Minnesota Incorporation: Everything You Need to Know
Minnesota incorporation is the process of forming either a corporation or a limited liability company (LLC).3 min read
2. Filing Corporation Formation Documents
3. Requirements After Filing
Minnesota incorporation is the process of forming either a corporation or a limited liability company (LLC). Whichever business structure you choose, you'll need to file certain documents with the state, pay fees, and obtain business licenses and permits.
Naming Your Company
If you want to form a corporation in Minnesota, you will need to select a suitable name for your business. There are two basic naming requirements you must meet. First, your name should be unique and distinguishable from other registered Minnesota business names. Second, your name should include an indicator of your business's status:
- Corporation or Corp.
- Incorporated or Inc.
- Company or Co.
- Limited or Ltd.
Once you've found an available name for your corporation, you can reserve the name for 12 months with the Minnesota Secretary of State.
Filing Corporation Formation Documents
Filing Articles of Incorporation is the next step of Minnesota incorporation. Once it has been properly drafted, you should file this document with the Secretary of State.
To make sure that your Articles will be approved and your company formed, include the following information:
- The corporation's name
- The address/name of the Minnesota registered agent
- The number of authorized shares
- Contact information for all incorporators
- An email address where the state can send official notices
- A phone number and name for a contact person
A filing fee of $135 is due when filing your formation documents. Every Minnesota incorporator needs at least one incorporator. Incorporators do not need to be state residents. Corporations in this state also need at least one director.
Minnesota corporations that want the ability to offset more losses can classify their company stock as Section 1244 stock. With this classification, a $100,000 ordinary loss deduction is possible. With normal stock, the maximum deduction is $3,000.
All corporations in Minnesota must maintain a registered agent who will receive state notifications and service of process intended for the company. It must be possible to contact your resident agent during normal business hours, and they must have a physical address within the state. Registered agents can either be individuals or corporations that are legally allowed to serve the role.
Requirements After Filing
After you have filed your formation documents and they have been processed, there are several requirements that you must fulfill to maintain your company's standing. First, you will need to file an annual report every year. You must file the report by December 31, but you will not need to pay a filing fee. Your corporation should also hold a director meeting and shareholder meeting each year. Make sure to document the minutes of this meeting.
Taxation is one of the most important factors that you must consider when forming your Minnesota corporation. By default, your company will be taxed as a C corporation. This means that your company will be taxable under IRS Code Subsection C. If your business is structured as a C corporation, it will be taxed two times: first, on the company's earnings, and then on the shareholders' individual tax returns. Although double taxation is a drawback of this business structure, C corporations provide numerous benefits.
If you want to avoid the double taxation that applies to C corporation, you can elect to be taxed as an S corporation, which is a type of pass-through entity. After making the S corp election, only the money passed to shareholders is taxable. S corporations do not directly pay federal income tax. Minnesota is one of the many states that recognizes this special tax election.
By electing S corporation tax status, your business will receive three major benefits:
- No Direct Corporate Taxation: After you've made your tax election, your company will no longer be subject to double taxation. Only distributions to shareholders reported on their personal returns is subject to taxation.
- Deduction of Losses: An S corporation's shareholders can make a deduction for operating losses on their personal returns. This is not possible with a traditional C corporation.
- Tax Savings for Self-Employment: With S corporations, payroll taxes only apply to income distributed to shareholders. Self-employment and payroll taxes do not apply to money you leave in the company.
Before your business can pay its taxes, you'll need an Employer Identification Number (EIN) from the IRS. Your business's EIN functions the same way as an individual's Social Security Number. If you don't have an EIN, you won't be able to pay taxes, hire workers, or open a corporate bank account.
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