This is a guest article from Professor Daniel Kleinberger. Prof. Kleinberger is the director of the Mitchell Fellows Program at the William Mitchell College of Law. He was the reporter for the MSBA Business Law Section Task Force that developed the Professional Firms Act and the principal drafter of the act. Rather than being a simple hybrid,
Starting a Limited Liability Company (LLC) in Minnesota
A limited liability company may be a good fit for the business you are trying to form. If you are worried about your future financials being affected by problems with the new business, an LLC would protect you from being held personally responsible for future debts of the business. Therefore, an LLC or Corporation can best protect your personal assets. Also, if you develop significant personal debt outside of your business, your business will not be held responsible for the debt.
Advantages of an LLC
There are many differences between limited liability companies and corporations that make one more beneficial than the other in certain situations. Typically an LLC is more effective for small businesses because it is simple and does not have the formalities of a Corporation. LLCs have other advantages as well, such as:
- lower renewal fees in some cases;
- fewer requirements and formalities;
- easy tax policies; and
- more protection for business assets from personal debt (charging order vs. levying shares).
Limited liability companies first became widely available in the U.S. in the early 1990s. The German version (GmbH, or Gesellschaft mit beschränkter Haftung) has been in existence since the late 1800s. The LLC is a hybrid form of business entity that can protect the owners effectively in the case of legal action. Like a corporation the LLC structure removes the members and managers from liability, and, like a partnership, it provides certain tax benefits. It is considered a “pass-through” arrangement because the individuals are taxed rather than the company (unless the company elects to be taxed as a corporation.). An LLC is easier to set up than a corporation and LLCs are subject to relatively few procedural requirements relating to the governance of the business entity.
The articles of organization are created for a limited liability company or corporation by the owner and filed with the state in order to form a business. The business does not legally exist until the articles are filed.
A member control agreement is similar to the bylaws of a corporation, except for a limited liability company. The agreement can pertain to the declaration and payment of distributions, sharing of profits and losses, and many other aspects of the company.
A series LLC is a limited liability company that allows there to be multiple levels of interest in a company. This idea began in Delaware but has since spread to other states. Minnesota’s Revised Uniform Limited Liability Company Act does not allow for series LLCs.
In order to form an LLC an Articles of Organization must be filed along with a $135.00 fee. Subsequent amendments are $35.00, except for mergers, which are $60.00. The LLC is not formed until the Minnesota Secretary of State reviews and approves the articles of organization.
An LLC is taxed as a sole proprietorship or general partnership depending on how many owners it has. Therefore, the taxes are done on the owner’s personal income tax returns. While many believe that since an LLC is treated as a sole proprietorship or general partnership for tax purposes that they are do not have limited liability, this is not true and the way in which a business files taxes has no effect on its liability.
The LLC as Recombinant Entity:
Revised Uniform Limited Liability Act
On January 1, 2018, Minnesota’s new Revised Uniform Limited Liability Act will take effect. It is the most considerable change to happen to LLCs since they were first allowed. Overall, Minnesota’s new LLC law will be aligned with many other states that have enacted versions of the Revised Uniform Limited Liability Company Act. Those states
Minnesota’s New LLC Act
Minnesota has recognized the legal entity of “Limited Liability Company” or “LLC” since 1993. Currently, there are about 200,000 registered LLCs in Minnesota, which is not surprising since LLCs offer many great benefits to business owners. Unlike a sole proprietorship or partnership, LLCs provide limited liability protection to their owners, which means that they are
What Form of Business Organization Should I Choose?
