Business Articles

A limited liability company is a form of business organization that is designed to combine the tax benefits of a partnership with the limited liability protection of a corporation.  Limited liability companies are the preferred business entity choice for new businesses.

  -A LLC gives members the flexibility in choosing the tax status of the entity.  With only one member, he/she may choose to be taxed as a sole proprietorship or corporation; with two or more members, they may choose to be taxed as a partnership or corporation.  Generally members are not held personally liable for the debts and obligations for the business.

  -The profits and losses when taxed as a sole proprietorship or partnership may be passed through to the owners, eliminating double taxation.

  -The profits and losses of a LLC are typically allocated among the members in a proportion to his/her contributions.  However, the articles of incorporation may provide for another allocation of the profits and losses.

  -Members of a LLC may participate in active management without risking loss of his/her limited personal liability.

  -Limited liability companies combine the tax advantages of a sole proprietorship or general partnership with the limited liabiity protection of a corporation.

To form a Minnesota Limited Liability Corporation (LLC) one or more persons may file Articles of Organization and pay a filing fee of $160.00, as of the writing of this article.  The Limited Liability Corporation does not exist until the Secretary of State reviews, approves, and files the Articles of Corporation.  Filing fees for subsequent amendments are $35.00 and filing fees for mergers are $60.00.

Foreign Limited Liability Corporations may register by filing A Certificate of Authority to transact business in Minnesota form and pay a filing fee of $185.00.

An annual renewal is required once each year, which must be filed by December 31^st.  There is no charge for filing unless the company has been Administratively terminated or revoked.  A reinstatement fee for a company that has been terminated or revoked is $25.00.

A corporation is a separate legal entity owned by one or more shareholders.  To form a corporation the requirements of state law must be met.  Internal rules for the corporation, known as buy/laws, must be established and followed.

  -The shareholders elect a board of directors who are responsible for the management and control of the corporation.

  -A corporation is liable for the debts and obligations of the business.  Most often the shareholders are protected from personal liability for claims against the corporation.  This feature of limited liability is one of the advantages of a corporation.

  -If an owner performs services for the corporation he/she is considered to be an employee.

  -A corporation is also a separate tax entity, being taxed either as a C-corporation or S-corporation.

  -A C-corporation reports its income and expenses on a corporation income tax return and is taxed on its profits at corporation income tax rates.  Profits are taxed before dividends are paid out and taxed to the shareholders, resulting in double taxation.  Small businesses normally do not want to be formed as a C-corporation because of this double tax problem.

  -If the corporation meets statutory requirements for S-corporation status, shareholders may elect to be taxed as a S-corporation.  The S-corporation is taxed much like a partnership.  The S-corporation files an information return to report its income and expenses, and generally is not separately taxed.  The income and expenses pass through to the shareholders in proportion to his/her shareholdings, and profits are allocated and taxed to the shareholders at their individual tax rate.  Small businesses that choose to use a corporate structure normally choose to incorporate as an S-corporation to take advantage of "flow through profits and losses" and at the same time maintain limited liability protection.

  -The profits and losses belong to the corporation, and profits may be distributed to shareholders via dividends, they may be reinvested or retained by the corporation.

  -A corporation may authorize any number of shares of stock.  The articles of incorporation require the total number of shares authorized, however, the board of directors decide how many shares to issue and when to do so.

  -Ownership is transferred by the sale of stock.  Change of ownership does not affect the existence of the corporation entity.

  -Small businesses with multiple shareholders normally enter into a buy/sell agreement which puts restrictions on subsequent transfers of stock.

One or more persons may form a Minnesota business corporation for any lawful purpose. The corporation does not exist until the Secretary of State reviews, approves and files the articles of incorporation. Unless the articles of incorporation state otherwise, the corporation has general business purposes and the corporation has unlimited power to engage in any lawful act. There is a fee for incorporation of $135.00 as of the writing of this article.  Filing fees for subsequent amendments are $35.00 per filing, except for mergers, which are $60.00.

An annual renewal is required once each calendar year.  There is no charge for filing the renewal unless the corporation is statutorily dissolved, in which case there is a $25.00 reinstatement fee.

A limited partnership is a kind of partnership where the limited partners share in the partnerships liability up to the amount of his/her investments in the limited partnership.  Limited partnership must have at least one general partner and one limited partner.  The general partner has the right and responsibility to control the limited partnership.  The general partner is also responsible for the debts and obligations of the business.  The general partner has unlimited personal liability.  The required formalities for setting up a limited partnership must be observed or the limited liability of the limited partners may be lost.

