Sole Proprietorship in Michigan: How to Start One
Sole Proprietorship in Michigan: How to Start One
A Michigan sole proprietorship is the simplest way to legally run a business in this state. There's no formation document to file with the Department of Licensing and Regulatory Affairs (LARA), no annual report, and no formation fee. If you start doing business under your own name and haven't filed paperwork to become an LLC or corporation, you're already operating as a sole proprietor under Michigan law.
That simplicity comes with a tradeoff: you and your business are legally the same entity, which means your personal assets aren't shielded from business debts or lawsuits. This guide walks through exactly what a sole proprietor in Michigan needs to do to get set up correctly, from naming the business to registering for the right tax accounts.
What You'll Need Before You Start
- A business name (either your own legal name, or a "doing business as" name you plan to register)
- Your Social Security Number, or an Employer Identification Number (EIN) from the IRS if you'd rather not use your SSN for business purposes
- The name and address of the county clerk's office in the county where you'll conduct business
- Basic information about what you're selling, since that determines whether you need a Michigan sales tax license
- A separate bank account application (most banks require an EIN or assumed name certificate to open one)
- Information on any professional license your specific trade or profession might require
Step-by-Step: How to Start a Sole Proprietorship in Michigan
1. Decide on your business name
The easiest path is operating under your own legal name, for example "Jane Miller Consulting" if your name is Jane Miller. No filing is required for this. If you want to operate under a different name, such as "Great Lakes Consulting," that's called an assumed name (also known as a DBA, or "doing business as" name), and you'll need to register it in Step 2.
Before settling on a name, search the Michigan business entity database to check that another registered business isn't already using something too similar. This search covers LLCs and corporations registered with LARA, not every assumed name filed at the county level, so it's a useful first check rather than a guarantee.
2. File a Certificate of Assumed Name with your county clerk, if needed
This is one of the most misunderstood steps for a Michigan sole proprietor. LLCs and corporations file their assumed names with LARA. Sole proprietorships and general partnerships do not. Under MCL 445.1, a sole proprietor operating under any name other than their own legal name must file an assumed name certificate with the clerk of each county where the business operates.
If you do business in more than one county, you'll need to file in each one. Fees and renewal terms for county-level assumed name certificates are set by the individual county clerk and by statute, so confirm the exact cost and any renewal requirement directly with your county clerk's office before filing.
3. Get an EIN from the IRS
A sole proprietor with no employees can generally use their Social Security Number for tax purposes and isn't required to get an EIN. That said, most sole proprietors get one anyway, since it lets you keep your SSN off business paperwork and most banks will ask for one to open a business account. If you plan to hire employees, an EIN is required. Applying directly through the IRS is free.
4. Register with the Michigan Department of Treasury
If you'll sell taxable goods or certain taxable services, you need a Michigan sales tax license before you make your first sale. Michigan's state sales tax rate is 6%. Registration is free and is done through Treasury's online business registration, and a license can be issued in as little as 7 business days.
As a sole proprietor, your business income isn't taxed separately from you. It flows through to your personal Michigan income tax return, which is taxed at a flat 4.25% rate for the 2026 tax year. There's no separate business income tax filing and no franchise tax to worry about at the state level.
5. Check for required licenses and permits
Michigan doesn't have one general statewide business license that every business needs. LARA's Corporations Division doesn't license businesses at all; its role is limited to filing formation documents for entities like LLCs and corporations. Whether you need a license depends entirely on your profession or activity, so use the State License Search tool to check if your trade requires one through LARA's Bureau of Professional Licensing or another state agency.
Beyond state-level professional licensing, check with your city or township and your county for local business licenses, zoning permits, or health permits. These requirements vary widely between, say, operating a food business in Detroit versus a home-based consulting business in a small township.
6. Open a business bank account
Nothing in Michigan law requires a sole proprietor to keep a separate business bank account, but you should do it anyway. Mixing personal and business funds makes bookkeeping a mess and, in the event of a dispute or audit, makes it harder to show which expenses were legitimately business-related. Bring your EIN (or SSN) and your assumed name certificate, if you filed one, when you open the account.
