The Legal Essentials for Starting and Growing a Business
Starting and growing a business comes with a lot of exciting opportunities, but also with a set of legal requirements that entrepreneurs need to fulfill.
At Confidant Consult, PLLC, based in Grand Rapids, Michigan, we help business owners understand the legal essentials they need to start, operate, and grow their businesses successfully.
As business owners ourselves, we know how critical it is to address legal matters early, and we’re here to guide you through the key considerations that will lay the foundation for your success.
In Michigan, the legal framework for businesses is quite robust, and understanding the core elements of business law can make a big difference in how you operate. From selecting the right business structure to complying with local regulations, the steps you take early on will shape the future of your business.
Let’s walk through some key legal steps every business owner should consider as they start and grow their business in Michigan.
Choosing the Right Business Structure
The first and one of the most critical decisions you'll make is choosing the legal structure of your business. The structure you choose will determine your tax responsibilities, liability, and even how you raise capital. There are several common types of business structures in Michigan, and each comes with its own set of legal requirements.
Sole Proprietorship
Simplicity: A sole proprietorship is the simplest form of business structure. It’s easy to start with minimal legal paperwork.
Ownership: You will own the business outright, and you’re in charge of all decisions.
Liability: You’re personally liable for the business’s debts, meaning personal assets can be at risk if the business fails.
Limited Liability Company (LLC)
Protection of personal assets: One of the biggest advantages of an LLC is that it protects your personal assets from business liabilities. This means your personal property, like your home or car, is typically not at risk if your business faces legal trouble.
Flexibility in management: LLCs offer flexibility in management. You can operate the business alone or with other members.
Tax benefits: LLCs can choose their taxation method, allowing for either pass-through taxation or corporate taxation.
Corporation
Separate entity: A corporation is a separate legal entity from its owners, meaning the business itself can be taxed, held liable, and can enter into contracts independently of the owners.
Liability protection: Shareholders' personal assets are protected from business debts.
Double taxation: Corporations are subject to double taxation, meaning both the corporation and its shareholders pay taxes.
Partnership
Shared ownership: In a partnership, two or more individuals share ownership of the business. Partnerships can take several forms, such as general or limited partnerships.
Pass-through taxation: Like LLCs, partnerships generally benefit from pass-through taxation, where the business itself doesn’t pay taxes, but individual partners do.
Liability: In a general partnership, partners are personally liable for business debts. In limited partnerships, limited partners have liability protection.
Registering Your Business
Once you’ve selected your business structure, the next step is to officially register your business with the state of Michigan.
Business name: Your business name must be unique and not infringe on any trademarks. Check the Michigan Department of Licensing and Regulatory Affairs (LARA) website to ensure your business name is available.
Register with LARA: Depending on your business structure, you will need to file the appropriate paperwork with LARA. For LLCs and corporations, this will include filing articles of incorporation or organization.
Employer Identification Number (EIN): Most businesses need an EIN, which is issued by the IRS. This number is necessary for tax purposes, hiring employees, and opening a business bank account.
Registering your business ensures that your company is recognized by the state and complies with any applicable regulations.
Obtaining Necessary Permits and Licenses
Every business in Michigan needs to comply with state and local regulations, which can include obtaining permits and licenses.
State business license: Depending on your business, you may need a specific state license or permit. This is typically the case for businesses involved in food services, health care, or other regulated industries.
Local permits: Many cities and counties in Michigan have their own requirements for businesses. This could include zoning permits, health permits, or building permits if you’re opening a physical location.
Federal licenses: Certain industries also require federal licenses or permits, such as those in aviation, agriculture, or alcohol production.
State and local regulations can vary depending on your industry, location, and the type of services you provide.
Complying with Employment Laws
Once your business is up and running, you’ll need to consider how to handle employment matters.
Employment classification: When hiring employees, make sure they are classified correctly as either full-time, part-time, or independent contractors. Misclassifying employees can result in penalties.
Wages and overtime: The state of Michigan follows federal guidelines on minimum wage, overtime pay, and break times for employees.
Employee benefits: Michigan businesses must also comply with regulations surrounding employee benefits, including healthcare, workers’ compensation, and unemployment insurance.
Michigan businesses must comply with federal and state labor laws to ensure fair treatment of employees.
Protecting Intellectual Property
As your business grows, protecting your intellectual property (IP) becomes crucial. Your intellectual property includes your business’s name, logo, inventions, and creative works.
Trademarks: Register your business name, logo, or slogan with the United States Patent and Trademark Office (USPTO) to prevent others from using it.
Copyrights: If your business creates original content, such as music, art, or literature, registering your copyrights gives you exclusive rights to your work.
Patents: If your business invents a product or process, you may want to apply for a patent to protect your invention from being copied by others.
Taking steps to protect these assets legally will safeguard your brand and products.
An Intro to Taxes and Compliance
The legal requirements for your business’s tax obligations depend on its structure, location, and income.
State taxes: In Michigan, businesses must pay various state taxes, such as the Michigan Corporate Income Tax (CIT) for corporations and sales tax if they sell taxable goods or services.
Federal taxes: Depending on your business structure, you may need to pay federal income taxes, self-employment taxes, or payroll taxes for employees.
Local taxes: Your local municipality may impose additional taxes, such as property taxes or local business taxes.
Understanding your tax responsibilities early will help you avoid issues down the road.
Raising Capital and Funding Your Business
As your business grows, you may need to raise capital to support your expansion plans. There are a variety of funding options available to Michigan businesses.
Loans: Traditional bank loans and Small Business Administration (SBA) loans are common sources of funding for small businesses in Michigan. However, approval can be difficult for new businesses without established credit.
Investors: Seeking investors can be another way to raise capital. Equity investors will provide funding in exchange for a share in your business.
Crowdfunding: Platforms like Kickstarter and GoFundMe allow businesses to raise funds through small contributions from a large number of people.
Securing funding is a critical step in launching or growing a small business, and exploring multiple options can help entrepreneurs find the best fit for their needs.
Managing Contracts and Agreements
As your business grows, you will inevitably enter into contracts and agreements with suppliers, employees, customers, and other businesses.
Vendor contracts: When working with suppliers or service providers, it’s essential to have a written agreement that outlines payment terms, delivery schedules, and quality expectations.
Employment contracts: If you have employees, consider having them sign an employment contract that specifies job responsibilities, salary, benefits, and any confidentiality requirements.
Non-disclosure agreements (NDAs): If you share sensitive information with other businesses or employees, an NDA can help protect your intellectual property and prevent unauthorized disclosure.
These documents are legally binding and crucial for ensuring your business operates smoothly.
Protecting Your Business With Insurance
Insurance is another critical aspect of business law that shouldn’t be overlooked.
General liability insurance: This covers common risks, such as accidents or injuries that may occur on your business property.
Property insurance: If you own business property, property insurance can protect against damage or loss due to fire, theft, or natural disasters.
Workers’ compensation: In Michigan, businesses with employees are required to carry workers’ compensation insurance to cover workplace injuries.
Having the right insurance coverage protects your business from unexpected legal issues, damage, or liability.
Contact Us Today
Starting and growing a business in Michigan requires a thorough understanding of the laws. At Confidant Consult, PLLC, we’re committed to helping Michigan entrepreneurs succeed. We provide legal support from the formation of your business to managing ongoing compliance with local, state, and federal laws.
If you’re looking to start or grow your business in Michigan, contact us today. We serve the entire state of Michigan.
