LLC Minnesota: Everything You Need to Know
LLCs in Minnesota are treated as corporations, limited liability partnerships or single-member LLCs and are subject to federal income tax classifications6 min read
How to Start an LCC in Minnesota
To start an LCC in Minnesota, you need to complete important key steps before and after formation, such as acquiring business licenses & permits, registering for state taxes, and opening a business bank account.
Before you begin the process, determine if forming a Limited Liability Corporation (LLC) is the right choice for your business. LLCs in Minnesota are treated as corporations, limited liability partnerships or single-member LLCs and are subject to federal income tax classifications. LLCs provide important legal protections for individual business owners and partnerships, shielding them from personal liability from debts and, in many instances, court-imposed settlements incurred by the business.
Key Steps for Applying
After that determination, choose a name that suits your business undertaking and is easily recognizable. To confirm the name is not in use, conduct a name search on Minnesota’s Secretary of State website. The easiest way to ensure your name will be approved is to make it distinguishable from other LLCs and includes “Limited Liability Company” or “LLC” at the end. File a name reservation application with the Secretary of State for $50 online or in person, or $35 if submitted by mail. The reservation form must include: LLC name, applicant’s name and address, signature of registered agent and date, daytime phone number and contact person. A name may be reserved for up to 12 months.
You need to select a registered agent for the Minnesota LLC. A registered agent must be a business or person that can both receive and send legal documents on behalf of your LLC. The registered agent must be a Minnesota resident or state-registered corporation. You can elect someone within the company, including yourself, to be the LLC’s registered agent.
To register an LLC, file Articles of Organization with the state for $155 online or in-person, or through mail for $135. The LLC’s name, address, and purpose; registered agent’s name and address; founding date; and the name and address of one or more organizer must all be documented in your LLC’s Articles of Organization.
Regardless how many employees, if any, your LLC has, secure an IRS Employee Identification Number (EIN) by completing an online application on the IRS’s website. EINs are free and required by banks to open a checking account for your business. If your business involves retail transactions, you must collect sales tax, which will require your LLC to register with the Minnesota Department of Revenue. All Minnesota LLCs must file and pay a Franchise Tax.
If expanding an existing business registered in another state, or a foreign entity, follow the same procedure. To register your out-of-state or foreign LLC, file a Certificate of Authority to Transact Business in MN, online and in-person for $205 or by mail for $185.
The usual processing time for business forms and documents is between two to five business days.
After Establishing a Business: Key Steps
With your LLC’s EIN and other legal documents, establish banking accounts and credit cards that clearly delineate the business’s expenses, income and assets from the personal finances of its owners. Not only does this protect the business and its owners, but it simplifies filing taxes.
Minnesota LLCs that hire employees must register for Unemployment Insurance Tax and Employee Withholding Tax. Register for Unemployment Insurance Tax through the Minnesota Department of Employment and Economic Development and for Employee Withholding Tax through the Minnesota Department of Revenue.
Minnesota requires all employers purchase workers’ compensation insurance or become self-insured. There are many exceptions and exemptions depending on your LLC’s size and the nature of its business spelled out on the Minnesota Department of Labor and Industry’s webpage.
If your business falls within a specific industry, additional state taxes may apply. In addition, check with local county and city agencies to ensure your LLC complies with municipal zoning codes and has secured any required permits or certifications they may require.
How to Maintain Your LLC
Minnesota requires LLCs to file annual renewal reports with the Secretary of State online or by mail any time before Dec. 31. There is no filing fee for annual renewals reports and the LLC must be active and in good standing with the state. The renewal form must include: file number and home jurisdiction (available on your filed Articles of Organization), registered agent’s name and address, principal office address, name and address of a member or manager, an email address where the Secretary of State may send notices, a daytime number and contact person. A renewal can be filed online and in-person filings for $45 or by mail for $25.
This is a vital procedure because LLCs that do not file annual renewal reports by Dec. 31 are automatically dissolved by the state on Jan. 1. Failing to follow through on this simple bureaucratic procedure inadvertently costs Minnesota businesses unnecessary expenses every year in re-registering their LLCs every year. It also exposes owners to personal liability until the LLC is re-registered.
Timing is also important for those who want to terminate their LLCs. Do this by closing the LLC’s business tax accounts and file Articles of Dissolution with the Minnesota Secretary of State. Once this decision is made, dissolve the LLC quickly to limit exposure to tax liabilities and penalties.
Most Minnesota LLCs file the same tax return with the state as it files with the IRS. One tax issue to note is there are different franchise fees that Minnesota LLCs pay, depending on size and industry. Generally, multi-member LLCs with annual sales that exceed $970,000 must file a state M3 form and pay a “minimum fee” ranging on a graduated scale based on tax returns from $190 and $9,300. Multi-member LLCs with income below that $970,000 threshold are exempt from paying the fee but must file the M3. Single-member LLCs are exempt from both obligations.
Obtaining a Certificate of Good Standing
Among the most important assets in maintaining your LLC is attaining a Certificate of Good Standing that verifies the business entity was properly formed and has been maintained in solvent and reputable fashion. This is a valuable document to have in seeking loans from banks, expanding your business beyond Minnesota, or in receiving permits, licenses, and certifications vital to your LLC’s success. Certificates of Good Standing are available through the Minnesota Secretary of State’s office for $15.
How to Form a Minnesota LLC Without an Attorney
If you want to start a small business, you can form a new LLC in Minnesota without hiring an attorney. It will save the expense of attorney’s fees. A single-owner LLC would normally cost $1,250 in attorney’s fees, plus the filing fee. So, you are saving money by doing it yourself, but you also will not have the counsel of an experienced business attorney and will be exposed to many other risks. By forming an LLC without the advice of an attorney, you accept those risks and, you’re on your own.
Minnesota LLCs with more than one member are strongly advised to hire a Minnesota LLC attorney to provide business tax planning, legal guidance, and a full package of LLC legal documents. An attorney can advise you on “best practices” for handling disagreements, tax issues, exit strategies, and how much an owner will be paid for being bought out of the business. Not discussing these important issues can become points of contention because business owners may have different expectations or understandings.
Among the benefits of hiring an LLC attorney is expertise in drafting limited liability operating agreements, Member Control Agreements and/or a Member Voting Agreements among a business’s owners.
Without a Member Control Agreement and a Member Voting Agreement, LLC owners are subject to default designations for Minnesota LLCs, which are often contrary to small business owners’ intentions. In addition, most banks will expect that your LLC will have a Member Control Agreement and a Member Voting Agreement to ensure you are properly prepared and running your business in a professional manner.
Without these negotiated agreements on file with the Secretary of State, courts often limit an LLC’s legal capacity to enforce certain rights against other parties because those parties were never put on notice that you were preserving those rights.
Not discussing important issues among co-owners and setting forth legally binding agreements can lead to costly legal battles that far exceed the cost of hiring a business attorney at the beginning to draft pivotal LLC operating and voting agreements in a correct fashion.
The benefits and security in hiring an attorney is not limited to multi-member LLCs but those operated by a sole owner and to anyone working in their own business full-time, who has invested significant assets into their business, or wants a solid legal foundation for their company.
If you need help determining how to proceed in forming a business in Minnesota, you can post your legal needs on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.