Congratulations! If you’re reading this article then you’ve likely made the decision to start an LLC in Minnesota.
Starting a new business can be an exciting venture – whether you’re creating a new one or you’re starting one in a different state. So celebrate your decision to form an LLC in Minnesota for what it is – a big step forward for your business!
Of course, I’m going to tell you everything you need to know about forming an LLC in the state of Minnesota, but I’ll start by telling you what a Limited Liability Company (LLC) is and some of the reasons small business owners choose LLCs rather than other business structures (like a corporation or sole proprietorship) so that you can make an informed decision about whether starting an LLC is really the right move for your business.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is A Minnesota LLC?
A Minnesota LLC is a Limited Liability Company formed in the state of Minnesota that is governed by the laws, regulations, and statutes of the state of Minnesota.
Why choose An LLC?
There are many advantages to forming an LLC (Limited Liability Company) rather than choosing a different type of business entity, like a sole proprietorship, sole trader, partnership, S Corporation, or C Corporation. Many business owners discover numerous benefits to owning a business over the years and you’ll also probably discover many benefits your business in Minnesota will receive from LLC formation. Here are the three main reasons that small business owners choose to form an LLC.
1. Limited Liability And Asset Protection
The first reason that sways small business owners’ minds about forming an LLC rather than choosing a different business structure (like a sole proprietorship) is that owners of LLCs cannot be held personally responsible for the liabilities and debts of their Limited Liability Company (LLC).
So, if your Minnesota business is sued or goes bankrupt, as long as you’ve formed a Limited Liability Company (LLC), the creditors of your Minnesota LLC can’t come after your personal assets as a means of financial compensation. This means that they can’t list your house, car, or the money in your personal bank account as a way to fulfill the financial obligations of your Minnesota LLC.
This past year has shown us that businesses that are very prepared and vastly successful can be toppled overnight by an unexpected event (like a worldwide, viral pandemic). And it’s for this reason that small business owners cherish the personal asset protection that comes from forming an LLC in Minnesota. Anyone who has put a lot of hard work into creating and establishing their business in Minnesota will value the protection that a Limited Liability Company (LLC) can provide.
The next reason small business owners choose LLCs is that
they can protect their personal information when they form an LLC in Minnesota.
This is important because hackers and con men have become very good at their nefarious online activities over the past decade. They can now steal your identity with just a few clicks and the smallest bit of seemingly insignificant information (like your name and address) which they can then use very quickly to steal your identity and amass thousands of dollars of debt in your name.
If you choose a business type like a sole proprietorship, partnership, or sole trader you’ll need to register your name and address with the Minnesota Secretary of State. They list this information on the public record on the website for the Minnesota Secretary of State and anyone can access it by searching your business name. This means that the criminals and hackers will have access to information you’d rather not provide them with.
If you form an LLC, however, you have the option to protect your information and keep it off public record.
How do you do this? You hire an LLC formation service. An LLC formation service is a professional service that will register their information with the Minnesota Secretary of State to be listed on the public record on behalf of your business in Minnesota, rather than your own. This is a win-win situation for owners of LLCs because you’ll still maintain ownership of your Limited Liability Company and your information is secured.
The last reason that helps small business owners make up their minds when trying to decide if forming an LLC in Missouri is the right decision for them are all the tax benefits LLCs receive compared to corporations.
If you start a corporation rather than an LLC, you’ll experience something known as “double taxation”.
Here’s how “double taxation” works. The profits from corporations are charged a corporate income tax. Then the (already taxed) profits are distributed to shareholders as dividends, which are taxed at a different rate as well, resulting in “double taxation”.
But you avoid “double taxation” entirely when you form a Minnesota LLC.
Here’s how taxation for LLCs works. Income for your LLC in Minnesota will be taxed at company rates (not corporate rates), then dispersed to LLC members as personal income (not dividends) and are later subject to personal income tax.
Believe it or not, there are even more tax benefits for LLCs beyond simply avoiding “double taxation”.
When the Tax Cuts and Jobs Act was instituted in 2017, it provided LLCs with a tax benefit known as Qualified Business Income Deduction. This provides a 20% tax discount to LLCs that isn’t available to any other business type or business structure.
