Forming an L3C in Michigan

Effective as of January 16, 2009, the Michigan Limited Liability Companies Act authorizes the formation of L3Cs. Here is an outline of the steps you need to follow in order to form an L3C in Michigan. The process is very similar to the one for forming an LLC in Michigan. You should also read the general section on forming an L3C for information that is applicable in any state.

1. Choose a business name for the L3C and check for availability.

  • Please see our section on choosing and checking the availability of a name for your small business, as well as our section on the trademark law aspects of choosing a name.
  • Michigan requires an L3C name to contain the words "low-profit limited liability company", or the abbreviation "L.3.C." or "l.3.c.", with or without periods. Additionally, your business name may not be the same as, or deceptively similar to, that of any other Michigan business entity or any foreign business entity registered in the state. 
  • You may want to reserve a name to protect it prior to the organization of the company. You may reserve a name for 180 days by filing a simple, fill-in-the-blank form with the Department of Energy, Labor & Economic Growth. The filing fee is $50.
  • Although you are not required to do so, consider registering your business name as a federal and/or state trademark.

2. Prepare and file articles of domestic organization with the Secretary of State.

  • The filing fee is $50. The Department of Energy, Labor & Economic Growth's website has a simple, fill-in-the-blank form for drafting your articles of organization. Be sure to include the words "low-profit limited liability company" or the abbreviation "L.3.C." or "l.3.c." in the name of the new entity (Article I of the form) and white out the "all purpose" clause in Article II of the form. Michigan law requires that the definition of your business purpose (Article II of the form) include the language below:
(i) The limited liability company significantly furthers the accomplishment of 1 or more charitable or educational purposes described in section 170(c)(2)(B) of the internal revenue code, 26 USC 170, and would not have been formed except to accomplish those charitable or educational purposes.
(ii) The production of income or appreciation of property is not a significant purpose of the limited liability company. However, in the absence of other factors, the fact that a limited liability company produces significant income or capital appreciation is not conclusive evidence of a significant purpose involving the production of income or the appreciation of property.
(iii) The purposes of the limited liability company do not include accomplishing 1 or more political or legislative purposes described in section 170(c)(2)(D) of the internal revenue code, 26 USC 170.
For general information on articles of organization, see the section on forming an L3C and the Articles of Organization section of this Guide.
  • If you are converting an existing LLC to an L3C, you must file a simple, fill-in-the-blank form for drafting your restated articles of organization. Be sure to include the words "low-profit limited liability company" or the abbreviation "L.3.C." or "l.3.c." in the name of the new entity (Article I of the form) and white out the "all purpose" clause in Article II of the form. Michigan law requires that the definition of your business purpose (Article II of the form) include the language below:
(i) The limited liability company significantly furthers the accomplishment of 1 or more charitable or educational purposes described in section 170(c)(2)(B) of the internal revenue code, 26 USC 170, and would not have been formed except to accomplish those charitable or educational purposes.
(ii) The production of income or appreciation of property is not a significant purpose of the limited liability company. However, in the absence of other factors, the fact that a limited liability company produces significant income or capital appreciation is not conclusive evidence of a significant purpose involving the production of income or the appreciation of property.
(iii) The purposes of the limited liability company do not include accomplishing 1 or more political or legislative purposes described in section 170(c)(2)(D) of the internal revenue code, 26 USC 170.

The restated articles of organization filing fee is $50.

3. Negotiate and execute an operating agreement.

  • Michigan does not require an operating agreement in order to form an L3C, but executing one is highly advisable. Please see the section on forming an L3C [link to How to Create L3Cs ] in this Guide for details. The operating agreement does not need to be filed with the state.

4. File an annual statement with the Department of Energy, Labor & Economic Growth.

  • An L3C needs to file an annual statement with the Michigan Department of Energy, Labor & Economic Growth, Bureau of Commercial Services, Corporations Division before February 15 each year. The filing fee is $25, and you can file online via the FILEonline Service. If the L3C was formed in Michigan or authorized to transact business in Michigan after September 30, no annual statement is required on the February 15 immediately following formation or authorization.


5. Obtain any required local licenses.

6. Determine what tax and other regulatory obligations the L3C has, and take care of any necessary registrations.

  • Consult with an attorney to ensure that the L3C is fulfilling its tax obligations and the necessary tax and registration paperwork is properly filed. For general information on the tax treatment of L3Cs, see the L3C section of this guide.

7. Open a bank account for your business.

  • It is a good idea to keep your business's finances separate from your personal accounts. You may want to do this early on by opening a bank account for your business.

8. Other Notable Requirements for Maintaining an L3C in Michigan

  • Michigan requires certain documents to be kept at an L3C's principal place of business. A list of the required documents is located in Mich. Comp. Laws § 450.4213.
 

Last updated on August 5th, 2010

   
 
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