LLC, S-Corp, or C-Corp? How to Choose a Michigan Business Structure

Most Michigan business owners come to the question the same way: “Should I be an LLC or an S-corp?” It is a reasonable question, but it quietly combines two different decisions. One is the legal entity you form with the State of Michigan. The other is the federal tax classification you elect with the IRS. Understanding that split is what the rest of this builds on, because an “LLC” and an “S-corp” are not competing items on the same menu.

Two decisions, not one

When you start a business in Michigan, you choose a legal structure, most commonly a limited liability company (LLC) or a corporation, by filing formation documents with the Michigan Department of Licensing and Regulatory Affairs (LARA). That entity is a creature of Michigan law.

Separately, the federal government decides how your business is taxed. “C-corporation” and “S-corporation” are federal tax classifications under the Internal Revenue Code, not separate Michigan entity types you form with the state. A corporation is taxed as a C-corporation by default and can elect S-corporation treatment if it qualifies. An LLC can also elect to be taxed as an S-corporation or a C-corporation, even though it remains an LLC under Michigan law.

So the honest framing is this: first pick the entity, then pick the tax treatment. The two choices interact, but they are not the same choice.

The LLC: Michigan’s flexible default

An LLC is formed by filing Articles of Organization with LARA under the Michigan Limited Liability Company Act (MCL 450.4101 et seq.). A standard domestic LLC uses LARA Form 700, and the state filing fee for the Articles of Organization is $50 (LARA filing fees). The LLC gives its owners, called members, limited liability, meaning their personal assets are generally shielded from the company’s debts, and it does so with far fewer formalities than a corporation.

By default, an LLC generally is not treated as a separate taxpayer for federal income-tax purposes. A single-member LLC is ordinarily a “disregarded entity” (its income is reported on the owner’s personal return), and a multi-member LLC is ordinarily taxed as a partnership. In both cases the profits pass through to the owners for income-tax purposes. Much of the LLC’s flexibility lives in its operating agreement, which sets the management and ownership rules the statute otherwise fills in by default.

For many small and closely held Michigan businesses, the LLC is the natural starting point. If you are still weighing it against operating as yourself, see our overview of the LLC versus the sole proprietorship.

The corporation: structure, formality, and a default C-corp tax

A corporation is formed by filing Articles of Incorporation with LARA under the Michigan Business Corporation Act (MCL 450.1101 et seq.). The incorporation filing fee is calculated differently from the LLC’s: a $10 filing fee plus an organization fee based on the number of authorized shares (a minimum of $50 for up to 60,000 shares), so the cost depends on your share structure.

A corporation is owned by shareholders, run by a board of directors, and operated by officers, and it generally carries more formal governance than an LLC: directors, officers, bylaws, the appropriate shareholder and director approvals and records, and an annual report filed with the state (MCL 450.1911). Michigan law permits many corporate actions to be taken by written consent, so formal meetings are not always required. Unless it makes a different election, a corporation is taxed as a C-corporation, the default federal tax status, not a separate kind of company.

C-corporation tax treatment

A C-corporation is a taxpayer in its own right. It pays federal corporate income tax (a flat 21% under 26 U.S.C. § 11) and, in Michigan, the 6% Corporate Income Tax imposed on C-corporations and taxpayers taxed as corporations federally (Michigan CIT; MCL 206.623). When the corporation then distributes profits to shareholders as dividends, the shareholders pay tax again on that income. This is the well-known “double taxation” of C-corporations.

Double taxation sounds like a flaw, but C-corporation treatment is often preferred where institutional investment, multiple classes of equity, or other corporate financing considerations outweigh the cost of pass-through taxation. Common cases include a business raising money from outside investors or venture capital, or one that anticipates a stock sale down the road. A C-corporation can also have an unlimited number of shareholders, including other entities and non-U.S. owners.

The S-corporation election

“S-corporation” refers to Subchapter S of the Internal Revenue Code. It is an election, made on IRS Form 2553, that lets a qualifying business generally avoid entity-level federal income tax: income, losses, deductions, and credits pass through to the owners, who report them on their personal returns. That avoids the C-corporation’s double taxation while keeping the corporate liability shield.

Not every business can elect it. Under the IRS S-corporation rules (see also 26 U.S.C. § 1361), an S-corporation must:

• be a domestic corporation (or an LLC electing corporate treatment);
• have no more than 100 shareholders;
• have only eligible shareholders (individuals, certain trusts, and estates, but not partnerships, corporations, or non-resident alien shareholders); and
• have only one class of stock.