How To Start An LLC In Minnesota
Now that you know what a Limited Liability Company is and the reasons people would choose to form an LLC in Minnesota, I can tell you how to form a Minnesota LLC with the Secretary of State. If you’re sure that a Minnesota LLC is the right structure for your Minnesota business, then here are the five steps you’ll need to take to form an LLC in Minnesota.
*IMPORTANT* If you’d like someone to guide you through the forest of red tape and mountains of legal documents that will be necessary to form an LLC in Minnesota, there’s good news. There are professional services that can help you. They’re called LLC formation services and they make the formation process go more smoothly.
They can charge fees as low as $0 plus the state filing fee to help you file all the legal forms to establish your LLC in Minnesota. (However, my favorite LLC formation service is ZenBusiness and they charge $49 plus the state filing fee.)
If you’d like the guidance and protection of personal information that comes from hiring an LLC formation service, then check out my guide on the best LLC formation service here.
1. Obtain Articles Of Organization Form
The first step you’ll need to complete on your journey to form a Minnesota LLC is to get your hands on an Articles of Organization form from the Minnesota Secretary of State.
You can get the Articles of Organization form on the website for the Minnesota Secretary of State here.
This is a PDF version of the Articles of Organization form and it’s the primary form that you’ll need to file with the Minnesota Secretary of State to form your Minnesota LLC. Conveniently, you can file online or in person.
The remaining steps will involve filling out various sections of the Articles of Organization form.
2. Choose Your Business Name
The very first thing you’ll need to add to your Articles of Organization form is your LLC name.
Unfortunately, you can’t just list the first business name that you think of for your Minnesota business here. The laws set forth by the Minnesota Secretary of State require each LLC must have a different name, so you’ll have to choose an LLC name that isn’t already being used by another business.
You can check the business name database on the Minnesota Secretary of State website here to find out whether the company name you want to use is available.
Under Minnesota state law, LLCs must include “Limited Liability Company” or the abbreviation “LLC” in their name, so keep that in mind when choosing a name for your LLC.
Once you’ve decided on a name for your Missouri LLC, you’ll need to file a Name Registration form with the Missouri Secretary of State, along with a payment for the state filing fee. You can get a PDF of the form here. You can file this form online or in person. You can find the link to file online here.
If the name you’ve had to register isn’t quite to your liking, you can register a Doing Business As (DBA) name, also known as an assumed name or a trade name.
A trade name is a name that you’ll use for all of your LLC’s advertisements, signs, and anything else you want to present to the world. Again, you’ll need to register your trade name with the Minnesota Secretary of State. Here’s the Certificate of Assumed Name form that you’ll need to file online (link here) or by mail. The state filing fee is $50 if you file online, or $30 if you file via postal mail.
Additionally, your LLC must publish the LLC’s Certificate of Assumed Name in two consecutive issues of a legal newspaper in the county your LLC is located in.
3. Choose A Minnesota Registered Agent
The next step you’ll need to complete on your LLC formation journey is to appoint a Minnesota registered agent. You must include your registered agent’s name and address in your Articles of Organization which is why this is important.
A registered agent must accept mail or legal documents like Service of Process from official state offices like the Minnesota Secretary of State and the Minnesota Department of Taxation during normal business hours on business days for your LLC.
Your LLC can’t act as its own registered agent in the state of Minnesota and your registered agent must have a physical street address within the state of Minnesota.
You can choose to use a professional service to fulfill your LLC’s legal registered agent requirements. Registered agent services make sure you receive all of your LLC’s important mail and legal documents (like Service of Process), while also keeping your personal information secure and off the public record. Registered Agent Services typically cost between $99-$299 per state per year.
There are a lot of risks and costs you may incur by not using a registered agent service. Your information could be used to steal your identity, you could miss important official mail and legal documents like Service of Process and then not be able to defend yourself from lawsuits, or you could even lose your business. For these reasons, I always suggest that new LLCs use a registered agent service.
If you’d like to use a professional service to make your life easier and keep your personal information secure, click here to read my guide on the best Minnesota registered agent service.
