How to Start an LLC in Minnesota? (Step by Step Guide)
Starting an LLC is an excellent way for small businesses to protect their assets from potential lawsuits and other financial risks.
To make sure your new Minnesota LLC is on solid ground, you need to follow several steps and submit the necessary documentation to the Secretary of State.
To help you go through this process stress-free and fast, we have decided to step in. As a team of experienced business professionals and legal experts, we have spent weeks testing and recording our process of forming an LLC.
Also, you have the option to utilize a Minnesota professional LLC service to establish an LLC on your behalf.
- Starting an LLC in Minnesota involves choosing a business name, selecting a registered agent, and obtaining an Employer Identification Number (EIN).
- Benefits of a Minnesota LLC include personal liability protection, pass-through taxation, and flexible management.
- In 2023, Minnesota saw the establishment of nearly 90,000 LLCs, as per Secretary of State data, demonstrating the state's favorable environment for small businesses and entrepreneurs.
- Personally, I believe the flexibility and protection offered by forming an LLC in Minnesota provide a solid foundation for entrepreneurs to grow their businesses with confidence.
How to Form an LLC in Minnesota
To form a limited liability company in Minnesota, there are several things you need to do.
Seek professional guidance for personalized advice on how to start an LLC and to ensure compliance with all legal and regulatory requirements.
You will have to write the name, address, and signature of your organizer, your Minnesota LLC email address, and your phone number.
1. Choose the Type of Your LLC (Mandatory)
When choosing the type of your Limited Liability Company (LLC) in Minnesota, you typically have the option between a Single-Member LLC or a Multi-Member LLC.
- Simplicity: Easier to set up and manage as there's only one owner.
- Sole control: Complete decision-making authority.
- Less paperwork: Fewer formalities in operations and management.
- Limited resources: Only one member's capital and expertise.
- Personal liability: Some courts may pierce the corporate veil in cases of fraud or misrepresentation.
- Diverse skills and resources: Members bring varied expertise and investment.
- Shared responsibility: Management and financial burdens are distributed.
- Flexible profit distribution: Profits and losses can be allocated differently than ownership percentages.
- Complexity in management: Requires more structured management and decision-making processes.
- Potential for conflict: Differences in opinions among members can arise.
Leveraging on my knowledge, I have found out that each structure offers unique benefits and challenges, and the choice largely depends on your specific business needs, resources, and management preferences.
2. Choose a Name for Your Minnesota LLC (Mandatory)
Choosing the right name for your LLC in Minnesota is not always easy. First, you need to ensure that it's available on all the usual business websites, like Facebook and similar.
Usually, you can do this by simply typing in a domain name and seeing if it comes up as unavailable or taken already.
A business name needs to be unique as well. There are free tools online that can help you with this process, but for absolute certainty, it's best to seek legal advice and pay the fees they ask for their services.
The business name of your Minnesota limited liability company is usually written in all capital letters or small caps on official documents so try to keep it consistent throughout your business materials, like advertising.
Selecting a suitable LLC name in Minnesota is crucial. It's important to avoid names that could be misleading or confusing, particularly those resembling existing local businesses. This can lead to customer and employee confusion.
I've learned that a well-chosen LLC name is fundamental to a business's identity and success. It's a vital step, as the right name can significantly contribute to the business's success, distinguishing it in a competitive market.
Read our article to learn how to look up an LLC in Minnesota.
3. Select a Registered Agent (Mandatory)
Your business needs an LLC registered agent to receive important legal documents from the state, acting like your Minnesota secretary.
If you're running your business out of Minnesota, your own registered agent should also be located in the same place.
It doesn't matter who acts as your own registered agent. Still, they need to be available at all times and have good communication skills.
They should respond quickly to any legal documents they receive on behalf of your Minnesota LLC and provide you with a copy as soon as possible.
It's also important that registered agents don't have close ties to your company because such connections can create conflicts of interest in the future.
For example, an owner or employee should never be able to act as a registered agent at the same time for an LLC.
A Minnesota registered agent is a person or company that accepts official government documents on behalf of your LLC.
Since these documents need to be received by the state, they'll send them directly to a registered agent or registered agent service, which is usually located in the same place as your business name.
4. File Articles of Organization (Mandatory)
Articles of Organization are the articles that an LLC uses to register itself with a state agency.
Because they're considered public records, LLC Articles of Organization can be accessed online by anyone after submitting them to the Secretary of State.
To file LLC Articles of Organization or add information about your company online, it will be advisable to have a BSO account.
A BSO account is entirely free and only takes a few minutes to set up if you already have articles about the organization prepared for your LLC.
Articles of Organization need to be filed with the Minnesota Secretary of State . It can be submitted by mail, online, or in person. The form can be found on the official website for you to fill out or print.
Minnesota LLC Articles of Organization need to include the name of your company.
The articles submitted to the Minnesota Secretary of State also have a section for you to list any registered agent or registered agent service that will be receiving legal documents on behalf of your LLC if changes or additions are needed later, along with their address.
Also, you will have to write the name, address, and signature of your organization, your Minnesota LLC email address, and your phone number.