In order for a Minnesota Limited Partnership to be formed, a Certificate of Limited Partnership must be delivered to the secretary of state for filing, along with a filing fee.  Subsequent amendments to this certificate are subject to filing fees as well.

A Foreign Limited Partnership may apply for A Certificate of Authority to Transact Business in this state by delivering an application to the secretary of state for filing along with a filing fee.  Subsequent amendments to this certificate also require filing fees.

An annual renewal is required once each calendar year.  There is no charge for filing the renewal unless the limited partnership is revoked, in which case a reinstatement fee is required.

A partnership is a business owned by two or more persons, who associate together to carry on the business as a partnership.

  -Partners share equally in the right and responsibility to manage and control the business.

  -The profits and losses of the business pass through to the partners as agreed upon in the partnership agreement.  If the distribution of profits and losses are not agreed upon in the partnership agreement then profits and losses are shared equally among partners.

  -Income and expenses of the partnership are reported on federal and state information tax returns, and filed by the partnership.

  -The partners are taxed on their respective share of the partnership’s profits at their individual income tax rates.

  -Certain management decisions require unanimous consent between partners.

  -The transfer of a partner’s economic interest in the partnership is determined by the partnership agreement, or by statute if there is no partnership agreement.  For reasons such as transferring interest in the partnership, it is recommended that the partnership agreement be in writing.

  -To avoid the risk of losing more than the owners have put it, they should obtain adequate insurance.  The major disadvantages of a general partnership are unlimited personal liability and joint and several liability among the partners for each other's actions.

A sole proprietorship is a business owned and controlled by one individual.

  -To begin operation, the business owner needs to obtain business licenses, tax identification numbers, and register the business’ name.

  -An owner of a sole proprietorship has the maximum freedom and the most privacy, having full and complete authority to manage and control his/her business.

  -The owner of the sole proprietorship receives all profits of the business and bears all losses, even if losses exceed their investment in the business.

  -To avoid the risk of losing more than the owner has put it, he/she should obtain adequate insurance. The major disadvantage of a sole proprietorship is unlimited personal liability.

  -The owner can transfer ownership of the business to a new owner if he/she chooses.

  -With a sole proprietorship it is easy to form other partnerships and/or corporations later on.

  -The sole proprietorship business entity terminates at the death of the proprietor or if the proprietor becomes unable to manage the business.

Any individual that conducts business in Minnesota under a name other than their full legal name must file a Certificate of Assumed Name along with a filing fee.  There are filing fees for subsequent amendments per filing.

The rules in effect at the time of this article require that after filing with the Secretary of State’s Office, the business owner must publish the Certificate or Amended Certificate of Assumed Name with a qualified local newspaper for two consecutive issues in the county where the principal place of business is located.  After publication, the newspaper will return an affidavit of publication, which should be retained by the business.  Failure to publish may render the filing invalid.

A Certificate of Assumed Name is valid for 10 years from the date of filing with this office.  A renewal form will be mailed to the business address on file, six months prior to expiration.  There is filing fee to file a renewal.

Business growth is good for everyone.  Entrepreneurism is similarly good for us all.  Yet, there are limits as to when and how a business's employees can "set up across the street" and compete with their former employer.  One of those limits is the duty of loyalty an employee owes to the employing business.

In Minnesota the courts have held that "an employee's duty of loyalty prohibits her from soliciting the employer's customers for herself, or from otherwise competing with her employer, while she is employed."  In fact, even telling a customer of the intent to open a new competing business could be a breach of this duty of loyalty.  A breach of the duty of loyalty could possibly occur even if the idea of the employee starting a new business actually came from a customer of the old business.

The initial issue is one of timing.  The employee is at grave risk if the employee tells any customers, or other employees, of their intent to form a competing business before they have resigned from their current employment.  Yet, the employee can take some steps to compete before they have left the old employer.  In Minnesota, "Employees who wish to change jobs or start their own businesses, however, should not be unduly hindered from doing so.  An employee has the right, therefore, while still employed, to prepare to enter into competition with her employer."  The employee may form a limited liability company, secure financing, sign a lease, print stationary, and do other business start up activites that do not amount to soliciting customer or other employees for involvement in the new venture.

"While it is true that en employee may take steps to insure continuity in his livelihood in anticipation of resigning his position, he cannot feather his own nest at the expense of his employer while he is still on the payroll."