So you’ve made the decision that you want to start your own business. One of the very first decisions you will have to make is to choose what form of organization that you’d like for your business. There are a number of choices with various tax consequences. A Sole Proprietorship is owned and controlled by
Minnesota Small Business Formation
This section answers these questions: What do I need to do to form a business? What is the difference between the various Minnesota business types I can form? Minnesota small businesses can select from a number of business entity types when forming the business. Common formation entity types include the Sole Proprietorship, Partnership, LLC, S-Corp,
Minnesota Secretary of State Business Newsletter Volume 1, Issue 2
Some of the best ideas for improvements to our business services come from customers. We are always looking for feedback and suggestions. Email your ideas for better service or products to firstname.lastname@example.org. Assumed Names filed before September 6, 2011, have a 10-year term and will not need to be renewed until six months prior to
The Next Generation: The Revised Uniform Limited Liability Company Act
This is an excerpt from an article discussing the The Revised Uniform Limited Liability Company Act written by Daniel S. Kleinberger. For a discussion of Minnesota's new LLC law, see the Minnesota Revised Uniform LLC Act. On July 13th, 2006, the National Conference of Commissioners on Uniform State Laws ("NCCUSL" or "the Conference") "approved and
Minnesota’s New LLC Law: Minnesota Revised Uniform LLC Act
Nearly 200,000 LLCs formed in Minnesota since 1993 will be affected by the new Minnesota Revised Uniform Limited Liability Company Act, which became law in 2014. On April 8th, 2014, Minnesota Governor Mark Dayton signed into law the Minnesota Revised Uniform Limited Liability Company Act. This law impacts all LLCs in Minnesota. This is the
Minnesota Offers Interest-Free Loans to Business Startups
The State of Minnesota's Angel Loan Fund offers interest-free loans to startup businesses in Minnesota. If you start a new business in Minnesota, you can apply for an interest-free loan through a new Minnesota program. The Angel Loan Fund is a government project offering small businesses a loan for seven years at a 0% interest
How to Dissolve an LLC in Minnesota
There are various reasons to dissolve a limited liability company (“LLC”) ranging from the sale of its assets to unprofitability or bankruptcy. After your LLC has approved dissolution, the LLC must be properly dissolved pursuant to Minnesota Statute section 322B in order to avoid future complications. The process is referred to as “winding up.” After
Preparing to Form an LLC in Minnesota: Name, Location, and Ownership
When someone forms a new limited liability company ("LLC"), there are several decisions that must be made before the business is actually formed or the proper documents are filed with the Minnesota Secretary of State. Three necessary decisions must be made in advance: What should the business be called and what are the legal limitations?
Cheap LLC Startup: Is Creating Your Own Minnesota LLC Worth the Risk?
Minnesota LLC law is changing. As a result, this article is no longer current. Please see these instead: How to Form a Minnesota LLC without an Attorney Minnesota’s New LLC Law: Minnesota Revised Uniform LLC Act 12 Decisions New Minnesota Business Owners Make When starting a business, you have a few options for creating an
S Corp Election: Taxing an LLC as an S Corporation
Minnesota attorney Aaron Hall explains how an LLC can be taxed as an subchapter S corporation. Clients often ask me whether an LLC can be taxed as S Corp. The answer is yes. All you have to do is fill out IRS tax form 8832. Why would you want to do this? Well, many times
LLC VS S Corporation: Which One Should I Get?
Minnesota small businesses often wonder whether to form a Minnesota S-corporation or LLC. The answer isn't simple. Here are some questions to consider: An S Corp may only have 100 owners. An LLC does not have this restriction. An S Corp may only be owned by individuals, estates, certain trusts, and certain tax exempt organizations.
IRA LLC: How to Use an LLC for a Self-Directed IRA
A Word of Caution: Before you begin reading about how to use an LLC for a self-directed IRA, please read the paragraph at the end where we explain why we do not recommend using a self-directed IRA. In short, the IRS has not expressly approved this practice and legal authorities have concluded this practice likely
Special Requirement for Professional Firms Forming a Business in Minnesota
If you are starting an LLC or corporation in Minnesota that will be providing professional services, there are special requirements to consider. Certain professional services firms require specific provisions in their Articles of Organization (for an LLC) or Articles of Incorporation (for a corporation). These professional firms include Accountancy Architecture Certified Interior Design Chiropractic Dentistry
Can an LLC Be Taxed as S Corp? Reducing Taxes by Reducing Self-Employment Tax
Both LLC’s and S-Corporations are “pass through” entities, meaning the profits and losses pass through the corporation to the shareholder(s), who claim profits and losses on personal tax returns. There is one great tax advantage to being an S-Corp over an LLC. In an LLC, the entity’s entire net income is subject to the 15.3%
LLC Membership | Minnesota Business Attorney
Owners of an LLC Corporation, also known as members, are typically independent from the actions of the corporation, meaning they have limited personal liability for the debts, actions, and obligations of the corporation. Most states do not restrict who can be a member, so members of an LLC can be individuals, corporations, other LLCs, and
Minnesota LLC Membership Attorney
Owners of an LLC Corporation, also known as members, are typically independent from the actions of the corporation, meaning, they have limited personal liability for the debts, actions, and obligations of the corporation. Most states do not restrict who can be a member, so members of an LLC can be individuals, corporations, other LLCs, and
Single Member LLC vs Sole Proprietorship: Pros, Cons & FAQ
There is increasing interest in the Single Member Limited Liability Company (SMLLC) as an alternative to the sole proprietorship for the organization and operation of a small business in Minnesota. A SMLLC is an LLC in which a single individual or other entity (called a “member”) owns all of the LLC ownership interest. A SMLLC