If you send your Articles of Organization online or in person, your filing fee will be $155. But if you decide to send it by postal mail, your filing fee will be $135.
Here is further information on how much it costs to form an LLC in Minnesota.
Steps to Take After Forming an LLC in Minnesota
5. Create a Minnesota LLC Operating Agreement (Optional, but Recommended)
A Minnesota LLC operating agreement is a contract that outlines how your company will be managed and run.It acts as a roadmap for your business's internal operations and management structure.
In my professional experience, this agreement is crucial in establishing clear guidelines and expectations, especially in multi-member LLCs. It clarifies roles, responsibilities, and profit distribution, preventing potential disputes.
While not legally required, it's a wise business practice to have a comprehensive operating agreement, ensuring smooth operation and long-term stability for your LLC.
Now is the time to decide on your operating agreement. Will it be a member-managed or manager-managed LLC? It would be wise to seek legal advice before you define anything.
With 525,156 small businesses making up 99.4% of all Minnesota businesses, this U.S. Small Business Administration statistic highlights the critical role of small enterprises in the state's economy and the potential benefits of LLC formation for these entities .
This data underscores the importance of a well-structured operating agreement and diligent planning in the post-formation phase to ensure the long-term success of these businesses.
Operating agreements for Minnesota limited liability companies must include detailed information on how earnings and losses will be split among LLC owners, any member contributions, and specifics on how management and member operating procedures will be laid out.
Every single member of your organization should sign the operating agreement once it has been created. The good news is that you need not file them with the Secretary of State as per Minnesota law. It applies even when you are a sole proprietorship LLC.
It's also vital that operating agreements are regularly updated because they can be changed or modified at any time during the life of your LLC.
Once an operating agreement is filed, it needs to include a cover sheet and additional documents like declarations, amendments, and exhibits, which should all be attached in one packet for filing purposes.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
An employer identification number (EIN), also known as a federal tax ID, is an identifying number that all companies use to open bank accounts and report taxes with the Internal Revenue Service. It is required by both federal and Minnesota law for all Minnesota LLCs.
This nine-digit number is assigned to businesses by the Internal Revenue Service (IRS) and used for tax purposes like reporting income, filing annual returns, and opening accounts with financial institutions like banks and credit unions.
"Starting from January 2024, LLC owners are required to submit a Beneficial Ownership Information (BOI) Report to the US Financial Crimes Enforcement Network (FinCEN). Existing LLCs have from January 1, 2024, to January 1, 2025, to file their report, whereas new LLCs must do so within 90 days following their formation."
-Jon Morgan, Co-Founder & Chief Editor of Venture Smarter
7. Open an LLC Bank Account (Optional, but Recommended)
Every LLC business needs a business bank account which should be separate from any personal accounts.
Having company and personal finances in the same place can make it challenging to monitor spending and keep up with payments and generate confusion about profits and losses between business and family members.
8. File Your Minnesota LLC Annual Report (Mandatory)
In Minnesota, LLCs must file an annual report with the Secretary of State to maintain their good standing and compliance. The deadline for this submission is December 31st of each year.
It's important to gather all necessary information about your LLC, including its name, the principal office address, and the names and addresses of managers or governors.
You have the option to file the report either online through the Secretary of State’s website or by mailing a printed form. While online filing is generally faster and more efficient, some may prefer the traditional mail method.
There is a filing fee associated with the annual report. As of my last update in April 2023, the fee for online filing was $45, and for paper filing, it was $55. However, it's advisable to check the Minnesota Secretary of State’s website for the most current fee information.
After filing, make sure to keep a copy of the filed report and the receipt of payment for your records. If there are any changes in your LLC's information during the year, update your annual report accordingly. This practice ensures the state has up-to-date information on your business.
It's also important to remember that annual report requirements can vary from state to state, so always verify the specifics with the relevant state authorities.
9. Obtain business Licenses and Permits
Your business license is a business registration that's required by law. It provides information about your business, including where it operates, how long it will be in business, and any license or permit numbers associated with the LLC itself.
When you operate an LLC in Minnesota, you may need a general business license before doing business.
I advise my clients to check if their business needs state-required business licenses, permits, or registration to operate efficiently.
Also, there is local licensing. In some cases, cities or counties will require a general LLC business license.
In some other cases, you may need to comply with local ordinances specific to a particular type of business.
Make sure to check this out before you start your business. Contact your local county clerk and get the information you need.
Some examples of service-based business start-ups in Minnesota include CPAs, architects, and engineers.
Still, it's important to note that these professionals need business licenses even if they work out of their home offices.
10. Assumed Name Registration (Mandatory)
When forming an LLC in Minnesota, if you plan to conduct business under a name different from the officially registered LLC name, you must register an Assumed Name, commonly referred to as a DBA (Doing Business As).
This process is crucial for ensuring transparency and legal protection.
Here are the key aspects of the Minnesota Assumed Name Registration:
- Purpose of an Assumed Name: An Assumed Name allows your LLC to operate under a different name for marketing or business purposes without changing the official LLC name. It's ideal for creating a brand identity that differs from the legal name of your LLC.
