There are a number of advantages to forming a Limited Liability Company (LLC) in Michigan. Michigan changed its laws related to LLCs in 1997 in order to create a more favorable business climate in the state and in doing so, it adopted a number of rules that make forming an LLC in Michigan easier and cost effective for more types of businesses.
In some states, an LLC is automatically dissolved on the occurrence of a particular event such as the death, withdrawal or expulsion of a member. Michigan law states that an LLC will only dissolve in one of four situations: when the members have specified in their Articles of Incorporation that the LLC will dissolve under certain circumstances, when an event specified in the operating agreement or Articles of Incorporation occurs and there is a vote of the members, when there is a unanimous vote to dissolve by all eligible members, or when a judge orders dissolution.
Duration and Partnership
In some states, corporations that are formed with the intention of enduring in perpetuity are considered a corporation for tax purposes and not an LLC. One advantage of Michigan law is that LLCs are allowed to endure in perpetuity, so do not risk losing their tax status. In Michigan, converting from a partnership-type business to an LLC can be accomplished by filing a Certificate of Conversion with the state. This process is tax-free and automatically transfers all assets, liabilities and rights of the partnership to an LLC.
Michigan law has some provisions relating to managers that may help prevent conflict and lawsuits down the line. In an LLC, the members may manage the business, or they may hire an outside manager to run the business, while the members share the profits. In Michigan, LLCs can require that all managers are also members. This prevents one member from hiring a manager of whom others do not approve. Michigan law also states that the decisions of managers whose powers have been specified in the LLCs' Articles of Organization can bind the LLC. This provides protection for anyone entering into a contract with an LLC. In the event that one member objects to the contract, it will still be binding.
Rights of Members
Michigan law has a provision designed to protect minority members. The provision allows members of an LLC to bring a legal action against the LLC and its members for any acts that are “illegal, fraudulent or willfully unfair and oppressive.” This protects members of the LLC who hold a minority interest in the business and, therefore, cannot stop any unfair or illegal acts of the majority members. Michigan also allows members to join a new LLC without making a financial contribution.
- Jupiterimages/BananaStock/Getty Images