes information about the LLC’s name, address, and registered agent, whether it is manager or member-managed (Section 450.4203). Thus, take care of all these issues before creating the legal document (specifically, defining whether your LLC is domestic or foreign).

Once you have completed the form, you will be asked to file it with the Michigan Corporations Division (via mail or online) and pay a $50  fee regardless of the LLC type.

4. Create an Operating Agreement

At the beginning of the article, we have already mentioned that having this document in place is vital for your business and personal assets. Once the document has been generated, distribute signed copies to all the members who participated in its creation. An LLC operating agreement for companies with multiple owners will eliminate disputes that can ruin your business partnerships.

5. Get a Tax ID Number from the IRS

Finally, you need to obtain a unique tax ID number (also referred to as EIN, FTIN, or FEIN). It enables you to open a business bank account, recruit staff, and control your state and federal taxes.

You don’t have to pay fees for this procedure. The most popular way to get an EIN is to visit the IRS’s official website (or the Internal Revenue Service) and apply for it online. Another option is downloading the form and submitting it via mail or by fax.

Published: Jul 6, 2022