- Search for Name Availability: Before registering, you need to ensure the chosen Assumed Name is not already in use or too similar to existing names. This can be done through a name search on the Minnesota Secretary of State’s website.
- Filing the Assumed Name: To register, file the Certificate of Assumed Name with the Minnesota Secretary of State. This can be done online or by mail. You will need to provide details like the Assumed Name, the legal name of your LLC, and your business’s principal place of business.
- Filing Fee: There is a fee for registering an Assumed Name. As of my last update in April 2023, the fee was $50 for online filings and $30 for mail filings. Check the current fees on the Secretary of State’s website, as they may change.
- Renewal and Updates: The Assumed Name registration does not expire in Minnesota, but if any information changes (such as the business address), you must file an amendment. Regular updates ensure that your business information is current and compliant with state regulations.
11. Choosing Your Tax Structure
Choosing the right tax structure in Minnesota is crucial for businesses. Sole proprietorships offer simplicity and full control, but they lack liability protection. Partnerships, similar in tax simplicity, are ideal for multiple owners but also lack liability protection.
LLCs blend partnership's tax benefits with corporate liability protection. They're flexible but require more formalities. Corporations, offering the highest liability protection, are ideal for larger businesses planning to issue stock. However, they face double taxation and strict regulations.
S Corporations, a special type of corporation, avoid double taxation by passing income directly to shareholders, but they face eligibility restrictions.
Changing your tax structure requires careful planning and varies in timeline, but key deadlines like the March 15th IRS deadline for the S Corporation election are crucial to remember.
Benefits and Drawbacks of an LLC in Minnesota
- Limited Liability Protection: LLC owners in Minnesota enjoy protection from personal liability for business debts and obligations, a crucial safeguard for personal assets.
- Flexible Taxation: Minnesota LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation, providing flexibility in tax planning and potential tax benefits.
- Ease of Formation and Maintenance: Setting up an LLC in Minnesota is relatively straightforward, with fewer formalities and less paperwork compared to corporations. Ongoing maintenance requirements are also less burdensome.
- No Double Taxation: Unlike corporations, LLCs can avoid double taxation as income is passed through to owners' personal tax returns.
- Credibility: Operating as an LLC may enhance a business’s credibility with customers, suppliers, and potential investors.
According to Secretary of State info, in 2023, Minnesota witnessed the establishment of nearly 90,000 LLCs, underscoring the state's vibrant entrepreneurial spirit and the popularity of the LLC structure for new businesses .
- State Fee Structure: Minnesota imposes certain fees for LLC formation and annual renewals, which might be higher than those for simpler structures like sole proprietorships.
- Limited Growth Potential: For businesses planning to go public or raise significant capital, an LLC might be limiting as it cannot issue stock like a corporation.
- Tax Complexity: While flexible, LLC taxation can be complex, especially if electing to be taxed as a corporation. This may require professional tax assistance, adding to operational costs.
- Self-Employment Taxes: Profits of a Minnesota LLC may be subject to self-employment taxes, which can be higher than corporate tax rates.
- Transferability of Ownership: Transferring ownership interests in an LLC can be more complex than in a corporation, potentially affecting long-term business succession planning.
DIY vs. Professional LLC Formation
DIY LLC Formation:
- Cost-Effective: Generally cheaper as it avoids professional fees.
- Learning Experience: Offers a deep understanding of the formation process and state-specific regulations.
- Control: Complete control over the filing process and timeline.
- Time-Consuming: Requires significant time to research and understand legal requirements.
- Risk of Errors: Without professional guidance, there’s a higher risk of making mistakes in the filing process.
- Lack of Legal Knowledge: May miss critical legal nuances or compliance requirements.
Professional LLC Formation Service:
- Expertise: Professionals are knowledgeable about legal requirements and can navigate complex state laws.
- Time-Saving: Saves you time by handling most of the paperwork and filing process.
- Compliance Assistance: Helps ensure all legal and state-specific requirements are met.
- Peace of Mind: Reduces the risk of errors and provides confidence that the process is handled correctly.
- Cost: More expensive than DIY due to service fees.
- Less Personal Involvement: Less hands-on experience with the formation process.
- Generic Solutions: Some services may offer one-size-fits-all solutions that might not suit specific business needs.
- How to Close an LLC in Minnesota
- Top Minnesota LLC Formation Services
- How Long Does It Take to Form an LLC in Minnesota
What Are Foreign LLCs in Minnesota?
Foreign LLCs in Minnesota are LLCs formed in a different state other than the one you're in. You can operate a foreign LLC in Minnesota.
Is a Minnesota LLC Required to Have Insurance?
While Minnesota law does not mandate that LLCs have insurance, it is highly recommended. Having the right insurance policies can protect your LLC from potential liabilities and financial losses
Can I Have Investors in My Minnesota LLC?
Yes, you can have investors in your Minnesota LLC. Investors can contribute capital in exchange for a percentage of ownership or profit interest in the LLC. However, it's important to comply with federal and state securities laws when acquiring investors.