7. Look into business insurance
Because a sole proprietorship offers no separation between you and the business, a lawsuit against your business is a lawsuit against you personally. General liability insurance, and professional liability insurance if you offer services or advice, can help offset that exposure. If you'll have employees, Michigan generally requires workers' compensation coverage.
8. Set up your recordkeeping
Track income and expenses from day one, whether that's a simple spreadsheet or dedicated accounting software. As a sole proprietor, you'll typically report business income and expenses on a Schedule C filed with your federal return, and that income also flows to your Michigan return. Good records make tax season faster and give you a clearer read on whether the business is actually profitable.
Tips for Getting It Right the First Time
- Don't confuse an assumed name filing with a trademark. Registering a DBA with your county clerk reserves that name for use at the local level; it doesn't stop someone else from operating under a similar name elsewhere or give you exclusive statewide rights to it.
- File in every county where you do business, not just where you live. This is easy to miss if you serve clients across county lines.
- Register for sales tax before your first sale, not after. Selling taxable goods without a license can create compliance headaches you'll have to unwind later.
- Weigh the liability tradeoff early. If your work carries real risk, physical products, client-facing services, anything that could lead to a lawsuit, it's worth comparing a sole proprietorship against forming an LLC, which separates your personal assets from business liabilities for a modest state filing cost.
Common Mistakes to Avoid
- Assuming LARA handles your DBA. LARA's assumed name process applies to LLCs and corporations. Sole proprietors file with the county clerk instead.
- Skipping the sales tax license because "it's just a side business." Michigan's requirement applies regardless of how small or informal the operation is, if you're selling taxable goods or services.
- Commingling funds. Using one bank account for both personal and business transactions makes it far harder to track profitability and to defend your finances if you're ever audited.
- Not checking local requirements. A profession that's unregulated at the state level can still require a city permit, especially for home-based, food-related, or in-person service businesses.
- Treating sole proprietor status as permanent. Many owners start as sole proprietors to test an idea, then convert to an LLC once revenue or risk grows. That's a normal progression, not a failure of the original setup.
What You Can Generally Expect
Once you've completed these steps, you should generally be able to legally operate, invoice clients, collect sales tax if applicable, and open a business bank account under your chosen name. Setup costs for a Michigan sole proprietorship tend to be low compared to forming an LLC or corporation, since there's no LARA filing fee or annual report requirement involved, though your actual costs will depend on your county's assumed name fee and any professional licenses your specific business needs. Timelines can also vary: a sales tax license may take roughly a week to arrive, while a county assumed name filing may be processed same-day at some clerk's offices and take longer at others.
Quick Reference: Sole Proprietor vs. LLC in Michigan
| Factor | Sole Proprietorship | LLC |
|---|---|---|
| State formation filing | None required | Articles of Organization, $50 filing fee with LARA |
| Personal liability protection | None, you and the business are the same legal entity | Generally separates personal assets from business debts |
| Assumed name (DBA) filing | Filed with the county clerk, fee set locally | Filed with LARA, $25 fee |
| Ongoing state filings | None | $25 Annual Statement due February 15 each year |
| State income tax treatment | Flows through to personal return, 4.25% flat rate | Flows through to personal return by default, same 4.25% rate |
This article is for general informational purposes only and does not constitute legal or tax advice. Michigan filing fees, county requirements, and tax rates can change, and specific circumstances vary. Before making formation or tax decisions, confirm current requirements with the Michigan Department of Licensing and Regulatory Affairs, your county clerk, the Michigan Department of Treasury, or consult a licensed attorney or CPA. The Michigan Small Business Development Center also offers free, one-on-one advising for new business owners.
Bottom Line
Starting a sole proprietorship in Michigan is intentionally low-friction: pick a name, file an assumed name certificate with your county clerk if you're not using your own legal name, register for a sales tax license if you're selling taxable goods, and check whether your profession needs a state or local license. There's no LARA formation filing and no annual report to keep up with, which is exactly why so many Michigan entrepreneurs start here before deciding whether an LLC makes sense down the road.