How to form an LLC in Minnesota: The Affordable Way

Are you on the lookout for ways to launch your business idea into the market in Minnesota? Then you are at the right place. An LLC can be an excellent choice for the business you are trying to form. It provides you with significant tax benefits, the limited liability benefit like that of a corporation, and also offers excellent operational flexibility.

Minnesota is an excellent choice for you to launch your business journey. Minnesota has been ranked ninth on CNBC’s Top States for Business list. The State has excellent infrastructure facilities to facilitate businesses’ growth. You may find the procedure to start an LLC in the State confusing and complicated. We are here to break it down and guide you through each step involved in the process.

Naming Your Minnesota LLC 

The first step in setting up your LLC is to name your business. A good name helps you build a strong business brand that stands out in the market. So, make sure that you have a unique name that captivates your customers.

While naming your LLC, you must follow all the naming guidelines the State of Minnesota has laid down. They are provided in Section 322C.0108 of the Minnesota Statutes. 

Naming Guidelines

The name of your LLC should be in the English language. If you desire a name in another language, it should be expressed using English letters or characters.

You cannot use any names similar to the name of any business entity registered with Minnesota’s Secretary of State. The name you select for your LLC in Minnesota should include the words “limited liability company” or its abbreviated version “LLC.” It should not contain the words “corporation” or “incorporated” or its abbreviations.

The name you select should not create an impression that your business is associated with the government or that it is for any purpose other than the permitted one. Therefore, ensure the name does not contain words like “F.B.I.,” “Treasury,” etc.

Similarly, using some restricted words like “Bank” or “Attorney” in the name of your LLC will require you to get additional permissions. It may also need certain licensed professionals like lawyers to be part of the entity. 

If your LLC is set up to be a professional firm, its name must end with any of the following phrases: “Professional Limited Liability Company”; or “Limited Liability Company.” The abbreviations “P.L.L.C.”; “P.L.C.”; or “L.L.C.” can also be used.

For more information on the naming rules, you can refer to Minnesota’s Name Availability Guidelines. 

Does Your Business Require a DBA?

A DBA (doing business as) or an assumed name enables you to operate your LLC under a different name. An assumed name is best used for branding purposes, especially when you want to diversify or enter a new market. Suppose you have decided to launch a new product or enter a new market with your business. You may feel that the name of your LLC is not suited for this further expansion or diversification you have planned. This is where an assumed name can help you by enabling you to operate under a new and more apt name for the business you are trying to do.

You may get a DBA name for your LLC in Minnesota by following three simple steps. First, ensure that the DBA name you choose meets the Minnesota business name requirements. The name should be different and easy to distinguish from the names of other registered business entities in Minnesota. Once you decide on the name you want for your business, you can proceed to register it with the office of the Secretary of State. You may do it online or by submitting the Certificate of Assumed name in person or by mail.

The final step is for you to publish a notice of your DBA name in a qualified newspaper where the principal office of your LLC is situated. You must do the publication in the legal notice section for two consecutive issues.

Doing a Name Search and Name Reservation

The name you select for your business should be distinguishable from other entities registered in the State. It should not only be not identical, but you must also ensure that it is not very similar.

You should properly check the name chosen for your LLC to avoid rejection later. You can use the Business Filings Search portal of Minnesota to see if your desired name is available. 

Once you have thoroughly checked the name availability and decided on the name for your LLC, you can reserve it. You have to apply to the Secretary of the State for this purpose. The application should include the applicant’s name, address, and the name that the applicant wishes to reserve for the LLC. If the name selected by you satisfies the naming guidelines, it will be reserved for one year by the office of the Secretary of State.

Registering your business domain

Over the last few years, online business has become the new norm. Customers wish to make informed decisions about the business they deal with, so they prefer to read reviews and check the business profile online before deciding which company they want to purchase. Therefore, your business must have an online presence.

A website address matching your business name is a small yet significant matter. Your website is how customers find you on the internet. So before you select a name for your LLC, it is recommended that you ensure that the website URL you need is also available. 

You can check currently available domain names.

Choose a Registered Agent in Minnesota

Every LLC in Minnesota should appoint a registered agent. A Registered Agent is an individual or another business entity responsible for receiving all official communication and any process service concerning a lawsuit against your company. A registered agent is known as an “Agent for Service of Process” in the State. You must select a registered agent before your company can start functioning.

The laws in Minnesota require that a registered agent be appointed at the time of formation of the LLC. The incorporation documents should contain details of the registered agent (name and address).

Who can be a registered agent?