4. Choose Your LLC Address
The name for your LLC isn’t the only piece of information you must enter onto your Articles of Organization form. The address that you put on the Articles of Organization form is just as important as the LLC name you will register with the Secretary of State and the address will be listed on the public record for anyone to access online, just like the name of your Minnesota LLC. This is the address where your business will receive official mail and important legal notices, as well.
If you’ve decided not to use a registered agent service or LLC formation service for your LLC, you’ll need to list the physical address of your business here. If your business doesn’t have a physical address, then you’ll be forced to list your home or home office address on the form. When you’re considering addresses to list for your LLC it’s important to know that you can’t list a PO Box address on the Articles of Organization form.
If you’ve chosen to use a registered agent service then they will register their address with the Minnesota Secretary of State, rather than yours. Furthermore, the address they list can’t be traced back to you or your name, thus keeping your identity safe and protecting your privacy.
5. Sign And File Your Articles Of Organization
Once everything is filled out on your form and you’ve checked the information on it for accuracy, it’s time to sign and file your LLC’s Articles of Organization form.
If you’re comfortable doing so, you can sign and file the Articles yourself but you need to know that this will register your information with the Secretary of State. But you can also choose to use an LLC formation service. They’ll sign and file your LLC’s Articles of Organization on behalf of your company and register their information with the Secretary of State instead of yours.
You have a few filing options for your Articles of Organization. You can file by mail, online, or in person. You’re required to file the form along with a payment for the state filing fee. To file by mail or in person simply send the form to this address or go there yourself:
Minnesota Secretary of State – Business Services
Retirement Systems of Minnesota Building
60 Empire Drive, Suite 100
St. Paul, MN 55103
The Secretary of State’s office is located in the Retirement Systems of Minnesota Building, so this is where you’ll need to go if you intend to go to their office and file the form in person.
You can also choose to file online. You’ll still need to pay the filing fee if you file online, which you can do with a credit card. Click here to file your Articles of Organization online.
Once you’ve finished filing the Articles of Organization form for your company, the Secretary of State will contact you via mail or email once they process all of your formation documents. This can take around 10 days.
If you’d like to get through this process faster you could choose expedited processing. In order to file an expedited processing request, you’ll have to file your Articles of Organization either in person or via postal mail. No option for online expediting is available through the Secretary of State’s office. You can also get expedited processing through many Minnesota state LLC formation services.
Other LLC Activities
Filing the Articles of Organization for your company isn’t your last official act as an LLC owner. You’ll need to take part in several other business-related activities to keep your Minnesota LLC in good standing.
LLCs doing business in Minnesota are required to file an Annual Renewal. You must file an Annual Renewal once every calendar year and the Annual Renewal must be filed with the Minnesota Secretary of State. The deadline to file is December 31st and the Annual Renewal form can be filed online or in person. You also have the option to file an Annual Renewal by mail. The filing fee is $45 for online or in person and $25 for filing via postal mail.
You will likely need to obtain business licenses for your business to operate in Minnesota, depending on the type of business you will be conducting. You’ll have to check with the county clerk for any local licenses you may need to acquire, as well as check the Minnesota E-licensing Portal for any state licenses you need to obtain.
LLCs in Minnesota will have to register with the Minnesota Department of Revenue if they collect sales tax on goods or services. You can register online on the Minnesota Department of Revenue e-services website which you can find here.
If you are operating outside of the state of Minnesota, you’ll need to follow the process for establishing a foreign LLC. The process for creating a foreign LLC in Minnesota is very similar to the process described in this article for forming a domestic LLC. The key difference is that when appointing a registered or statutory agent for a foreign LLC, you must use a registered or statutory agent physically located within the state of Minnesota. You are also required to file a Certificate of Authority to Transact Business in MN form which you can find on the Secretary of State business website here. This can be filed online or in person, or via mail. The fee for filing online or in person is $205, or you can file by mail for $185. You can file online here.
It’s also important that you pay your taxes, apply for an EIN for your business and obtain a Certificate of Good Standing. If you neglect any of these activities or forget to file a form that you must file, it could result in your business not being legally allowed to conduct business in the state of Minnesota.
If this seems like a lot of paperwork to file, that’s because it is. If you’d like help filing these documents, you could consider hiring a Minnesota PEO service and subscribing to online legal services. This should cut back on the document filing workload for your LLC.
