How to Form an LLC in Minnesota
If you are thinking of starting a business in Minnesota, it is important to understand the process and requirements for setting up an LLC. In this guide, we will provide all the information you need to get started, including the steps involved and the necessary paperwork. By following these guidelines, you can ensure that your LLC is registered correctly and operating within the law. Let’s get started!
What is an LLC?
The Limited Liability Company (LLC) is a popular business structure for many businesses starting in Minnesota. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Minnesota without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form a Minnesota LLC
Let’s break down the steps to complete the Minnesota LLC formation process.
Total Time: 10 minutes
Step 1: Choose an LLC Name
The first step in forming a Minnesota Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Minnesota. The Minnesota Secretary of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do a Minnesota LLC name search.
In addition to making sure the LLC name is available, you also must include one of the following phrases or abbreviations at the end of the business name:
– Limited Liability Company
– Limited Company
– L. L. C.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is a name you want to use but aren’t ready to form the LLC, the Request for Reservation of Name can be filed to hold the name for up to 1 year. The state filing fee for a name reservation is $35, paid to the Secretary of State.
Before finalizing a name, you may also want to see if a domain name is also available to have a matching website address.
If you plan to use a different name from the one that you register (perhaps you want to run multiple businesses under the LLC), you can use an assumed name (sometimes referred to as a fictitious business name, trade name, DBA, or Doing Business As name). To register an assumed name, file the Certificate of Assumed Name, along with the filing fee ($30 for filings by mail or $50 for online filings), paid will need to be sent to the Minnesota Secretary of State. Additionally, a legal notice is required to be placed in a newspaper in the county where the business is located for two consecutive issues.
Step 2: Appoint a Minnesota Registered Agent
Minnesota statutes require that every LLC in Minnesota must have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in Minnesota include:
– The agent must be a Minnesota resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed)
– The agent must generally be available during normal business hours at the address provided to receive service of process
Learn more about the requirements for a Registered Agent in Minnesota
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the Minnesota LLC Articles of Organization
The paperwork to officially create an LLC in Minnesota is called the Articles of Organization. To submit the paperwork, you can either file online through the Minnesota Secretary of State or download and mail the Minnesota Articles of Organization form.
If you have questions, contact the Minnesota Secretary of State
Address: Minnesota Building 60 Empire Drive, Suite 100 St Paul, MN 55103
Phone: 651-296-2803 (between 9 am and 4 pm)
Estimated Cost: 135 USD
When filling out the Articles of Organization, there are a few sections and terms that can be confusing. Let’s go over a few of these sections to help get your LLC started right.
The LLC Organizer is someone who is involved with filing the Articles of Organization. The Organizer may or may not be a member (LLC owner), such as a mentor, attorney, or accountant, but the initial members could also be an organizer.
Individual filers will leave this section blank, but if an attorney or entity formation service were completing the articles on your behalf, they would include a reference number to track the application.
Minnesota Business Snapshot
This is a voluntary section to include information regarding the number of employees, women, minority or veteran ownership, business classification, and more.
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
You have a Minnesota LLC! Now what???
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Minnesota LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, LLC member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.
How much does it cost to get an EIN number in Minnesota?
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- In some circumstances, a Minnesota Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax Permit – To sell products and certain services, registration with the Minnesota Department of Revenue will be necessary.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
File the LLC Annual Renewal
LLCs are required to file an annual report every December 31st with the Minnesota Secretary of State. Unlike most states, there is no annual filing fee.
Common Questions To Starting An LLC In Minnesota
How much does it cost to start an LLC in Minnesota?
The Secretary of State filing fee to start an LLC in Minnesota is $135 for online filings and $155 for mailed-in forms.
What is the processing time to form an LLC in Minnesota?
LLCs formed online are processed immediately, while mailed in forms can take up to one week.
Is there a yearly fee for an LLC in Minnesota?
Each year, an annual report must be filed, though there is no annual LLC fee.
Who can be a registered agent for an LLC in Minnesota?
Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state of Minnesota, and are generally available to receive documents during normal business hours.
Does an LLC need a business license in Minnesota?
It’s sometimes thought that the LLC and business license are the same in Minnesota, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC will need to register as a foreign LLC in each state where it plans to operate.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in Minnesota, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.