Michigan LLC vs Sole Proprietorship: Which Is Right for You?

Most Michigan small businesses start as sole proprietorships without even realizing it. If you’re doing business under your own name without registering anything with the state, you’re a sole proprietor by default. But is that the right structure for your business?

What Is a Sole Proprietorship in Michigan?

A sole proprietorship requires nothing to form — no fees, no filings, no formal requirements. You and your business are legally the same entity. All income flows to your personal tax return.

The problem is that simplicity creates serious personal risk.

What Is a Michigan LLC?

A Michigan LLC is a separate legal entity formed by filing Articles of Organization with LARA and paying a $50 state fee. It creates a legal wall between your personal assets and your business liabilities.

The Key Differences

Liability Protection

This is the most important difference.

Sole proprietorship: If your business is sued, creditors can come after your personal assets — your home, savings, and car.

Michigan LLC: Only business assets are at risk. Your personal assets are protected.

Taxes

Sole proprietorship: All income on your personal return. You pay 15.3% self-employment tax on all net profit.

Michigan LLC: Same default tax treatment, but you can elect S-Corp taxation once profitable and save significantly on self-employment taxes.

Cost

Sole proprietorship: $0 to start.

Michigan LLC: $89 total with Michigan LLC Service — state fee included.

When a Michigan LLC Makes Sense

• You have clients, customers, or tenants
• You own rental property
• You’re a contractor, consultant, or freelancer
• You want a business bank account
• You’re building something to grow

For $89 total, there is very little reason not to form a Michigan LLC if you’re running any real business.

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Start your Michigan LLC today — $89 total, state fee included.