Minnesota LLC Fee Summary
One of the most frequently asked questions is about the cost to form an LLC in Minnesota. Whether you’ve chosen to start your LLC on your own or you’ve decided to hire an LLC formation service to help you through the process, you’ll be required to pay filing fees and taxes for your LLC in Minnesota. Here are a few of the taxes and filing fees you must pay for your LLC to give you an idea of how much it costs to initially form an LLC in Minnesota.
Articles of Organization filing fee: $135 via mail, $155 online or in-person
Name Reservation filing fee: $50 via mail, $55 online or in-person
Registered Agent Fee: $99- $299
Annual Report filing fee: $25 via mail, $45 online or in-person
State Personal Income Tax: 5.35%-9.85%
State Corporate Income Tax: 9.8%
After Starting Your Minnesota LLC
When you decided to start an LLC you completed the first step on your business journey and took control of your financial future. You should celebrate this business success while you have time. Go out and have a nice dinner in a fancy restaurant, throw a small celebration party with close family and friends, go out of town for the weekend or simply enjoy a glass of champagne to toast the next chapter of your business.
But this relaxation is going to be short-lived. There are still things you’ll need to do to ensure that your LLC has the proper structural framework to function well as a business.
Here are the three most important steps you must complete after you’ve filed your Articles of Organization with the Minnesota Secretary of State.
Step 1. Create An Operating Agreement
The state of Minnesota doesn’t require LLCs to form an Operating Agreement, but it’s in the best interest of your business to do so. Without an operating agreement, your LLC will be governed by Minnesota state LLC law for your operations, which may not be exactly how you want things done for your company.
To put it metaphorically, think of your business as an animal of some sort. The LLC would function as its skin or outer shell to protect it and the LLC Operating Agreement would function as its nervous system by telling the creature what to do, how to function, and how to react to external stimuli.
An Operating Agreement is an internal business document that acts as both a contract between LLC members and also a list of specific instructions that describe how your business should run. The Operating Agreement should start by listing every LLC member, then go on to set up all of the managerial, financial, operational, and structural facets of your business and the effective date of your LLC.
*IMPORTANT* Prior to drafting the LLC Operating Agreement for your business, it’s imperative to decide whether it will be managed by a single member or if it will use a multi-member managerial system. This helps to decide who will make important decisions for your business and how. If you utilize a multi-member managerial system, they all vote on each important business decision. If you use a single-member managerial system then one member will make all of the decisions for the business.
Operating Agreements should begin with a list of your LLC members, identify which members are granted the authority to make decisions for the business (This is where knowing whether you want a single-member system or multi-member system becomes important. You’ll need to define whether one member makes these decisions or if a handful of members will get together and vote on them), and then go on to precisely list not only the ownership percentages but also the percentages of profits and losses of each member.
Your agreement should clearly explain the roles of each LLC member in detail and define their interactions and relationships with other departments and each other. When you design your Operating Agreement like this, you ensure that the LLC members know what their roles are, who their superiors are, which departments or members they should be interacting most closely with the most often, and the roles and which tasks each department is in charge of which will prevent unnecessary arguments between LLC members.
One important component of LLC Operating Agreements that many people forget or neglect to include is a section with instructions about what to do if one member leaves or if a new LLC member is to join the business. This is often left out of Operating Agreements, but including this section means your business will have a clearly-defined set of instructions that describe what to do in the event of a disagreement between LLC members. Having a set of logical and well-written rules in Operating Agreements for these situations can be not only crucial but comforting during times of emotional turmoil.
Operating Agreements are vital documents for new LLCs during their beginning stages. This is because your Operating Agreement explains the jobs of your LLC members, lists their compensation, and supplies members with thorough instructions describing how the business should be run.
LLCs in Minnesota aren’t required by the Secretary of State to create an Operating Agreement. But if you do, (and you should) it’s important that you write your Operating Agreement in much the same way I’ve described it here, and don’t leave out the sections that I’ve described as being important. If you leave these sections out or screw up your Operating Agreement it could jeopardize your whole business.
