How to Start an LLC in Minnesota
Minnesota has a lot of room to grow and is welcoming small businesses, especially to its smaller communities. Key industries are manufacturing, clean tech, renewable energy, leading life sciences, food, and agriculture, but many small towns want diversity in their economy. Many Minnesota businesses have proven to be successful with phenomenal growth including Options Exteriors, YourSix, Bold Orange Company, and Auto Approve. These were some of the 78 Minnesota companies named to the Inc 5000 list. While all but four are based in the metropolitan area of the Twin Cities, officials in St. Paul, Duluth, and smaller cities like Maple Grove are working to attract new businesses to their towns. Minnesota loves small businesses and has 533,344 of them in the state. They employ 1.3 million people, which is around 46.2% of all Minnesota employees. Those that feel the land of 10,000 lakes is the right place for their LLC need to do research state laws and LLC formation documents. We’ve created this step-by-step guide to help you navigate the system.
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Where do you begin? You need to pick an LLC name. This can be more complicated than you think because states like Minnesota have regulations on what you can name your LLC.
Minnesota, like other states, requires your LLC name to be different from all other businesses in the state register. However, the state isn’t as strict about creating a similar name as others.
Minnesota law only requires that a business name have at least one different letter or number from other names already registered. Additionally, those filing an assumed name (or a dba) are in the clear because the law allows for the same or similar assumed business names to be filed. State officials don’t check assumed names against others on file.
Now that you know the basic rules of picking a business name in Minnesota, you should start searching on the Minnesota Secretary of State’s website to see if your proposed name is unique enough to be approved.
Name your LLC
Forming an LLC? Check the state’s business directory to research name availability.
The Secretary of State’s website has a free name search tool where you can plug in your desired business name and see if another business in the state has the same or similar name. The page also has a section where you can check your assumed names against others in Minnesota, but you must create an account to use it.
You should do a due diligence search to make sure your name isn’t the same as another business. One way to do that is to check it against social media accounts using the search bar on the platforms.
A third way to research your proposed name is to do a general search online to see how many similarly-named businesses are around the country and if any are in Minnesota. Finally, check the name against domain names to see if a domain with your desired name is available.
Want to file a name reservation? You can do so here.
Select a registered agent
One item states are consistent about is listing a registered agent for a business. Minnesota requires every business that applies for state registration to have a registered agent.
A registered agent is someone who can accept and sign legal documents, including service of process, on behalf of the business. Small business owners can list themselves, a friend, or a relative for that position as long as they consent to the role.
One part of Minnesota’s registered agent law that is different from other states is that Minnesota doesn’t list an age requirement. Other states put 18 years old as the minimum age to be a registered agent.
To be a registered agent in Minnesota, you must:
- Have an address that is a physical address as P.O. boxes are not acceptable
- Be a Minnesota resident or a company doing business in the state
- Be available at your listed address to accept legal documents during normal business hours
You can also hire a registered agent service to fill this role for your company.
File Articles of Organization
To form a limited liability company, you must file Articles of Organization with the state. This is a legal document providing the state with basic information about the business entity. Entrepreneurs who choose an LLC as their business structure must file this document.
Information you’ll provide when filing Articles of Organization:
- Name of the business
- The name and mailing address of the registered agent
- The names, addresses, and signatures of the LLC owners
- The company’s management structure (single member LLC, member-managed LLC, or manager-managed LLC)
- An email address
- A daytime telephone number
Additionally, you can fill out a voluntary survey regarding the number of employees the business has, whether it’s minority-owned, if it will be a part-time or full-time business, and what you expect revenues to be.
Articles of Organization aren’t the same as a business license. You should get a business license from the local government entity where your business is located. States require some businesses, like accounting and hair stylists, to also acquire professional licenses.
You can find out more about Minnesota business licenses here.
Other specialty licenses like beer, wine, and liquor licenses are applied for in the local county or city where the business will be open. Those decisions are made by local city councils and county commissions according to state and local laws.
Minnesota has a $155 filing fee for filing Articles of Organization online or filing them in person as an expedited service. Filing the forms by mail carries a $135 fee.
Minnesota processing time
Minnesota is different from other states in that it doesn’t have a special expedited service separate from regular online filings. All online filings for business entity formations are immediately approved. Those who hand-deliver their forms also get automatic expedited service.
However, those who choose to mail their filings will wait for three to four weeks to get state approval for their Minnesota LLC. The actual processing time only takes four to seven business days but the rest of the time is to account for the time your paperwork is in the mail system.
You can fill out and submit your LLC formation documents here.
Create an LLC operating agreement
If you start an LLC, you should create an operating agreement. It outlines how the business will run. Such an agreement isn’t required under Minnesota law. Minnesota Statute § 322C. 0110 outlines topics an operating agreement can cover, but doesn’t mandate that businesses have an agreement nor regulate what’s included in the agreement.
An operating agreement should include:
- The activities your LLC will be involved in
- Voting rights and who makes decisions
- Ownership percentages
- Who has management responsibilities
- Profit distribution
- Member interest transfers
- Initial contributions
- What happens in the death of a member
- Bookkeeping methods
- Dissolution procedures
An operating agreement will also be a catalyst for LLC members to talk about the nuts and bolts of running the business and leave nothing to chance.
The key component of running a business is money. A business pays taxes and that means dealing with federal taxes and state taxes. Here’s a closer look at what you need to run your business and what to consider for tax purposes.
