Q: Should I incorporate my business?
A: Yes. The main purpose for incorporating a business is to protect the owner of the business from personal liability for the debts of the business. The most common forms of business organizations used in Minnesota are the Limited Liability Company (LLC), S or C type Corporation, and Limited Liability Partnership (LLP).
Q: Do I need an attorney to incorporate my business?
A: Yes. There is a common misconception that incorporating a business is as simple as filing the necessary Articles with the Secretary of State’s Office. The Articles, however, provide no guidance regarding the operation of business, the relationship between owners of the business, the resolution of disputes, etc. As such, hiring an attorney can provide you not only with the necessary tools to incorporate your business, but all of the necessary agreements, etc. to ensure that the business runs as smoothly as possible during disputes, transfers of ownership, and termination.
Q: What if I do not incorporate my business?
A: In Minnesota, if your business is not incorporated and only has one member, it will be considered a sole proprietorship. If your business has more than one member it will be considered a general partnership.
Q: What is a sole proprietorship?
A: A sole proprietorship is a business owned by only one individual and does not offer limited liability to the owner. A sole proprietorship is not considered a separate entity for tax or legal purposes.
Q: What is a general partnership?
A: General partnerships are formed automatically when two or more persons engage in an activity for profit. The members of a general partnership are jointly and severally liable for the debts of the business.
Q: What is a limited liability company (LLC)
A: A limited liability company provides the owners of the business the limited liability of a corporation with more flexibility in how to manage the day to day affairs of the company. The advantages of an LLC are organizational flexibility, unlimited duration, and pass through taxation. The members of the LLC are typically taxed according to their ownership interest in the Company, but can elect through the member control agreement to allocate the profit and losses in a different way. An LLC can also have an unlimited number of members.
Q: What is a C type Corporation?
A: A C corporation is treated as a separate entity for federal and state tax purposes. It also provides its owners with limited liability protections for tort and contract damages. The disadvantage of a C corporation is double taxation, the entity is taxed at the corporate tax rate, then the shareholders are taxed on the dividends from the corporation.
Q: What is a S type Corporation?
A: An S corporation is an entity that gets treated like a partnership for taxation purposes. The S corporation is limited to only 75 shareholders and lacks some of the flexibility of other corporate forms.
Q: What is a limited liability partnership (LLP)?
A: A Minnesota LLP is governed by Minn. Stat. Sec. 323A.01.1001 and takes effect once a statement of qualification is filed with the Secretary of State. The partners are still liable for debts and obligations that arose before the statement of qualification is filed. After the statement of qualification is filed, the partners are protected from future liability. The LLP is not recognized in all states.
Q: Can I transfer ownership of my incorporated business?
A: Interest in a Minnesota limited liability entity is typically considered personal property and can be transferred at any point, subject to the terms of any agreements by and between its members.
Q: What is a Federal Employer Identification Number?
A: This is also known as an EIN and is generally required in order to start a limited liability entity.