In case I haven’t been clear enough about the definition of Operating Agreements, the rules that you establish in your agreement become the standards for how your business must run. Your business is required to run according to the instructions you provide in your Operating Agreement so it’s easy to see that a poorly-written agreement can stifle the growth of your business. It’s easy to mess up your business’s Operating Agreement simply by not wording it in such a way that allows for business growth, innovation, and change. If you write your agreement well, you’ll be able to watch as your company flourishes without being restricted by the faulty instructions in a poorly-written agreement.
If you’ve never created and filed an Operating Agreement before and you’re concerned about getting it right (which you should be), there are a few options available to you that will ensure it turns out right.
If you’ve decided to use formation or business services, they will typically create an Operating Agreement on behalf of your company as part of their services. If you want to create the agreement yourself, check out the free Operating Agreement template for LLCs that Northwest Registered Agent provides on their website. You can also utilize online legal services to guide you through the process and give you the right legal words to make the agreement work for you.
Step 2. Apply For An Employer Identification Number
You’ll need to register for an Employer Identification Number (EIN) if your LLC takes part in certain activities, like opening a business bank account or hiring employees. One of the bonuses of having an EIN for your business is that it qualifies your business for certain permits and licenses that it wouldn’t be qualified for without it. You don’t have to hire employees for your small business to obtain an EIN. An EIN is just a tax identification number for businesses.
An Employer Identification Number (EIN) functions to identify businesses much like Social Security Numbers work to identify individual people. To obtain an EIN you need to apply through the Internal Revenue Service (IRS). It’s quite simple and painless to apply for an EIN for your business.
A lot of formation or business services in Minnesota will apply for an EIN on behalf of your business as part of their services. But you can apply for an EIN on your own without the aid of LLC formation services. To apply for an EIN, you’ll need to log onto the IRS Application Portal website between 10 am and 7 pm to submit the EIN application and file online.
Step 3. Open A Business Bank Account
The last task you’ll need to complete to ensure that your business cano operate properly is to open a bank account dedicated to your LLC’s business transactions.
A lot of small business owners either forget this step or overlook it and wind up running both business and personal transactions through their personal accounts. Some people mistakenly believe that having one account for two different purposes saves them a bit of trouble when it can actually create legal trouble for them. There are two very good reasons you shouldn’t run your LLC’s business transitions through your personal bank account.
The first reason is that it makes tax season unnecessarily complicated. Many people who run both personal and business transactions through the same bank account assume that they’ll be able to determine the difference between the two later for tax purposes. However, these purchases are often made months before it’s time for annual tax filing. The more time goes on, the harder it is to remember things, which means that this method makes filing state tax and federal tax returns a complicated, if not impossible task. So for tax purposes, it’s simpler to open a business bank account for your LLC.
The next reason is that running your LLC’s financial transactions through your personal bank account can make you vulnerable to lawsuits. Of course, when you start an LLC you enjoy a degree of personal liability and asset protection, but that is negated when you do business from your personal bank account. This not only makes your personal information vulnerable, but it can also jeopardize the funds in your bank account because creditors of your LLC can list your personal bank account as payment for the debts of your LLC.
So to keep personal assets and information safe and to make tax filing easier, owners of LLCs must open a business bank account.
To open a business bank account, LLCs must have what is known as a “bank kit”. A bank kit includes copies of several important formation documents, such as your Articles of Organization, Operating Agreement, Certificate of Good Standing from the Secretary of State, and EIN. You can gather these documents yourself and create your own bank kit, but LLC formation services also typically create a bank kit on your behalf as part of their services.
When you decided to start an LLC in Minnesota you took the first step towards controlling the future of your business, so congratulations!
If you’ve made the decision to start an LLC on your own without the help of LLC formation services (which charge as little as $0 plus state filing fees), these are the five steps you’ll need to take to start an LLC in Minnesota.
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
You can quickly become overwhelmed by all of the red tape, the number of forms you’ll need to file with the Minnesota Secretary of State and applications to process (some of which may or may not be filed online), legal terms you’ll have to learn and the amount of work it takes to form an LLC in Minnesota. But if you complete this monumental task on your own, you’ll find that there’s little that beats the rush you get from that feeling of accomplishment, so it’s definitely worth all of the trouble!
Congratulations again on making the decision to start your own Minnesota LLC and good luck with your business!