Michigan at a glance
Partnership law
UPA (original)
LLC default split
Proportional to capital
Operating agreement
Not required
Community property
No
Formation cost
$50
Annual cost
$25 annual report fee
Michigan is one of the few states still on the original UPA, where a partner's departure dissolves the partnership. Despite this, Michigan has very affordable LLC costs with a $50 formation fee and $25 annual report. The state has a growing startup ecosystem in Detroit and Ann Arbor.
Default partnership rules in Michigan
Michigan follows the original Uniform Partnership Act (UPA). Partnerships are treated as an aggregate of their partners. A partner's departure, death, or bankruptcy automatically dissolves the partnership. Profits and losses are shared equally by default. Partners are jointly and severally liable for partnership debts. A written partnership agreement with continuation clauses is essential in Michigan.
The most important takeaway: profits are split equally by default in Michigan, regardless of capital contributions. If you and a partner start a business and one of you invests $100,000 while the other invests $5,000, you still split profits 50/50 without a written agreement. This is true in every US state, including Michigan.
LLC defaults in Michigan
Michigan allocates LLC profits and losses in proportion to capital contributions by default. An operating agreement is not required. Michigan has very affordable LLC fees at $50 for formation and $25 for the annual report. The state imposes an income tax on business income.
Michigan defaults to proportional distributions based on capital contributions, which aligns better with many founders' expectations than equal-split states. However, capital contributions alone rarely tell the full story. A founder contributing time and expertise may receive nothing if they didn't invest cash. An operating agreement can account for all types of contributions. Our equity calculator can help you determine a fair arrangement.
What happens when a partner leaves in Michigan
Under Michigan's UPA, a partner's departure automatically dissolves the partnership. The remaining partners must wind up the partnership's affairs before they can reform. This is the primary risk of operating a partnership without a written agreement in Michigan. A well-drafted partnership agreement can include continuation clauses to mitigate this risk.
Important: Because Michigan follows the original UPA, a partner's departure automatically dissolves the partnership. This is a significant risk that can disrupt the business, alarm creditors and clients, and create tax complications. A written partnership agreement with a continuation clause is essential for any Michigan partnership with more than one partner.
Marriage and business equity in Michigan
Michigan is an equitable distribution state. Business interests acquired during the marriage are generally marital property. The court divides marital property equitably, considering factors such as the duration of the marriage, contributions of each party, and the needs of each party. Separate property (including businesses owned before marriage) is generally not subject to division, but appreciation during the marriage may be.
Even though Michigan is not a community property state, marriage can still affect your business equity. In equitable distribution states, courts divide marital property based on what is fair, which may include business interests acquired or grown during the marriage. A clear equity agreement and proper documentation of ownership can help protect your business in the event of a divorce.
Formation and cost considerations in Michigan
| Formation cost | $50 |
| Annual/recurring cost | $25 annual report fee |
| State income tax | Yes |
| Partnership law | UPA (original) — partner departure dissolves the partnership |
| LLC default distributions | Proportional to capital contribution |
| Operating agreement | Not required (strongly recommended) |
Frequently asked questions
Does Michigan still use the original UPA?
Yes, Michigan follows the original Uniform Partnership Act, not the revised version. A partner's departure automatically dissolves the partnership. Michigan is one of a handful of states that has not adopted RUPA.
How affordable is a Michigan LLC?
Michigan has very low LLC costs. Formation is $50, and the annual report is $25. First-year costs are just $75 before legal fees, making it one of the most affordable states for LLC formation and maintenance.
What is the default profit split for a Michigan LLC?
Michigan defaults to proportional allocation based on capital contributions. An operating agreement can change this to any arrangement the members agree on.
What happens when a partner leaves a Michigan partnership?
Under UPA, the partnership automatically dissolves. The partners must settle the partnership's affairs and, if they want to continue, form a new partnership. A written agreement with continuation clauses can help avoid this disruption.
Related resources
- Equity calculator: find a fair split for your business
- Does your small business need an equity agreement?
- Equity for small businesses: the complete guide
- Dead equity calculator: how much is yours costing you?
- Slicing Pie calculator
- What is an operating agreement?
- All 50 states: partnership and LLC default rules
Partnership laws in neighboring states
Disclaimer: This page provides general information about Michigan partnership and LLC default rules and is not legal advice. Laws change, and the information here may not reflect the most recent amendments. The formation costs and annual fees listed are approximate and may vary. Consult a qualified attorney licensed in Michigan for advice specific to your situation. Equity Matrix is a software tool for tracking contributions and calculating equity; it does not provide legal services.
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