By Jake Lawson, LLC Formation Strategist
Let me be blunt: I’ve helped over 200 Michigan entrepreneurs choose their business structure, and I almost never recommend general partnerships. Here’s why—and what you should do instead.
The short version: General partnerships offer zero asset protection while requiring nearly as much paperwork as an LLC. For just $50 more, you can form a Michigan LLC and protect your personal assets. It’s a no-brainer.
But if you’re dead set on understanding partnerships (maybe for academic reasons or a very specific situation), I’ll walk you through exactly how they work in Michigan—and why smart entrepreneurs choose LLCs instead.
What Is a Michigan General Partnership?
A general partnership is the business equivalent of a handshake deal between two or more people who decide to go into business together. The moment you and your partner agree to start a business together, congratulations—you’ve just formed a general partnership, whether you realize it or not.
Here’s the catch: every partner is personally liable for all business debts and lawsuits. If your partner signs a bad contract or someone sues your business, they can come after your house, car, and personal savings.
Michigan follows the Uniform Partnership Act (specifically Act 72 of Chapter 449 in the Michigan Compiled Laws), which governs how partnerships operate in the state.
Michigan Business Structure Options: The Real Comparison
Let me break down your actual choices when starting a business in Michigan:
For Solo Entrepreneurs:
- Sole Proprietorship: Cheapest option, zero protection
- Single-Member LLC: Slight extra cost, full asset protection
- Corporation: More complex, better for raising capital
For Multiple Owners:
- General Partnership: Cheap, dangerous (no protection)
- Multi-Member LLC: Smart choice—protection + tax benefits
- Corporation: Complex but good for investors
The pattern here? LLCs consistently offer the best balance of simplicity, protection, and tax efficiency.
Types of Partnerships in Michigan
Michigan recognizes several partnership structures:
General Partnership
- Unlimited personal liability for all partners
- Simplest to form (maybe too simple)
- Pass-through taxation
Limited Partnership (LP)
- Mix of general and limited partners
- Requires state filing
- Used for investment structures
Limited Liability Partnership (LLP)
- Popular with law firms and accounting practices
- Some liability protection
- Requires state registration
Limited Liability Limited Partnership (LLLP)
- Enhanced protection for limited partners
- Complex structure for specialized uses
For this guide, I’m focusing on general partnerships since that’s what most people ask about—though I’ll spend most of my time explaining why you shouldn’t choose one.
How to Form a Michigan General Partnership (The Steps)
If you’re determined to go this route despite my warnings, here’s the process:
Step 1: Partnership Planning
Choose Your Partners Carefully This is crucial since you’ll be personally liable for their business decisions. I’ve seen partnerships dissolve because partners didn’t discuss expectations upfront.
Key discussions to have:
- Ownership percentages (50/50? 60/40? Something else?)
- Capital contributions (who’s putting in what money?)
- Roles and responsibilities
- Decision-making authority
- Exit strategies
Select Your Industry and Business Model
- Identify your NAICS code for licensing purposes
- Define your revenue model
- Plan your marketing approach
- Choose a business address
Step 2: Create a Partnership Agreement
This is non-negotiable. While Michigan doesn’t legally require a written partnership agreement, you’ll need one to:
- Open a business bank account
- Establish clear rules and expectations
- Prevent disputes down the road
- Define profit/loss sharing
Your partnership agreement should cover:
- Partner ownership percentages
- Capital contributions and distributions
- Management responsibilities
- Voting procedures
- Dispute resolution processes
- Buy-sell provisions (what happens if someone wants out?)
- Death/disability provisions
Pro tip: Don’t try to draft this yourself. A poorly written partnership agreement is worse than no agreement at all.
Step 3: Choose and Register Your Business Name
DBA (Doing Business As) Filing In Michigan, partnerships typically file an “Assumed Name” (their term for DBA) with the County Clerk where they operate.
Why you need a DBA:
- Banks require it for business accounts
- Professional appearance with customers
- Legal clarity in contracts
Name Requirements:
- Must not conflict with existing registered businesses
- Should include “General Partnership” or “GP” for clarity
- Can’t imply incorporation (no “Inc.” or “Corp.”)
Filing Process:
- Contact your County Clerk’s office
- Submit assumed name application
- Pay filing fee (varies by county, typically $10-25)
- Receive stamped certificate
Step 4: Obtain Your Federal EIN
This is mandatory. All partnerships must get an Employer Identification Number from the IRS for tax purposes.
Why you need an EIN:
- Required for Form 1065 partnership tax return
- Necessary for business banking
- Needed for hiring employees
- Required for most business licenses
How to get it:
- Apply online at IRS.gov (fastest method)
- Apply by phone, fax, or mail (slower)
- Receive your EIN immediately online
- Wait for official CP 575 letter by mail
Cost: Free directly from the IRS (beware of third-party services charging fees)
Step 5: Research License and Permit Requirements
Michigan doesn’t require a general state business license, but you may need:
State-Level Licenses:
- Professional licenses (law, medicine, real estate, etc.)
