Before establishing a business in Michigan, it may be helpful to take time to evaluate the various business formations that are possible. A sole proprietorship may be one of the simplest choices, but there may be an interest in business planning that will shield personal assets and finances. A limited liability company may provide a better option in this case, although many creditors still require personal guarantees of business debt.
One of the unique issues with an LLC is that there are no specific federal tax forms for this type of business, making it necessary to treat it as a corporation or as a sole proprietorship when filing taxes. There may be appropriate forms to file at the state level, which can affect a decision about the type of approach to take in forming a business.
The success of a company does not hinge on its formation. However, the manner in which payments to shareholders and other deductions are taken may depend on the designation. For example, a C corporation may deduct payments to a shareholder. This benefit may also be used by an LLC whose owner treats it as a C corporation when filing federal taxes. Costs may also be important as differing forms may have different related fees at the state level. In some states, steep fees may result in a business foregoing a formal designation in favor of a sole proprietorship.
The approach that a founder takes in creating a new business can have a wide range of implications in legal and financial matters. This makes it important to consider meeting with an attorney to learn more about the benefits of each option. It may be beneficial to develop a long-term relationship with an attorney so that he or she can be an ongoing source of legal information.
Source: Fox Business, “The Tax Implications for Forming a LLC“, Bonnie Lee, June 13, 2014
