Why Set Up an LLC in Minnesota?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can start an LLC in the United States – even foreign citizens and companies. However, the requirements for forming an LLC varies slightly from state to state.
In this article, we will be looking at how to form an LLC in the state of Minnesota. The Land of 10,000 Lakes invites over 18,000 new LLCs each year. Currently, there are more than 69,000 active LLCs in the state, and for good reason too, its economy is booming!
On the report of the US Chambers of Commerce, Minnesota comes in 4th nationally for median family income. With easy access to fundings, Minnesotans have the 2nd highest quality of life in the country.
How to obtain an LLC in Minnesota?
STEP 1: Name of the LLC
How to start an LLC in Minnesota? Well, first and foremost, you must name your Minnesota LLC in your formation documents. You would have to pick a unique name for your LLC that complies with Minnesota’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC” or “L.L.C.”
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC.
- The name must be unique, distinguishable from the names of pre-existing business entities in Minnesota. Variations of designators and grammar do not amount to distinguishability. In order to determine if the exact name you have envisioned is available, you may browse through the business name database on the Minnesota Secretary of State website.
You may reserve the name you have envisioned for 120 days by filing a Name Reservation with the Minnesota Secretary of State. The reservation may be filed through the website where the form is found or through mailing the form Secretary of State office. The filing fee would be $50 if done so virtually and $35 if done so through mailing.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “Trade Name” or more specifically a “DBA” for your LLC in Minnesota, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name in the Articles of Organization. This is achieved by filing the necessary forms online or by mailing the filled out Certificate of Assumed Name form to the Secretary of State office.
The filing fee shall be $50 if done so virtually and $30 if done so through mailing. In addition to the fees demanded, you would also have to publish your Certificate of Assumed Name in 2 consecutive issues of a local, legal newspaper in the county where the Minnesota LLC is based in.
STEP 2: Appointment of Registered Agent
You are required by Minnesota’s state laws to nominate a designated Registered Agent for your Minnesota LLC while filling out your formation documents.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the Minnesota LLC any tax forms, notices from the Secretary of State and even legal documents from lawsuits. The agent also keeps the Minnesota LLC afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in Minnesota is that the agent must either be a resident of Minnesota or a corporation present within the state with authorised Commercial Registered Agent services.
The agent must have a physical street address within Minnesota, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the agent must always be available during business hours to receive a Service of Process when necessary.
Anyone within the Minnesota LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateurish individual would make, therefore avoiding the accumulation of even more expenses over time. This suggestion is especially relevant if you yourself or your acquaintances do not have a physical address within the state.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your agent via the Minnesota Secretary of State website while you are filing your formation documents or by mailing a physical copy of the Articles Organization with your Registered Agent’s information filled up in section 2 to the Secretary of State office address.
It is also possible to change your nominated agent, simply do so virtually through the Secretary of State website or by mailing in a physical copy of a Change of Registered Agent form to their office. The filing fee shall be $55 if done so virtually and $35 if done through mailing.
Registered Agent services in Minnesota includes:
- Northwest registered agent
- Minnesota Registered Agent, LLC
STEP 3: Filing the formation documents
An LLC in Minnesota may be formed once the Articles of Organization is filed and mailed to the Minnesota Secretary of State office.
Alternatively, you could also form your LLC in Minnesota by opting for the more convenient route of filing the form online through the Minnesota Secretary of State website. First, you would have to make an account within the website’s Business and Liens page. Once an account is made, click tap on the leftmost tab, “Business Filings Online” and scroll down for the LLC option.
Regardless of the available routes chosen, the filing must include these necessary details of the LLC:
- Organizer’s Details;
- Registered Agent’s Name;
- Registered Agent’s Address,
- Email Address;
- Phone Number, and;
- The signature of the Organizer.
The filing fee for the Articles of Organization shall be $135 if done through mailing and $155 if done so virtually or in-person.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 1 to 2 weeks if transacted by mail or instantaneously if transacted through the virtual route, you would receive an Acknowledgement Letter, a stamped and approved copy of the Articles of Organization and the LLC’s Certificate of Organization which could all be either physical or digital depending on the method chosen when filing the forms.
STEP 4: Register the Business for Tax and Regulatory Requirements
Once you have formed your LLC, you may have to apply for business licenses or permits depending on the trade and location your Minnesota LLC is in. The relevant licenses may range from Building Permit to Liquor License. In order to ascertain what are the licenses you may need you could browse through the comprehensive guide prepared by the Minnesota Department of Employment and Economic Development.
With an idea of what licenses your Minnesota LLC should possess, you may now search them up on Minnesota Bureau of Business Licenses’ E-Licensing page for information on the laws pertaining to them and more detailed instructions on how to procure them, it would take you to the specific agency in charge of the exact license you want.
You may also contact the specific County Office for your Minnesota LLC to affirm the necessary licenses and procedures mandated.
Your Minnesota LLC may also be necessitated to register for one or more forms of state tax depending on the trade your Minnesota LLC is in and how the business is conducted. You may find and apply for the necessary tax forms through the Minnesota Department of Revenue website.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of Minnesota in order for an LLC to function, it still highly suggested that you prepare one for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and member terms. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. Minnesota’s LLC Law would only affect the internal affairs of the Minnesota LLC in the absence of an Operating Agreement.