- Industry-specific permits (food service, construction, etc.)
- Sales tax registration if selling tangible goods
Local Licenses:
- City business licenses
- County permits
- Zoning compliance
- Health department permits
Research Resources:
- Michigan LARA Licensing Division
- Your city/county clerk’s office
- Industry associations
Step 6: Ongoing Partnership Maintenance
Business Banking Open a dedicated business account immediately. You’ll need:
- Partnership agreement
- EIN confirmation letter
- DBA certificate
- Government-issued ID for all partners
Record Keeping Maintain these essential records:
- Partnership agreement and amendments
- Financial statements and tax returns (3+ years)
- Bank records and receipts
- Meeting minutes and major decisions
- Insurance policies
Annual Tax Filing
- File Form 1065 Partnership Return by March 15th
- Issue Schedule K-1 to each partner
- Partners report their share on personal returns
- Consider quarterly estimated tax payments
Partnership Taxation: How It Actually Works
Here’s the tax situation in plain English:
Partnership Level:
- Files Form 1065 “informational return”
- No federal income tax paid by partnership
- Reports income, deductions, gains, losses
Partner Level:
- Receives Schedule K-1 showing their share
- Reports partnership income on personal Form 1040
- Pays tax at individual rates
- May owe self-employment tax
Tax Benefits:
- Single taxation (no double taxation like C-Corps)
- Losses can offset other personal income
- Flexibility in allocating profits/losses
Tax Complications:
- Self-employment tax on partnership income
- Estimated quarterly payments often required
- Complex rules for basis and at-risk limitations
Compare this to LLC taxation: it’s identical. LLCs with multiple members are taxed exactly like partnerships, but with asset protection included.
The Big Problem: Zero Asset Protection
This is where partnerships become dangerous. In a general partnership:
Joint and Several Liability Every partner is personally liable for:
- All business debts
- Partner actions within business scope
- Contractual obligations
- Lawsuit judgments
Real-World Example: Let’s say your partner signs a $50,000 equipment lease without telling you. The business fails, and the equipment company comes after both of you. They can seize your house, your car, your savings—everything.
Even worse: If your partner gets sued personally (car accident, divorce, etc.), their partnership interest could be at risk, potentially affecting your business.
Ditch the Partnership: Form an LLC instead—same partnership tax treatment but your house stays safe when things go south. After watching partnerships destroy personal assets, I tell everyone: spend the $50 on an LLC (I use Northwest for the $39 deal) and sleep better at night.
Michigan LLC vs. General Partnership: The Honest Comparison
Here’s the side-by-side reality:
| Factor | General Partnership | Michigan LLC |
| Formation cost | ~$50-100 (DBA, EIN) | $50 state fee + ~$50 extras |
| Asset protection | None | Full protection |
| Credibility | Low (confuses people) | High (universally recognized) |
| Banking | Requires explanation | Straightforward |
| Taxation | Pass-through | Identical pass-through |
| Annual requirements | Minimal | $25 annual report |
| Flexibility | Limited | Extensive |
The bottom line: For essentially the same cost and effort, you get massive additional benefits with an LLC.
Why I Recommend Michigan LLCs Instead
After 15 years in this business, here’s my honest assessment:
Reasons to choose an LLC over a partnership:
- Asset Protection: Your personal assets stay protected
- Credibility: Banks, vendors, and customers take you seriously
- Flexibility: More options for management and taxation
- Simplicity: Everyone understands what an LLC is
- Growth Potential: Easier to bring in investors later
- Minimal Extra Cost: $50 state fee vs. potentially losing everything
The only reasons to choose a partnership:
- You enjoy unnecessary risk
- You want to confuse your banker
- You’re forming a law firm in certain circumstances (even then, LLP is better)
I literally cannot think of a good reason to choose a general partnership over an LLC for a typical Michigan business.
How to Form a Michigan LLC Instead
Since I’m steering you away from partnerships, here’s how to form an LLC the right way:
Step 1: Choose and reserve your LLC name
Step 2: Select a registered agent (required by law)
Step 3: File Articles of Organization with Michigan LARA ($50)
Step 4: Create an operating agreement (similar to partnership agreement)
Step 5: Get your EIN from the IRS
Step 6: Open business banking
Total cost: Around $100-200 depending on whether you use a service Protection value: Priceless
Common Partnership Questions (And Better Answers)
“Can’t I just be extra careful with a partnership?” No. Liability isn’t just about your actions—it’s about your partners’ actions, customer accidents, supplier disputes, and dozens of other factors outside your control.
“What if we’re just testing a business idea?” Even more reason to get protection. Early-stage businesses face the highest risk of disputes and failures.
