Minnesota Estate Planning | Forming an LLC in Minnesota

If you own an existing small business or are considering launching an entirely new business, you may be debating the legal form that business should take. A commonly used option is to create an LLC. Though you may have heard the term, you may not fully understand what an LLC is or how to go about creating one in Minnesota. If so, keep reading for more information.

What’s an LLC?

First things first, what does “LLC” stand for? LLC refers to a limited liability company. This means that with an LLC, the owners of the company receive a form of protection known as limitation of liability. This means that the owners are usually not personally liable in the event that the LLC owes money to others, either due to debts or legal claims. In that way, an LLC is like a corporation. From a tax perspective, LLCs are like sole proprietorships or partnerships in that the LLC does not pay any income tax itself. The profits are instead passed through the LLC and the owners pay taxes on their share. These are reasons why experts view LLCs as a kind of hybrid, a business form that combines elements of several other business types, including partnerships, sole proprietorships and corporations.

How is an LLC structured?

An LLC can be structured in a number of different ways, that is one reason why it is such a popular corporate form. LLCs can be owned by one person or many. Those who have ownership stakes in an LLC are known as members. Those with only one member are, surprise surprise, known as single-member LLCs. Those with many members are referred to as multi-member LLCs. LLCs can be managed by the members or a professional manager can be appointed to handle daily operations of the LLC.

When is an LLC a good idea?

Though LLCs are very flexible corporate forms, they may not make sense in every case. LLCs are especially valuable in circumstances where a business faces risks of lawsuits or if substantial business debt is likely to be required. If you can foresee a world in which you are on the hook for large amounts of money, putting your personal assets at risk, an LLC is worth considering. If, on the other hand, your company presents a low risk of attracting lawsuits and will not end up accumulating much debt, an LLC may not be necessary.

How do you form an LLC in Minnesota?

If you’ve settled on an LLC, what do you do next? First, you need to pick out a name. Under Minnesota law, an LLC name must include either “LLC” or the words “limited liability company”. Once you’ve found a name, you’ll need to register it with the Minnesota Secretary of State. With that step out of the way, you’ll then need to draft and file articles of organization with the Secretary of State. These articles include things like the name of the company, its purpose, and a name and address for service of legal notices. If you haven’t already done so, you’ll need to establish a registered agent. You will also need to register the LLC with local tax and other relevant regulatory bodies. Finally, you will need to draft an operating agreement. Though not strictly required by Minnesota law, this is an important step that should not be overlooked. The operating agreement is the manual for your LLC and explains who owns what and how the company will run going forward. Skipping this step now can result in major headaches down the road.

Minnesota Estate Planning and Business Lawyers

Its good to know that with the right help, establishing a Minnesota small business does not have to be a scary proposition. An experienced Minnesota small business attorney can help walk you through the process of setting up your new company and ensure it offers the maximum benefits for your individual situation. For more information, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.