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July 04, 2008
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Minnesota Small Business Development Centers

Frequently-Asked Questions

Legal Considerations

What legal form of business organization should I choose?   ( Top )
Minnesota entrepreneurs have a number of choices of form of legal organization. The most appropriate form depends on the needs and goals of the business owner(s). Specific advice on the most appropriate form of organization for your business should be obtained from your legal and tax advisors. A general discussion of the forms of organization available in Minnesota, and the tax and non-tax considerations of each is found in A Guide to Starting a Business in Minnesota, which may be viewed, downloaded or ordered online or by calling the 24-hour order line, 651-556-8425 (Twin Cities metro calling area) or 1-800-310-8323 (outside the Twin Cities calling area).

The following forms of organization are available to most Minnesota businesses:

Sole proprietorship. The business is owned and controlled by one person. This person alone receives the profits and bears the losses from the business, and this person alone is responsible for the debts and obligations of the business.

General Partnership. The business is owned by two or more persons who associate to carry on the business as a partnership. Partnerships have specific attributes, which are defined by statute. All partners in a general partnership share equally in the right, and responsibility, to manage the business, and each partner is responsible for all the debts and obligations of the business. Distribution of profits and losses, allocation of management responsibilities, and other issues affecting the partnership usually are defined in a written partnership agreement.

Limited Liability Partnership. A general partnership may register with the Secretary of State as a limited liability partnership (LLP). In a LLP, the personal assets of the partners are shielded against liabilities incurred by the partnership in tort or contract situations. LLPs are relatively new entities in Minnesota, and certain tax and other aspects are not fully developed or understood.

Limited Partnership. A limited partnership is a type of partnership in which limited partners share in the partnership's liability only up to the amount of their investment in the limited partnership. A limited partnership must have at least one general partner and one limited partner. The general partner is responsible for day-to-day management of the limited partnership, and is responsible for the debts and obligations of the limited partnership. The limited partner, in exchange for limited liability, is usually not involved in the day-to-day management and control of the business. A limited partnership may register with the Secretary of State as a Limited Liability Limited Partnership.

Corporation. A corporation is a separate legal entity. It is owned by one or more shareholders. The shareholders elect a board of directors which is responsible for management and control of the corporation. Because the corporation is a separate legal entity, it is responsible for the debts and obligations of the business. In most cases, shareholders are insulated from claims against the corporation. An "S corporation" is a corporation that elects to be treated under Subchapter S of the Internal Revenue Code. In most cases, S corporation shareholders, rather than the corporation itself, are taxed on the profits of the corporation. In contrast, a "C corporation" (taxed under Subchapter C of the Internal Revenue Code) is taxed on the profits of the corporation, and any dividends paid to shareholders from after-tax profits are taxed again at the shareholder level.

Limited Liability Company. A limited liability company (LLC) is a form of business organization that is designed to combine the tax treatment of a sole proprietorship or partnership with the limited liability characteristics of a corporation. A limited liability company may have one or more members.

With the exception of sole proprietorships, all of the above forms of organization are established by statute. Specific forms must be filed with the Secretary of State, and in most cases the business organization must obtain federal and state tax ID numbers. There also may be constraints on changing from one form of organization to another. For these reasons, decisions regarding the form of organization or changing the form of organization should be made with the assistance of knowledgeable legal counsel.

What paperwork must I file to form my business?   ( Top )
The specific legal documents that must be filed to form a business depend on the type of business organization chosen by the entrepreneur. Forms are available from the Minnesota Secretary of State's Office, Business Services Public Counter, 60 Empire Drive, St. Paul, MN 55103, telephone 651-296-2803 (Twin Cities calling area) or 1-877-551-6767 (outside the Twin Cities calling area). Forms also may be downloaded from the Secretary of State website.

The most common requirements for forming a business organization are:

A Certificate of Assumed Name must be filed if the name of the business is different than the full name of the owner(s) of the business. This requirement applies to all forms of business organization.

Partnerships may file certain elective forms specifying limitations or expansions on partners' authority. If these forms are not filed, the default provisions of the Minnesota Business Corporation law apply to the partnership. Consult with your legal advisor concerning whether the partnership should file any of these forms. The partnership agreement itself need not be filed with the state.

Minnesota limited liability partnerships (LLPs) must file a Limited Liability Partnership Statement of Qualification, and an annual registration.

Minnesota limited partnerships must file a Certificate of Limited Partnership.

Minnesota limited liability limited partnerships (LLLPs) must file both a Certificate of Limited Partnership and a Limited Liability Partnership Statement of Qualification.

Minnesota limited liability companies (LLCs) must file a Limited Liability Company Articles of Organization, and an annual registration. Minnesota LLCs may use the form Articles of Organization provided by the Secretary of State, or they may draft their own Articles of Organization, so long as the requirements of the Minnesota Limited Liability Company statute are followed.

Minnesota corporations must file their Articles of Incorporation and an annual registration. Minnesota corporations may use the form Articles of Incorporation provided by the Secretary of State or they may draft their own Articles of Incorporation, so long as the requirements of the Minnesota Business Corporation law are followed.

