Once you've established an initial idea for a business, the next step is to decide what sort of business organization you'll use. Business law in Michigan allows for several legal options to choose from. The type of business organization you choose will affect how much control you have over the business, how liable you are for the business' debts, and how the business is taxed.
For Single-Owner Businesses
The majority of businesses formed in Michigan are sole proprietorships. These are businesses with only a single owner who also manages the general operations of the business. While these businesses are easy to set up and not heavily regulated by the government, they have some disadvantages as well. Taxes on this type of business are part of the owner's total liability. Most importantly, any debt or other obligations incurred by the business belong to the owner as well.
For Multi-Owner Businesses
When two or more owners form a business, a husband and wife for example, a partnership is a good option. There are multiple types of partnerships. General partnerships are the most basic form. They operate similarly to a sole proprietorship, except that two or more owners are involved. Both owners share equal liability and have an equal say in running the business.
A limited partnership is a different sort of partnership under business law in Michigan. These partnerships involved one general partner, who runs the business and maintains most of the liability. The other partners primarily just fund the enterprise, and have limited liability for any debts incurred.
For Advanced Situations: Corporations
The most complicated form of business turns the business into an entity unto itself. This is known as a corporation. Corporations are businesses that consist of three types of people. Shareholders are people who buy stock in the business and vote for the Board of Directors. The Board of Directors selects the officers who run the business day to day. There are several different subtypes of corporations.
"C" type corporations are the most common. These corporations are taxed as separate entities with their own rights and liabilities. This is in comparison to "S" type corporations, which still have rights and liabilities of their own, but are taxed like partnerships. More rare are professional corporations and nonprofit corporations. A law professional skilled in business law in Michigan can help you find which type is best for you.
