A Michigan contractor operates as a sole proprietorship and wants to convert to an LLC. Which statement is most accurate regarding this conversion?
Correct Answer
A) A new contractor license application must be submitted for the LLC
When changing business entity types in Michigan, a new contractor license application must be submitted as the license is tied to the specific business entity.
Why This Is the Correct Answer
In Michigan, a contractor license is issued to a specific business entity. When the entity type changes (e.g., sole proprietorship to LLC), the new entity is legally distinct and must submit a new license application to LARA.
Why the Other Options Are Wrong
Option B: LARA must pre-approve the business entity change
LARA does not need to pre-approve the business entity change before the conversion occurs. The contractor converts the business under state law first, then applies for a new license for the new entity.
Option C: The conversion can only occur at license renewal time
There is no rule in Michigan requiring entity conversions to wait until renewal. A new application can be submitted at any time. Delaying until renewal would leave the contractor unable to legally operate under the new entity.
Option D: The contractor license automatically transfers to the new LLC
Contractor licenses in Michigan do not automatically transfer between business entities. Because the license is tied to the legal entity, the new LLC must obtain its own license — automatic transfer is not permitted.
Memory Technique
Think of the license as belonging to the entity's legal ID, not the individual contractor. Just as your driver's license doesn't transfer to a new car, a sole proprietorship's license doesn't transfer to an LLC.
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