Get your EIN
The Internal Revenue Service requires an employer identification number (EIN) for the majority of businesses. Federal rules require all LLCs with multiple members to get an EIN. You also need this number if you ever apply for a business loan, or grant, or do any number of routine things including:
- Hiring employees
- Filing business taxes
- Buying a business or inheriting it
- Offering a Keogh plan or solo 401(k) retirement plan
- Filing for bankruptcy
Getting an EIN no longer takes weeks. You can file for it online and receive it immediately.
Sole proprietorships aren’t required to obtain an EIN.
Businesses also need a state identification number for paying state, and local taxes, unemployment insurance, and sales taxes.
You can obtain a Minnesota Tax ID number by either applying online with the Minnesota Department of Revenue or by telephone. The phone number is 651-282-5225 or toll-free at 1-800-657-3605.
You can get your EIN by visiting the IRS website.
Open business bank accounts
Opening business bank accounts is crucial to get your LLC off the ground. You need a checking account and should have a savings account to stash money for slow times or future equipment purchases.
Some LLCs have a separate account for payroll as that keeps it distinct from operations. Having accounts at different Minnesota banks could help your LLC with loans in the future.
Credit unions are great institutions for small businesses as they offer lower-interest loans and tend to be helpful to small business customers. Six credit unions in Minnesota were recognized for their work to elevate small businesses and provide good financial products to them.
The banks are Financial Security Bank, Chase Bank, Citizens Bank Minnesota, Spire Credit Union, US Bank, and Axos Bank.
You might also consider setting up a business savings account and getting a business credit card.
Review LLC tax rules in Minnesota
With an LLC as your type of business, federal taxes and state taxes are paid via your personal tax return. The LLC isn’t taxed. The profits (or losses) are passed through to the owner’s taxes.
Minnesota has one of the highest corporate income tax rates in the country with a 9.80% rate. That contributed to its ranking as 45th in the U.S. on the 2022 State Business Tax Climate Index produced by the Tax Foundation.
The state also has a 6.875% sales tax rate and local entities can impose a local sales tax with a 2.00% maximum. The average sales tax in the state, when you combine the state and local taxes, is 7.49%.
However, the state has many tax credits that businesses can utilize. Some of those include:
- The Seed Capital Investment Credit where those who invest in targeted cities on Minnesota’s western border get incentives and credits
- The Border-Cities Enterprise Zones give tax credits for those who have businesses, development, or help job creation in qualifying cities
- The Angel Tax Credit gives incentives to those who invest in high-technology startups or emerging companies
- The Greater Minnesota Job Expansion Program where an existing business that expanded in Greater Minnesota can get sales tax refunds for up to seven years
Many MN tax incentives and tax credit programs are listed here.
File an annual report
All Minnesota businesses must file their annual reports by December 31 yearly. The report establishes the business members, and its purpose while giving you a chance to update information like telephone numbers or street addresses.
It costs nothing to file an annual report in Minnesota. You may file online, by mail, or in person.
Filing an annual report on time means a business can maintain its good standing with the state.
Some states refer to an annual report as a Statement of Information.
You can file a Minnesota annual report with the Minnesota Secretary of State’s office.
Get insurance for your LLC
One of the most important things a business can do to protect itself and its LLC members is to be fully insured. The safe bet is to get liability, worker’s compensation, and property insurance. Businesses that own a fleet of vehicles will need to have insurance on them and some Minnesota businesses must have health insurance for employees too.
The State of Minnesota requires businesses that hire people to have worker’s compensation insurance. Worker’s compensation pays for injuries occurring on the job. The state also requires insurance for vehicles so companies that own vehicles must cover them with insurance.
Businesses with less than 50 employees are not mandated by the state to provide health insurance for employees but those with more than 50 full-time employees are mandated to provide insurance options for workers.
Minnesota doesn’t require businesses to have liability or property insurance but both are key to protecting your business. While an LLC does offer personal liability protection (meaning personal assets are protected if the company goes into debt or is sued), liability insurance provides additional protection.
Liability insurance will protect you if a customer is injured or sick from your product or service.
Property insurance protects you should a storm, theft or some other unexpected events occur that damages your business, equipment, and inventory.
Additional resources to help you set up a business in Minnesota
Minnesota has many resources to help in your journey to create an LLC in the state. Below is a list of places where you can get business guidance in Minnesota.
What qualifies as doing business in Minnesota?
Doing business in Minnesota is defined by things like having employees in the state or maintaining a physical office within the state. Businesses not created in Minnesota but doing business there need to fill out a Minnesota Foreign Qualification form in order to properly register with the state.
How do you get a seller’s permit in Minnesota?
You can get a seller’s permit by registering for a Minnesota tax ID number online. You can also register by calling 651-282-5225 or 1-800-657-3605. Applying for a sales tax permit is free.
What do I need to sell online in Minnesota?
You will need a sales tax permit if you have a connection to the State of Minnesota. State officials said those with a “nexus” must comply with the state’s sales tax laws. Those with a nexus to Minnesota have either an economic or physical presence there.
Is Minnesota a good place to start a business?
Even with its high tax rate, Minnesota was ranked 15th by Forbes as the best state to start and operate a business. It has pro-business policies, a streamlined regulatory process, and a low-operating expense.
Is Minnesota business-friendly?
Minnesota is considered business-friendly according to surveys. One survey ranked the state 11th in business friendliness and the Twin Cities also ranked well, settling in at 17th on the list among 57 metro areas around the country.
Where does Minnesota rank in the economy?
The State of Minnesota ranks 46th in the country when it comes to its economy.
Does Minnesota charge LLCs a franchise tax?
Minnesota only charges a franchise tax, known as a Corporation Franchise Tax, on companies that file yearly federal taxes as a C Corp.
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