The Minnesota LLC Act provides that members of a Minnesota LLC have the contractual freedom to customize their capital contributions and their shares of profits and losses through the use of the Operating Agreement. They could choose to either increase their duties and therefore, their presence in the LLC or simply opt-out of certain duties by including provisions that give such effects in the Operating Agreement.
Amongst the most important structural support an Operating Agreement provides to an LLC that you should have within your own version are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes. The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your Minnesota LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your Minnesota LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN. No filing fee will be charged.
There are no filing fees necessitated for obtaining an EIN.
STEP 7: Annual Renewal
Finally, once you have done all the groundworks to set up an LLC, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
Like many other states, Minnesota dictates that all LLCs within it must file an “Annual Renewal” as a means to renew their applications and remain in compliance and good standing with the state laws. As indicated by the name, this report must be filed once every year – without fail.
Though the Minnesota Secretary of State would courteously remind your Registered Agent through emails and postcards of the due date every fall, it is still your responsibility to perform your due diligence in the event that they do not. They are not liable for your oversight.
The Annual Renewal must be filed before the last day of each year, the 31st of December, no later than that. Your very first Annual Renewal would be due in the subsequent year of when your LLC was formed. As an example, if you set up your LLC on the 25th of November 2021, you need not worry about its Annual Renewal until the December of 2022. It is suggested that you file earlier in the year to avoid complications, the earliest filing date is the 1st of January.
Mailing in your LLC’s Annual Renewal is an option, just print out the filled up form and forward it to the Secretary of State postal address. Submitting the Annual Renewal virtually is another option, it could be done through the Secretary of State website. Do keep in mind that an account is necessitated to fully access the website, though, you should already have one as it is necessitated when filing your formation documents in the first place.
Unlike most states, Minnesota does not demand a fee to accompany your Annual Renewal, that is, however, as long as your LLC in Minnesota remains in good standing.
The content of an annual report must include just a few details, namely:
- The name and address of the LLC;
- The name and address of the registered agent;
- The name and address of the chief manager; and
- The file number of the LLC.
If you do not file your Annual Renewal by the yearly deadline, the 31st of December for the sake of emphasis, your LLC in Minnesota would be administratively dissolved. You would then have to pair the Annual Renewal with a filing fee of either $25 (if you have physically mailed it) or $45 (if you have submitted it virtually) in order to have your LLC reinstated.
Additional Information on Setting up an LLC in Minnesota
With all the above carried out, your LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues and consequently, damage done to your personal assets.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. It is the reason why most business-savvy Minnesotans would want to learn how to start an LLC in Minnesota. As an LLC you could choose to be taxed as either a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC as you are allowed to operate like a company without its burdening taxations.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure. If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
Minnesota Secretary of State Office Address:
Minnesota Secretary of State
Retirement Systems of Minnesota Building
60 Empire Drive, Suite 100
St Paul, MN 55103
Internal Revenue Service Mailing Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions
How much does it cost to start an LLC in Minnesota?
In order to first form your LLC you would have to spend around $135 to $155 for the formation fee of your LLC. This the sole compulsory payments demanded. The rest depends on your needs and wants.
Nevertheless, it should be kept in mind that though it costs $0 to renew your LLC every year, if you missed out on the annual deadline, you would have to pay a fee of $25 to $45 to get your now dissolved LLC reinstated.
Can a foreign LLC conduct its business in Minnesota?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the Minnesota Secretary of State prior to doing so. This could be done through mail or through their website, simply submit a Certificate of Authority to Transact Business in MN (LLC). Do keep in mind that you would also need a Registered Agent present within the state of Minnesota itself. The filing fee would be $205 for virtual filings and $185 for filings through mail.
Can a professional LLC be formed in Minnesota?
Yes, a professional LLC may. However, professional LLCs in Minnesota were required to go through a more thorough and stringent application process before they could ever come into existence. To illustrate, some of the additional requirements include professional state licenses for the LLC itself and a professional licensed status for the owners themselves.
You must include the type of professional service your LLC offers in the Articles of Organization. Although there is no restriction on how many types of professional services your LLC would provide, do keep in mind that the members of the LLC must be licensed to provide those services.
Is my Minnesotan LLC required to be insured?
It may be necessary for your LLC to be insured with specific policies, depending on what industry the LLC is in and if the LLC has any employees.
What is the minimum wage for workers in Minnesota and are there any regulations on how often I would have to pay them?
Once you have figured out how to start an LLC in Minnesota you would need to finance its upkeep and workforce. The minimum wage in Minnesota is $8.15 per hour for LLCs that have a gross revenue of less than $500,000 a year and $10.00 per hour for LLCs that have a gross revenue of more than $500,000 a year.
Minnesota mandates that a majority of employees are to be paid on at least a monthly basis. Those within “transitory employment” must be paid in at least a 15-days interval.
How do I dissolve my LLC in Minnesota?
Unlike other states, Minnesota requires a meeting to be held where the resolution to dissolve the LLC must be passed. Only then may the articles of dissolution be submitted. You would need to submit both a Statement of Termination form and a Statement of Dissolution form to the Minnesota Secretary of State. The filing fee for both forms would be $35 each.
Once the respective procedures and forms are carried out and submitted, the Minnesota Secretary of State would release a “Certificate of Termination” to you and your LLC would be officially dissolved.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.