If you want to start a small business, you can form a new LLC (limited liability company) in Minnesota without hiring an attorney. You will save the expense of attorney’s fees, but you also will not have the counsel of a business attorney and will have some other risks. The risks are explained at the end.
Here are the steps to forming your own LLC in Minnesota:
1. Check to see if your business name is available here: http://da.sos.state.mn.us/minnesota/corp_inquiry-find.asp?:Norder_item_type_id=9&sm=6
2. Download the Articles of Organization (PDF) at http://www.sos.state.mn.us/Modules/ShowDocument.aspx?documentid=4388
3. Register your LLC by filing the Articles of Organization with the Minnesota Secretary of State’s business office. Currently the filing fee is $160.
4. After you register your LLC, obtain your Employer Identification Number (“EIN”), which is a tax ID for your business, and consider whether to get a state tax ID and elect S corp treatment. Learn more: After You Form Your Business.
5. Bring the LLC Articles of Organization and your EIN to the bank to establish a small business checking account.
Benefits of Forming a Minnesota LLC Yourself
The benefit to this process is you save the cost of attorney’s fees. For example, a single-owner LLC would normally cost $1250 in attorney’s fees plus the filing fee, so you are saving money by doing it yourself.
Risks of Forming a Minnesota LLC Yourself
For a majority of small businesses, an LLC is preferred over an S Corporation, partnership, limited liability partnership, and other business types. But sometimes an LLC is not best for your circumstances. By forming an LLC without the advice of an attorney, you accept the risk that an LLC may not be the best for your situation.
When you register your own LLC using the process above, there are a few additional risks. First, you will not have a Member Control Agreement or a Member Voting Agreement, which most attorneys recommend, especially if you have multiple owners. A Member Control Agreement is addressed by Minnesota Statutes section 322B.37, and a Member Voting Agreement is addressed by Minnesota Statutes section 322B.366. Our firm provides these agreements to all clients as a part of forming their new LLC. Without these agreements, the LLC owners will be subject to the default designations for Minnesota LLCs, which are often contrary to small business owners’ intentions. If you intend to obtain a business loan, most banks expect to see that you have all these documents to ensure you are properly prepared and running your business in a professional manner.
Another risk is that the Minnesota Secretary of State’s form for Articles of Organization does not include other notices that you may want included. The Articles of Organization, and the provisions on them, are deemed published to the world to put the world on notice. Some courts have held that without certain notices on file with the Secretary of State, your business cannot enforce certain rights against other parties because those parties were never put on notice that you were preserving those rights. Our firm prepares Articles of Organization for clients with a set of notices that are not included by the Secretary of State to ensure that our clients’ rights are preserved.
Finally, if your business has multiple owners, an attorney can advise you on “best practices” for handling disagreements, tax issues, exit strategies (exits include death, disability, bankruptcy, divorce, and simply one owner deciding to leave the business), and how much an owner will be paid for being bought out of the business. If these issues are not discussed and put in writing, they can become points of contention because business owners may have different expectations or understandings. This can lead to costly legal battles that far exceed the cost of hiring a business attorney at the beginning to draft up the normal LLC operating and voting agreements.
In conclusion, forming an LLC on your own can save you money, but once your business becomes profitable, you face an increasing risk of problems. If your business is a very small part-time business, forming an LLC on your own may make sense despite the risks.
You should hire a Minnesota LLC attorney to form the LLC for you if you
- have multiple owners,
- are working in your business full-time,
- invested significant assets into your business, or
- want a solid legal foundation for your company.
A good LLC attorney will provide you with business tax planning, legal guidance, and a full package of LLC legal documents and best practices to prepare your business for success.
Frequently Asked Questions
I am considering creating an LLC with two other members. Is it possible to file the Articles of Organization and then create the Member Control Agreement and Operating Agreement at a later date?
Yes, it is possible to file the Articles of Organization and then create the Member Control Agreement and Operating Agreement later. However, this is not advisable.
For example, the standard Articles of Organization form does not even include any place to write the percentages of the company owned by each founder. The “organizer” line is for the name of the person filing the documents; “organizer” does not mean owner.
Here is an example. We represented one founder in a lawsuit against the other founder. They were close friends when they founded the company. They filed the Articles of Organization but never prepared a Member Control Agreement, Bylaws, or Operating Agreement. Later, they disagreed about the percentage of ownership each owned. While they both agreed they started at 50%, one believed the percentages changed later based on the time and money he put into the company. They spent well over $100,000 in litigation over an issue that could have been resolved with solid documents in the beginning.
My advice is, have an attorney draft your founding documents (e.g. Member Control Agreement, Bylaws, or Operating Agreement) before the stakes are high. That is, get the owners’ understandings and expectations in writing in these key organizational documents before they invest significant time or money and before the company starts generating significant profits.
How long will it take to get my LLC registered?
We can do it in 1 hour. Your LLC exists the moment you file your documents. Filing can be done in person (at the Secretary of State’s business office) or electronically. Our law firm files them electronically, so the only time is us preparing the first two pages of the paperwork.
I am purchasing a rental property. It best to form an LLC to own and rent out the property?
Yes, an LLC is a very common way to minimize liability for rental property. If the LLC can buy the property, you can just have the lease between the tenant and LLC. If the LLC cannot buy the property, there is a way you can do it with a quit claim deed, but it is complex to avoid problems with the mortgage company, so you should involve an attorney.