Business organizations formed outside the State of Minnesota that transact business operations within Minnesota are required to file certain documents with the Secretary of State. Information on these requirements and applicable forms are provided on the Secretary of State website or may be obtained by writing or calling the Secretary of State's office, 180 State Office Building, 100 Constitution Avenue, St. Paul, MN 55155, telephone 651- 296-2803 (Twin Cities calling area) or 1-877-551-6767 (outside the Twin Cities calling area). A handout available from the Secretary of State's office summarizes Minnesota law on what constitutes "transacting business" in Minnesota.

How do I find out if anyone else is using my business name?   ( Top )
The Minnesota Secretary of State's office, telephone 651-296-2803 (Twin Cities calling area) or 1-877-551-6767 (outside the Twin Cities calling area) can tell you if your planned business name is the same as, or not distinguishable from, the name of a corporation, limited liability company, limited partnership, limited liability partnership or trademark on file with the Secretary of State. This check will not reveal the names of businesses operating in other states, however, nor will it reveal any names registered with the U.S. Patent and Trademark Office. A search of the Internet can help you find out whether your planned business name is being used elsewhere. You can search the online trademark registrations of the U.S. Patent and Trademark Office for free, or you can have a trademark search firm do it for you for a fee. The cost depends on the extensiveness of the search.

Will filing with the Secretary of State prevent someone else from using my business name?   ( Top )
No. The reason for requiring a business to file a certificate of assumed name is to provide a source of public information on the identity of the business owner. Registration of the assumed name does not protect the name against use by other persons. The Secretary of State's office will, however, inform the first person to file the name of every later filing of that name or similar names. It is up to the individual to decide whether to take legal action to prevent use of the name. An attorney can provide advice on the likelihood of success and potential costs of such a lawsuit.

Likewise, registration of a corporate name, limited liability partnership name, or limited liability company name does not necessarily mean the name can be used without penalty. There may be existing users of the name who have perfected a prior federal or common law right to the name without filing with the Minnesota Secretary of State. Registration of an Internet domain name also may create rights to the name. These users may be able to use the courts to prevent the incorporators, organizers, or business entity from actually using the name even though it may be available for registration with the Secretary of State.

How can I prevent someone else from using my business name?   ( Top )
You may be able to register your business name as a trademark or a service mark. A trademark is a "brand name" which associates a product with a particular manufacturer. Service marks are used to identify the providers of specific services. Trademarks and service marks may be registered with the Minnesota Secretary of State, and generally apply to products or services sold in Minnesota. For broader protection, federal registration is necessary.

An attorney familiar with intellectual property law can provide guidance on the best way to protect a business name, and the costs of doing so. General information about federal and state trademarks can be found in two publications of the Minnesota Small Business Assistance Office: A Guide to Starting a Business in Minnesota and A Guide to Intellectual Property Protection. Both may be ordered online or by calling the 24-hour order line, 651-556-8425 (Twin Cities metro calling area) or 1-800-310-8323 (outside the Twin Cities calling area). A Guide to Intellectual Property Protection may be downloaded from the same site.

I'm not quite ready to start my business. Can I reserve a business name for future use?   ( Top )
State law allows you to reserve a business name for a corporation or limited liability company. The reservation is made on the Name Reservation form available online from the Secretary of State's office or by calling 651-296-2803 (Twin Cities calling area) or 1-877-551-6767 (outside the Twin Cities calling area). The reservation is effective for 12 months and may be renewed for an unlimited number of 12 month periods.

What tax numbers do I need?   ( Top )
Many Minnesota businesses will need one or more tax identification numbers. These include the Federal Tax Identification Number (also known as Federal Employer Identification Number (EIN)), the Minnesota tax Identification Number (also referred to as a MN Sales Tax ID Number), and the Minnesota Unemployment Insurance (UI) Employer Account Number (EAN).

A Federal Tax Identification Number or EIN is required for nearly all businesses. Two exceptions are (1) sole proprietorships that: have no employees, are not required to file information returns, do not have a retirement plan for themselves, and are not required to pay federal excise taxes in connection with their business, and (2) single-member limited liability companies that have elected to be taxed as a sole proprietorship and meet the same requirements as those listed in (1).

A Minnesota tax Identification Number is required for any business that is required to file information returns for income tax purposes, has employees, makes taxable sales, or owes use tax on its purchases. A sole proprietorship or single-member limited liability company that does not have any of these tax obligations does not need a Minnesota tax Identification Number.

All business entities that have services performed for them in Minnesota must register with the Minnesota Department of Employment & Economic Development, Unemployment Insurance (UI) Program. The Department determines whether the entity is liable for unemployment compensation tax, and if so, issues a Minnesota Unemployment Insurance (UI) Employer Account Number (EAN). This Department number is different from the Federal Employer Identification Number (EIN) and the Minnesota tax Identification Number.

