How to Form a Close Corporation in Michigan
Forming a close corporation in Michigan can be a strategic choice for small business owners looking to limit their liability while maintaining a high degree of control over their company. Understanding the requirements and steps involved is crucial for successful establishment. This guide will walk you through how to form a close corporation in Michigan.
Understanding a Close Corporation
A close corporation, sometimes referred to as a “closely held corporation,” is a type of business entity that is owned by a small number of shareholders. In Michigan, this structure provides flexibility and protects personal assets while allowing for a simpler operational framework than traditional corporations.
Step 1: Choose a Unique Name
The first step in forming a close corporation is to select a unique name for your business. The name must include “Corporation,” “Incorporated,” “Company,” or a suffix like “Inc.” or “Co.” Additionally, the name should not be similar to any existing business entity registered in Michigan. You can check the name availability through the Michigan Department of Licensing and Regulatory Affairs (LARA) website.
Step 2: Appoint Directors
Even though a close corporation is typically managed by its shareholders, Michigan law requires that corporations have a board of directors. You must appoint at least one director. The directors do not have to be residents of Michigan, but it’s recommended to have someone who is familiar with local business regulations.
Step 3: Prepare and File Articles of Incorporation
Your next step is to prepare and file the Articles of Incorporation with the Michigan Department of LARA. This document needs to include:
- The name of the corporation
- The purpose of the corporation
- The address of the registered office
- The names and addresses of the incorporators
- The number of shares the corporation can issue
There is a filing fee, which you can check on the LARA website. Filing can be done online or through mail.
Step 4: Create Bylaws
Once your Articles of Incorporation are approved, the next step is to create the bylaws of the corporation. Bylaws outline the operational structure of the corporation, including shareholder meetings, voting rights, and the roles of directors and officers. While bylaws are not required to be filed with the state, it’s essential to have them documented for internal governance.
Step 5: Obtain Necessary Permits and Licenses
Depending on the nature of your business, you may need various permits or licenses to operate legally in Michigan. Be sure to research local, state, and federal requirements and secure all necessary documentation before commencing business activities.
Step 6: Hold Organizational Meetings
After establishing your close corporation, it’s vital to hold an organizational meeting with the directors and shareholders. During this meeting, you should formally adopt the bylaws, appoint officers, and discuss initial business operations.
Step 7: Comply with Ongoing Requirements
Once your close corporation is up and running, you’ll need to comply with ongoing legal requirements, including:
- Filing annual reports with the state
- Paying applicable taxes
- Maintaining corporate records
Failure to meet these requirements can result in penalties or loss of the corporation’s good standing.
Conclusion
Forming a close corporation in Michigan offers several benefits, including limited liability, control over business decisions, and a simplified operational structure. By following these steps and adhering to legal requirements, you can successfully establish and run your close corporation.