Are you looking to form a limited liability company (LLC) in Minnesota, but you’re not sure how the process works? There are several important steps to create a compliant Minnesota LLC that can do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Minnesota LLC?
The Minnesota LLC is one of the most popular business structures in the state. It’s a more casual and flexible type of business than a corporation, but includes the personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Minnesota have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Setting up a brand-new Minnesota LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up a Minnesota business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to consider when naming your business.
Legalities
In the state of Minnesota, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the abbreviation “LLC” or the phrase “Limited Liability Company”
- Your name cannot include the words “Corporation” or “Incorporated” (or their abbreviations
- Your name cannot include language that implies you are conducting activities that are not permitted by law or your stated business purpose
- Your name must be “distinguishable on the record,” or distinct from the names of other businesses in the state
For more information on naming rules in Minnesota, please consult the Limited Liability Company Name Section of the Minnesota Statutes.
Explanatory Naming
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Step Two: Appoint a Registered Agent
Every LLC in Minnesota is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
When you appoint a Minnesota registered agent, here are the state requirements to be mindful of:
- Every entity that goes on file (i.e., registers) with the Secretary of State (both domestic and foreign) must appointed a registered agent
- The agent may be a natural resident of Minnesota OR a business entity with authority to operate in the state
- An agent must be continuously maintained
You find a full rundown of the state laws here.
Without a registered agent, you could lose your good standing with the state of Minnesota, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
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Step Three: File Formation Documents
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Once you are ready to form your Minnesota limited liability company, you will fill out the Articles of Organization. You can either do this on your own or hire a Minnesota LLC service. Some services, like ZenBusiness, even offer discounts on their service.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Name and contact information of each organizer
- An email address for official notices
- If desired, the business snapshot survey
Minnesota keeps this form pretty simple; all you really have to do is fill out the requested information, submit the filing, and you’re set to go.
That said, Minnesota does add a Business Snapshot Survey to the end of the Articles. You do not have to fill this out, but it’s quite simple, and it helps the state keep a pool of data about businesses in the state. For example, it helps Minnesota know how many people are employed by small businesses, how many women-owned or veteran-operated businesses there are, and more.
The Articles of Organization can be filed by mail, in person, or online. If you want to keep things as affordable as possible, we recommend filing by mail; other filing methods are regarded as expedited.
- Total cost: $135 for mail-order filings, $155 for online or in-person
- Processing speed: within 5 business days of receipt
- Expedited processing: $20 (online and in-person filings are automatically regarded as expedited)
Step Four: Draft an Operating Agreement
After you register an LLC in Minnesota, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five: Get Licenses & Permits
Minnesota law requires an LLC to obtain all necessary licenses and permits before starting operations. State law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. Some businesses won’t even need licenses. That’s especially true since Minnesota does not have a statewide general business license.
That said, we recommend that every LLC owner check out Minnesota eLicensing, a database of over 750 professional and occupational licenses that are required within the state. Not all businesses will need to obtain one of these licenses, but if you see your industry listed here, you’ll need to get the appropriate licenses. eLicensing also has a search tool, which makes this step a little easier.
Last but not least, you should check with your city or county to see if they maintain any licensure requirements.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLCs members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- State: 9.8%
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- State: 5.35% to 9.85% (in four income brackets)
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. If you’re filing as a corporation, you’ll file using Form 1120, while LLCs taxed as pass-through entities will report the income on Schedule C of their Form 1040. You can read more about how Minnesota taxes its businesses here.
Next, if you’re involved in retail sales, you’ll be expected to collect and pay the state sales tax (6.75%). Beyond that, there are a few miscellaneous industry-specific taxes that might apply to your business. For example, Minnesota charges fees for mining, minerals, gambling, and more. For more information on Minnesota taxes and fees, we recommend consulting the Minnesota Department of Revenue.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the state and federal level.
2. Be ready to file your annual report
All business owners operating in Minnesota must complete an Annual Renewal filing every year. Not only does the renewal let the state know that you’re still in business, but it also keeps them aware of some pertinent information regarding your business that may have changed over the course of the year.
You will need to begin filing the Annual Renewal on your second year of business; the due date is December 31st. You can file the form online or by mail, but if you’re looking to save some cash, filing a paper form saves you $20. The base filing fee (for mail-order filings) is $25.
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the state level. For example, Minnesota requires withholding taxes, contributions to the unemployment insurance fund, and more. We recommend consulting with the Department of Revenue and the official website for Minnesota Unemployment Insurance to learn what taxes apply to you and your business.
Step Two: Obtain additional insurance
Every Minnesota with one or more employees is strictly required to get workers’ compensation insurance. For more information on this policy, check out the Workers’ Compensation Coverage page by the Minnesota Department of Labor and Industry.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.