Where do I get tax numbers?   ( Top )
The Federal Tax Identification Number or EIN number may be obtained online at the Internal Revenue Service (IRS) website, Employer ID Numbers (EINs). The EIN may also be obtained by telephone, with possible follow-up by mail or fax. A completed form should be completed before calling. The telephone number is 800-829-4933. Filing for the EIN may also be done via fax, using the Fax-TIN number 859-669-5760. Another option is to obtain the EIN by mail by filing Form SS-4 with the IRS service center serving Minnesota. Filing done by mail takes approximately four weeks to process. Form SS-4 and instructions are available for downloading from the IRS website, Forms and Publications or by calling the IRS toll-free at 1-800-829-3676. Forms also are available at IRS taxpayer assistance centers in Bloomington, Duluth, Mankato, Minneapolis, Rochester, St. Cloud and St. Paul.

Application for the Minnesota tax Identification Number may be made online at the Minnesota Department of Revenue website, Register for a Minnesota tax ID online. Another option is to apply for a Minnesota tax Identification Number by calling the Minnesota Department of Revenue at 651-282-5225. A representative will assist with the registration process and assign a number immediately. Alternatively, the Minnesota tax Identification Number may be obtained by mail or fax, using the Application for Business Registration (Form ABR). To obtain a copy of Form ABR, contact the Minnesota Department of Revenue, Mail Station 4410, St. Paul, MN 55146-4410, fax 651-297-2265 or download it from the Minnesota Department of Revenue website, Business registration forms and instructions.

The Minnesota Unemployment Insurance (UI) Employer Account Number (EAN) registration may be made online at the Minnesota Unemployment Insurance (UI) Program website. To register by phone (only if you do not have access to the Internet), call 651-296-6141.

What licenses or permits do I need to start my business?   ( Top )
Not all businesses are required to be licensed by the state. You have several options for learning whether a state license or permit is required for your business. You can call a business advisor at the Minnesota Small Business Assistance Office at the telephone numbers below to discuss your question. Advisors are normally available from 8 a.m. to 4:30 p.m. weekdays. The telephone number is 651-556-8425 (Twin Cities metro calling area) or 1-800-310-8323 (outside the Twin Cities calling area). Or, you can refer to the Licenses and Permits section of A Guide to Starting a Business in Minnesota, which can be ordered online from the Department of Employment and Economic Development or by calling the telephone numbers listed above. During non-business hours you can leave your order on a voice messaging system. A third option is to use the state website for Minnesota licenses and permits, License Minnesota.

In addition to state requirements, many cities or other units of local government have business licensing requirements. Contact the licensing office or clerk's office of the city where the business is located to determine whether a license or permit is required.

How can I get information on environmental regulations and compliance?   ( Top )
The Small Business Environmental Assistance Program (SBAP) of the Minnesota Pollution Control Agency provides free, non-regulatory, confidential environmental assistance to small businesses. The focus is on compliance assistance, but there is also an emphasis on pollution prevention opportunities to get small businesses out of the regulatory loop or into a less burdensome regulatory process. The service is available to all small businesses in Minnesota. Contact the SBAP program at 651-282-6143 in the Twin Cities calling area or 800-657-3938 outside the Twin Cities calling area.

How do I find professional advisors (attorney, accountant, tax advisor)?   ( Top )
Business associates, business advisors, bankers, friends and family are all potential sources of referral to professional advisors. Professional associations to which attorneys, accountants and tax preparers belong maintain referral services you can contact for names of potential advisors. In Minnesota these are:

  • Minnesota State Bar Association Lawyer Referral Service, 514 Nicollet Mall, Suite 300, Minneapolis, MN 55402; telephone 1-800-292-4152. Businesses in Hennepin, Ramsey, and Dakota counties can contact their county bar association referral service. Telephone numbers are 612-752-6666 in Hennepin County; 651-224-1775 in Ramsey County, and 952-431-3200 in Dakota County. Other attorney referral services are operated by Chrysalis Legal Assistance for Women, 612-871-0118; Minnesota Women Lawyers, 612-338-3205, and Resources and Counseling for the Arts, 651-292-4381.
     
  • Minnesota Association of Public Accountants, 1711 West County Road B, Suite 300N, Roseville, MN 55113; telephone 651-635-0706.
     
  • Minnesota Society of Certified Public Accountants Referral Service, 7900 Xerxes Avenue South, Suite 1230, Bloomington, MN 55431; telephone 952-831-2707 (Twin Cities calling area) or 1-800-331-4288 (outside the Twin Cities calling area).
     
  • Minnesota Society of Enrolled Agents, National Referral Hotline, telephone (218) 692-2650 or visit the Minnesota Chapter's website.
     
  • AccountAbility Minnesota, 2314 University Avenue, Suite 12, St. Paul, MN 55114; telephone 651-287-0187.

Before selecting a professional advisor, it is recommended that you meet with potential candidates to discuss your specific needs, their credentials, fee arrangements, and other issues important to you. Ask for names of satisfied clients, and check references. Review any proposed retainer agreement and understand it before signing.

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