A key point that surprises many owners: an LLC can elect to be taxed as an S-corporation. You do not have to give up the LLC to get S-corp tax treatment. The reason owners often make the election is payroll tax. After paying reasonable compensation subject to employment taxes, additional S-corporation earnings allocated or distributed to the shareholder generally are not subject to self-employment tax. The IRS requires that the compensation genuinely be reasonable and can recharacterize distributions as wages, and the math does not favor everyone, so this is a decision to run with your accountant.

Because the S-corp question turns heavily on tax, coordinate the election with a CPA or tax advisor. Our role is the legal structure: making sure the entity, its governing documents, and its ownership are set up so the tax election you choose actually works.

A note on Michigan taxes

At the Michigan level, C-corporations pay the 6% Corporate Income Tax described above. Income from pass-through businesses (LLCs taxed as partnerships or disregarded entities, and S-corporations) is generally taxed on the owners’ individual returns, where Michigan’s individual income tax rate is 4.25% for the 2026 tax year (Michigan Treasury). Michigan also offers an optional flow-through entity tax, levied at that same 4.25% rate. It is an elective entity-level tax that some pass-through businesses use to obtain federal tax benefits that may otherwise be unavailable when state taxes are paid personally. Whether that election helps you is, again, a question for your tax advisor.

At a glance

The same business can often be organized more than one way, so read this as orientation, not a verdict:

How to actually choose

Liability protection is not the deciding factor; the LLC and the corporation both provide it. The real drivers are how you want to be taxed, whether you plan to bring in outside investors, how much administrative formality you are willing to carry, and what you expect the exit to look like. A profitable, owner-run service business and a startup chasing venture capital can end up in very different places for good reasons.

Whatever you choose, the structure only works if the paperwork agrees with it. The entity filing, the operating agreement or bylaws, the ownership records, and any tax election have to point in the same direction, and they should be coordinated with your succession and estate plan so the business passes the way you intend. That coordination is the heart of ongoing business and corporate counsel.

Key takeaways

• “LLC” is a Michigan entity; “C-corp” and “S-corp” are federal tax classifications, not separate Michigan entity types. They are two separate decisions.
• An LLC is formed with $50 Articles of Organization (Form 700) and is a pass-through by default; a corporation involves more formal governance and is a C-corporation unless it elects otherwise.
• A C-corporation pays entity-level tax (21% federal, 6% Michigan CIT) with double taxation on dividends, but suits businesses raising outside capital, issuing multiple classes of equity, or with other corporate financing needs.
• An S-corporation is an election (Form 2553) available to qualifying corporations and LLCs; it generally avoids double taxation and can reduce payroll tax, but has strict eligibility limits.
• The tax election belongs with your CPA; the legal structure and documents belong with your business attorney. The two need to work together.

Frequently asked questions

Is an S-corp a type of company or a tax status?

It is a federal tax status, not a Michigan entity type. You form an LLC or a corporation with the state, then, if you qualify, elect S-corporation tax treatment with the IRS on Form 2553.

Can a Michigan LLC be taxed as an S-corp?

Yes. An LLC that meets the eligibility rules can elect to be taxed as an S-corporation while remaining an LLC under Michigan law. Owners often do this for payroll-tax reasons, but the benefit depends on the numbers and should be reviewed with a tax advisor.

Which is better for a small business, an LLC or an S-corp?

They are not opposites, so the better question is which entity to form and which tax election to make. Many small Michigan businesses form an LLC and consider an S-corp election once the economics justify the additional payroll, tax-return, and compliance costs. There is no single right answer; it depends on your profit, ownership, and goals.

How is a C-corporation taxed in Michigan?

A C-corporation pays the federal corporate income tax (21%) and Michigan’s 6% Corporate Income Tax, and shareholders are taxed again on any dividends they receive, the “double taxation” feature of C-corporations.

Do I need a lawyer to choose a business structure?

You are not legally required to use one, but the entity, its governing documents, its ownership, and its tax election all have to fit together, and mistakes are expensive to unwind. A business attorney, working alongside your accountant, helps you set it up correctly the first time.

Related reading: LLC vs. sole proprietorship, LLC operating agreements in Michigan, and what happens to your LLC without a succession plan, plus the firm’s corporate and business law practice.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal or tax advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. Choosing a business structure and making a tax election depend on your specific circumstances, and tax matters in particular should be reviewed with a qualified tax advisor. Rates and fees cited are current as of publication and can change. This content may also be considered attorney advertising.

Primary sources: Michigan Limited Liability Company Act, MCL 450.4101 et seq.; Michigan Business Corporation Act, MCL 450.1101 et seq. (annual report, MCL 450.1911); LARA filing fees; Michigan Corporate Income Tax, 6% CIT and MCL 206.623; Michigan Department of Treasury (2026 individual income tax rate); Michigan flow-through entity tax; IRS, S corporations and Form 2553; 26 U.S.C. § 11; 26 U.S.C. § 1361.