Michigan Sole Proprietorship

How to Become a Michigan Sole Proprietor

In Michigan, becoming a sole proprietor is straightforward. You don’t need to follow any formal setup process or pay any fees. Just start working, and you’re operating as a sole proprietor. However, it’s smart to consider some extra steps along the way, even though they’re not necessary. Many sole proprietors find them helpful.

DBA Acquisition

A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.

That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.

In Michigan, DBAs (or “fictitious names”) are regulated by the County Clerk’s Office of the county in which your sole proprietorship operates. Before filing the appropriate Assumed Name Registration document with your local office, you’ll first need to check the Business Entity Database located on Michigan’s Department of Licensing and Regulatory Affairs to confirm that your desired name is available.

Determine Taxation Requirements

Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.

Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.

For example, if you sell taxable goods or services within the state of Michigan, your sole proprietorship will likely be required to register for sales and use tax. Other taxes such as withholding tax, motor fuel tax, and other miscellaneous taxes will likely be applicable. For help determining your sole proprietorships Michigan state tax liabilities, visit the Business Tax Section of the Michigan Department of Treasury.

Obtain Business Licenses and Permits

There isn’t a requirement in Michigan for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.

Michigan has an extensive list of permits with hundreds of entries. Your business will likely be required to obtain one or more of them. To search all of the state’s professional licenses and find information regarding which may apply to your sole proprietorship, check out the Michigan List of Licensed Professions. For an alphabetical listing of all other Michigan state licenses, use the Michigan Licenses and Permits Search located on the state website.

In addition, you should check to see if your business needs any licenses or permits on the local level.

Some cities such as Lansing, Ann Arbor and Grand Rapids may have their own local licensing requirements that your business will need to obtain if you wish to do business in the city.

What Is a Michigan Sole Proprietor?

As opposed to a corporation or limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.

Here are the three main things you need to know:

Tax Responsibilities

Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.

Contracts

Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.

More Flexible

The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.