As per the provisions of Section 5.36 of Chapter 5 of the 2021 Minnesota Statutes, the agent you select for your LLC must be:

• A natural person who is a resident of the State of Minnesota or
• A business entity in the form of a domestic corporation, another LLC, or a foreign corporation/company has obtained authorization to conduct business in Minnesota. 

A registered agent should be above the age of 18 years and have a physical street address in the State. The registered agent should be available during business hours on all working days. You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service.

Individual v. Registered Agent Service

You can appoint yourself as the registered agent of your company. However, hiring a registered agent service would be ideal as it has several advantages. You have complete freedom in choosing who you want as the registered agent of your LLC so long as they meet the conditions laid down by the law in Minnesota.

A professional registered agent service ensures you don’t fail to duly respond to any notice or other communication sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines. Also, the details of a registered agent are made available in the official records of the State. A registered agent service will help you maintain privacy as you won’t have your address listed in the public domain. It can be helpful, especially when working out of your home.

If you are your own agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients. On the other hand, if you engage a professional registered agent service, such situations get handled with the required discretion. They receive such sensitive documents at their address and deliver them separately. 

You may change the registered agent for your Minnesota LLC at any time using the Notice of Change of Registered Office/Registered Agent. You can either file the notice using the MBLS portal of the Minnesota Secretary Of State Website or submit it via Mail or In-Person to the Minnesota Secretary of State – Business Services, Retirement Systems of Minnesota Building, 60 Empire Drive, Suite 100 St Paul, MN 55103.

Filing the Articles of Organization with Minnesota

Articles of Organization is a legal document needed to officially form and legally incorporate your LLC. In Minnesota, you can formally set up your LLC by filing the Articles of Organization with the office of the Secretary of the State. Once this is completed, your LLC is registered and is recognized in the eyes of the law. 

The document requires you to furnish details about the business you are trying to form. These details include:

• Name of your LLC
• Address of the registered office
• Name and address of the agent for service of process
• Organizer Information (name and addresses)

In Minnesota, the LLCs are formed perpetually; therefore, you cannot have a dissolution date in the Articles of Organization. Once ready, you can file the document with Minnesota’s Secretary of State online or submit a copy of the application in person or by mail.

Expedient Filing

Applications filed by mail are processed on a first-in, first-out basis. However, you may choose to pay an additional fee and submit your applications online or in person. These applications are processed in an expedited manner within three to five business days.

Public Notice of Formation

As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.

Create the Operating Agreement for your Minnesota LLC

An operating agreement contains the rules of your LLC’s internal operation. It contains a framework that governs the relationships among members, the rights and duties of a manager, and the protocol for the conduct of activities by the LLC. In Minnesota, having an operating agreement is not mandatory. However, irrespective of the nature of your business, it shall be advisable for you to have a well-drafted operating agreement.  

Having an operating agreement in place will be beneficial to your LLC. Firstly, by defining the roles and responsibilities of each party within the company, it minimizes the possibility of any misunderstandings or conflicts. Also, it helps enforce your limited liability protection in certain instances. Some banks require you to submit a copy of your operating agreement to open an account with them.  

There are no prescribed templates for an operating agreement in Minnesota. However, the document’s structure and contents may vary depending on how you structure your LLC (single member or multi member, managed by members or managers, etc.). Your operating agreement should ideally cover the following aspects:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Dissolution

These are just a few examples. You may include more provisions as you deem fit and necessary for your business. 

Writing the Operating Agreement Yourself vs. Hiring a Service

You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. Since there are no prescribed formats for this agreement, you are free to prepare it as you deem necessary for your business. You may call on the meeting of all the members of your LLC and discuss a mutually agreeable structure to your operating agreement.

It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement. Being experts in Minnesota laws, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.

Limits of Operating Agreement

There are no specified formats for an Operating Agreement or its contents. However, it cannot include any matters prohibited under Minnesota law. Therefore, you cannot include terms and provisions that vary the capacity of an LLC to sue and be sued, entirely eliminating the duty of loyalty and duty to care, etc.

For complete details regarding the restrictions imposed on the contents of an Operating Agreement, you may read Subdivision 3 of Section 322C.0110, Chapter 322C of the 2021 Minnesota Statutes. 

Obtaining an EIN for your Minnesota LLC

EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes.

You will need an EIN if you are a multi-member LLC. It is also required to open a bank account, file tax returns, and hire employees. The IRS issues an EIN, and you can apply for it online or through the mail. 

File Annual Reports in Minnesota

An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. It is also known as “Annual Renewal.” An LLC in Minnesota must file the Annual Report annually with the Secretary of State.

