Michigan attorneys who have both practical business experience as well as legal expertise are rare. David Soble is one of these exceptions. He is a business owner, former “big bank” insider, active real estate investor, and of course, lawyer. He brings over 30 years of real life business and real estate experience to the table for his business clients.

Operating a business is not easy. Business owners have to regularly deal with issues as mundane or as complicated as:choice of business entity; business tax consequences; organizational documents; operating agreements; partnership agreements; employment contracts; consulting contracts; non-compete agreements; compliance with bank and consumer protection laws; commercial negotiations; and an resolution of stockholder/partner/LLC disputes. This is not an exhaustive list. Whether you own a business or are opening a business, you owe it to yourself to speak with David Soble and his “proven resource” of business colleagues who can effectively address your concerns. 

Different Types of Entities:

1. Sole Proprietorship or Sole Proprietor DBA: A sole proprietorship is a business structure with one owner. A majority of small businesses in the United States are sole proprietorships because it is the easiest to set up and maintain. If you do nothing to choose a legal structure you will default to a sole proprietorship because there is no paperwork to file apart from additional schedules on your personal income tax returns. However, if you plan to operate the business under a name that is not your personal name, then you must file for an assumed name “DBA” (doing business as) certificate with the county clerk of the county where your business is located.

There is no legal separation between the business and the owner in a sole proprietorship. This means that as a sole proprietor you will have unlimited responsibility for the liabilities and debts of the business. For instance, if the business cannot pay money owed to a vendor, that vendor may sue you individually. It also means that any income or losses of the business are accounted for on your personal tax return.

2. Partnerships: There are two types of partnerships: General and Limited. A general partnership is similar to a sole proprietorship except that it has two or more owners. Like a sole proprietorship, it is easy to set up and maintain. There is no paperwork to file unless you are operating the business under a name that is different from the personal names of the owners in which case you need to file a “DBA” (doing business as) certificate with the county where the business is located. It is also highly recommended that the partners create a partnership agreement that addresses roles, responsibilities, and contingencies, in order to avoid disagreement and conflict between the partners. In a general partnership the owners have unlimited liability for the debts of the business. This means that even though the partners share the profits equally, each partner is 100% responsible for any debts of the business. 

A limited partnership has one or more general partners and one or more limited partners. The general partner(s) control and operate the business and are 100% liable for any debts of the business. The limited partner(s) do not participate in the operation of the business, and their personal liability is limited to their contribution to the partnership. Typically a limited partner is an investor.

In order to form a limited partnership in Michigan, you must file a certificate of limited partnership with the Michigan Department of Licensing and Regulatory Affairs (LARA). If a limited partnership does not follow statutory requirements it will be treated as a general partnership so you should consult with an attorney before creating a limited partnership.

3. Limited Liability Company (LLC): An LLC business entity was created to combine the advantages offered by both partnerships and corporations. An LLC provides the members (owners) of the business limited liability protection like shareholders in a corporation combined with the simpler operation and pass-through tax characteristics of a partnership. An LLC is created by filing Articles of Organization with Michigan Department of Licensing and Regulatory Affairs (LARA) along with the appropriate filing fee. Like a corporation, an LLC will be responsible for paying an annual fee with LARA to continue its existence.

In addition to the Articles of Organization, members of an LLC are encouraged to establish an Operating Agreement. Particularly in a multi-member LLC, this is the basis on which you establish consistency and understanding about how the company will be managed and decisions made, duties of members, what contributions are required from members, how profits and losses will be calculated, limitations of liability and protection of members, and how members might be added, terminated or exit. The State of Michigan does not require an Operating Agreement to be filed in order to form an LLC, but rather this is a private document which governs the relationship of the members and may be amended by the members from time to time.

By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC is taxed as a partnership. But the member(s) may elect to have the LLC taxed as an S-Corporation or a C-Corporation. Tax election is separate from entity choice, and so members should consult a tax attorney or CPA with any questions and to maximize tax planning opportunities.