“Our lawyer said partnerships are fine.” Find a new lawyer. Any attorney recommending general partnerships over LLCs for typical businesses is either outdated or not looking out for your interests.
“We want to save money upfront.” Saving $50 today could cost you $50,000 later. It’s the ultimate false economy.
When Partnerships Might Make Sense (Rarely)
I’m being honest here—there are a few specialized situations where partnerships might be appropriate:
Investment Partnerships
- Real estate investment groups
- Private equity structures
- Hedge funds
Professional Services (Sometimes)
- Law firms (though LLP is usually better)
- Accounting practices (again, LLP often preferred)
- Medical practices (with specific regulatory considerations)
Family Businesses
- Certain tax planning strategies
- Multi-generational wealth transfer
- Very specific estate planning goals
Notice the pattern? These are all specialized situations requiring sophisticated legal and tax advice. If you’re reading this guide to figure out your basic business structure, you don’t fall into these categories.
Michigan Partnership Regulation and Compliance
For completeness, here’s what Michigan requires of partnerships:
Filing Requirements:
- No state registration required for formation
- DBA filing with county clerk if using assumed name
- Annual tax returns required
Record Keeping:
- Partnership agreement
- Financial records
- Tax documents
- Meeting minutes for major decisions
Compliance Issues:
- Business license requirements vary by industry
- Sales tax registration if applicable
- Employment law compliance if hiring
Dissolution:
- Can dissolve informally by agreement
- Must file final tax returns
- Settle all business obligations
- Notify creditors and customers
The Real Cost of “Saving Money” with Partnerships
Let me put this in perspective with real numbers from my experience:
Michigan LLC Formation Costs:
- State filing fee: $50
- Registered agent (optional first year): $0-125
- Operating agreement template: $0
- Total: $50-175
Potential Partnership Liability:
- One client lawsuit: $50,000+
- Equipment lease default: $25,000+
- Partner’s bad decision: Unlimited
- Potential loss: Everything you own
The math is simple: spend $50-175 for protection, or risk losing everything to save $50.
What International Entrepreneurs Should Know
About 30% of my Michigan clients are non-U.S. residents. Here’s what’s different for partnerships vs. LLCs:
General Partnerships:
- No citizenship requirements
- Can use foreign addresses
- May complicate tax reporting
- Harder to explain to U.S. banks
Michigan LLCs:
- No citizenship requirements
- More familiar to U.S. institutions
- Clearer tax treatment
- Better for international expansion
My recommendation for international clients: Always choose LLC. The extra credibility and clarity are worth far more than the small additional cost.
Next Steps: Making the Smart Choice
If you’ve read this far, you probably understand why I don’t recommend general partnerships. Here’s what to do next:
Option 1: Form a Michigan LLC (Recommended)
- File Articles of Organization with Michigan LARA
- Get asset protection and credibility
- Enjoy pass-through taxation
- Set yourself up for growth
Option 2: DIY Michigan LLC
- Use Michigan’s online filing system
- Budget 2-3 hours for paperwork
- Save money but invest time
Option 3: Professional LLC Formation
- Use a reputable service like ZenBusiness or Northwest
- Get everything handled correctly
- Focus on building your business
Option 4: Ignore My Advice and Form a Partnership
- Accept unlimited personal liability
- Hope nothing goes wrong
- Call me when you need to convert to an LLC later
Bottom Line: Skip the Partnership
After 15 years and over 1,200 business formations, I can count on one hand the number of times I’ve recommended a general partnership over an LLC. The cost difference is minimal, the paperwork is similar, but the protection difference is massive.
Michigan LLCs offer everything a partnership does, plus asset protection, plus credibility, plus flexibility. Unless you’re in a very specialized situation requiring sophisticated legal counsel, the choice is obvious.
Don’t risk your personal assets to save $50. Form an LLC and sleep better at night.
Ready to Form Your Michigan LLC?
Professional Formation Services:
- ZenBusiness: $49 + state fee, includes registered agent
- Northwest: $39 + state fee, excellent customer service
- LegalZoom: $149 + state fee, comprehensive package
DIY Formation:
- File directly with Michigan LARA
- Use our free operating agreement templates
- Budget $50 state fee + 2-3 hours of time
Either way, you’ll have an LLC that protects your assets while offering the same tax benefits as a partnership—with none of the downsides.
Questions about Michigan business formation? I’ve probably answered them before. Check out our comprehensive Michigan LLC guide or contact our team for personalized advice.
About the Author: Jake Lawson is an LLC Formation Strategist with 15+ years of experience helping entrepreneurs protect their assets while building their businesses. He’s guided over 1,200 business formations across all 50 states and reviewed 20+ formation services. Connect with Jake on LinkedIn or follow llciyo.com for more business formation insights.