Section 5.34 of Chapter 5 of the 2021 Minnesota Statutes requires certain information to go into the annual report. These include the name of the LLC, its address, the name and address of its registered agent, etc. Annual reports are to be filed by the 31st of December every. If you fail to file the report, you risk the State shutting down your business. 

You can file your annual report on the MBLS Portal of the Secretary of State website. You can also download Minnesota’s annual report form and submit your application by mail to the Minnesota Secretary of State — Business Services, Retirement Systems of Minnesota Building 60 Empire Drive, Suite 100 St Paul, MN 55103. There are no filing fees.

Tax liability for your Minnesota LLC

As someone who owns an LLC in Minnesota, federal and state taxes will apply to you and the business. The way your LLC will be taxed depends upon the number of members in your LLC or how you have chosen to treat your LLC for taxation purposes. There are four ways in which LLC will be taxed:

• Sole proprietorship: a business owned by a single person
• Partnership: a business owned by multiple people
• C – Corporation: income is split or segregated for taxation
• S – Corporation: tax liability is split between the business and its owners

Federal Tax Liability

By default LLCs are treated as ‘pass-through entities.’ This means the LLC itself does not pay any income tax. Instead, the members are required to pay taxes on the individual income they earn from the LLC.

A member’s income tax will vary depending on your income, filing status, deductions, etc. However, federal corporate taxes must be paid if you treat your LLC as a corporation for tax purposes. You must also pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC.

If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity.’ The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040. 

If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 form of each partner. 

If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.

State Tax Liability

By default, LLCs are treated as partnerships for taxation purposes in Minnesota. Therefore, taxes are not paid at the company level. Instead, you will be required to pay income taxes on the money you earn from the LLC. The tax rates in the State range between 2% and 6% based on the income you earn. 

Apart from State Income Tax, your LLC may also be required to pay other types of State taxes depending on the business you do. The Department of Revenue of Minnesota levies Sales tax on LLCs that sell certain specific physical products or services. Certain counties in the State also impose additional sales taxes.

Similarly, if your LLC purchases any taxable products for its use in Minnesota without paying the sales tax, you may be required to pay Use Tax. For instance, if your LLC purchases some office equipment from a Company outside Minnesota that does not charge Sales Tax and you want to use them inside the State, you are required to pay the Use Tax. 

Multi-member LLCs with property, yearly sales, and yearly payroll exceeding a certain prescribed threshold are required to pay a Partnership Tax. LLCs with revenue within the threshold limits are exempt but must file Form M3.

It can be filed online, or you may download the form and mail it to Minnesota Partnership Tax Mail Station 1760 St. Paul, MN 55145. There are no charges for filing the form. However, it is to be filed before the 18th of April of the year following the tax year.  

Miscellaneous Taxes 

If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax. 

Permits and Licenses

An LLC operating in Minnesota must comply with State and Federal regulations. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State, and Local.

Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.

Some business activities requiring Federal Licenses and Permits are:

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, ammunition and explosives
• Fish and Wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and television broadcasting
• Transportation and logistics.

There is no general business license requirement in Minnesota. However, certain cities within the State, such as Minneapolis, St. Paul, Rochester, Duluth, Bloomington, etc., require you to obtain a business license if your LLC is operating there. Your LLC should get a seller’s permit from the State if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit using the e-services portal of the Minnesota’s Department of Revenue’s website.

Additionally, depending on where your LLC is located, you may have to obtain local level licenses and permits. You may get in touch with your local county office to understand the licensing requirements of your LLC.

For more information regarding;

• Minnesota’s Licensing Requirement Website
• Minnesota’s License Lookup Tool
• Minnesota County Government Offices
• Federal Permits and License

Business Bank Account and Phone Number

It is always prudent to open a separate Bank Account for your LLC and have an individual designated phone number. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits. 

Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.

Final Thoughts

Setting up your LLC in Minnesota has many advantages. Minnesota has a pro-business regulatory setup that gives excellent tax benefits to LLCs. With initiatives like the Minnesota Opportunity Zones and DEED financing programs, the State offers great incentives for newly set up businesses. 

You may be eligible for several incentives, such as Minnesota’s Emerging Entrepreneur Loan Programs, Tax Abatement Program, Greater Minnesota Business Expansion Tax Credits, etc. Additionally, the Minnesota Department of Employment and Economic Development has come up with several programs that provide the necessary resources to promote new businesses. Get in touch with your local county or city government office to find out if your LLC is eligible for any of these schemes. 

On completing the above steps, your LLC is legally incorporated and ready to do business. Enjoy your LLC!