Because of the economy, a change of careers, or personal drive or
interests, people are going into business for themselves like never before.
Women especially are attracted to opening their own businesses so they can
work and have a family on their terms.
Michigan law authorizes several different types of business forms under
which you can conduct business. They include:
Limited Liability Company
Doing Business As ("DBA")
Each business form has its advantages and disadvantages, and this article will
briefly discuss each.
A "sole proprietorship" literally means, "own alone." For small businesses in
which personal liability is not an issue, probably the best ownership structure at
the outset is the sole proprietorship.
Only one person can own a sole proprietorship, and it is not registered with
the state as a limited liability company or corporation. The requirements are
simple, and no paper filings with the government are necessary. You just go into
A sole proprietorship is legally the same as its owner. Therefore, business owner
reports business profits and losses on his or her personal tax return. In turn
he or she is accountable individually for any taxes, business debts, contracts,
contracts, agreements and court judgments.
A partnership is the same as a sole-proprietorship, but with two or more people.
No papers are filed with any governmental unit to form it. Each partnership
owner pays taxes on his or her individual tax return, business debts, contracts,
contracts, agreements and court judgments.
The most important document of a partnership is called a "partnership agreement" which spells out each partner's rights, privileges and obligations.
A limited partnership is not the same as a sole proprietorship, although the name
may imply that. It involves a person or entity labeled as the "general partner," and
investors known as "limited partners." Venture capital startups generally involve
the limited partnership, which involves complicated and expensive paperwork,
which a skilled legal practitioner drafts. The average business start-up will not
choose the limited partnership form; there are other ways of taking in investors
with less complication.
The general partner is responsible for the business's actions, can legally bind
the business, and is liable personally for business debts and obligations, unless
the general partner is a corporation or a limited liability company. The limited
partner is not liable for business debts or obligations (except to the extent of
its investment), cannot bind the business, and has little or no control over daily
business decisions or operations.
Limited Liability Company and Corporation
The limited liability company and corporation are similar but different. They
both limit the owners' personal liability for business debts and judgments
against the business. However, a corporation is an independent legal and
tax entity, apart from the people who own, invest in, control and manage it. A
limited liability company is like a sole proprietorship, when there is only one
owner, or a partnership, when there are two or more.
Because of the corporation's separate and distinct status, its owners, i.e.,
shareholders, file a corporate tax return to pay for the corporation's taxes
on profits. The shareholders pay income tax on money they draw from the
The limited liability company's owners, i.e., members, pay taxes on their shares
of business income on their personal tax returns each year. They do not file
a separate company tax return. A single member limited liability company
summarizes revenues and expenses on a Schedule C attached to the 1040
return. With a multiple member company, each member receives a K-1 listing the
amount of that person's share of profits, losses, credits and deductions.
Each of these entities are good for you if you want to avoid personal liability
for law suits, and want to protect personal assets from being grabbed to pay
business debts and other obligations.
Finally, other than the business's constituent document (i.e., Articles of
Organization for a LLC, and Articles of Incorporation for the corporation) the most
important document of the limited liability company is the Operating Agreement,
and of the corporation it is the Bylaws. These govern the behavior of owners,
boards of directors and officers.
A nonprofit corporation is a corporation formed to pursue a public purpose.
Whether it sells a service or product, state and federal taxing authorities exempt
all revenues from taxation. Even though a non-profit may actually show a surplus
of revenues over expenses, that too is not taxed so long as the activities that
raised these were reasonably related to the public purposes.
Although a non-profit is organized according to state business laws, the federal
government is the final judge on whether it is tax-exempt.
A collectively owned business enterprise that sells good or services, which the
owners finance and operate, and run for their benefit.
DBA means "doing business as." It is a fictitious name unlike your name, your
partners' names, or your company's or corporation's registered name. The DBA
name is also a trade names or assumed name. A corporation, limited liability
company, partnership and sole proprietorship can be a DBA. All you need to do
is file a name statement. You file your DBA with the county clerk, if you are a sole
proprietorship. Otherwise, you file it with the State of Michigan, Department of
Licensing and Regulatory Affairs, or "LARA."
These are the organizational forms under which you operate your business
in Michigan. Call Michael B. Rizik Jr. or George F. Rizik II to advise you on
the best form that fits your needs. They will help you begin or reorganize your
business the right way so that you can reach reach your goals.