Michigan Business Lawyer Blog

In an earlier post, I noted that those who are operating their business as a general partnership should consider forming a Michigan limited liability company (LLC) to operate their business. I have also made a number of other very positive posts regarding the LLC entity for conducting business. While LLC's are very innovative, and useful in many situations, entrepreneurs should not automatically assume that an LLC is the best choice of entity in all situations. In some circumstances, the good old corporation may be the best choice of entity for a new business.

In spite of the ever increasing popularity of LLC's, the corporation is still one of the most popular forms of business entity used for the organization and operation of small business firms in America. There are a number of reasons for this. First, a corporation is fairly easy and inexpensive to set up. Second, the corporate entity affords its owners protection from personal liability for the debts and obligations of the business. (Even better, for certain qualifying small business corporations, favorable pass-through tax treatment may be available under the federal tax laws.) Third, the ownership interests in a corporation are represented by shares of stock, which are generally freely transferable.

Although it is relatively easy to set up a corporation, certain formalities must be observed in order to maintain the personal liability shield that corporations provide to their owners. For example, actions by a corporation's board of directors and shareholders must be taken at meetings or by written consent, and records of any such must be maintained. In addition, stockholders in corporations traditionally have not been able to get the same favorable tax treatment that is available to LLC members. This is one reason why corporations have been viewed as less flexible than other business entities like LLC's. However, recent amendments to the Michigan Business Corporation Act allow for different treatment among corporate investors, thus significantly reducing the differences in this regard between closely held corporations and LLC's.

Entrepreneurs should not overlook corporations as a possible entity for operating their new businesses. This is especially true if there is any possibility that company may go public in the future, as almost all public companies are corporations. Entrepreneurs should counsel with an able Michigan business attorney before starting their business in order to determine the best entity for their venture.