According to Forbes, Minnesota is ranked the 15th best state to start a business. Business entities are provided with a competent platform and all the opportunities to drive a successful economic climate.
Minnesota business owners enjoy favorable tax advantages and convenient change in ownership. The following step-by-step guide will show you how to start a corporation in Minnesota.
1. Select a name for your corporation
The first step in establishing a Minnesota corporation is deciding on a name for your business. As always, there are rules and guidelines to adhere to when choosing a Minnesota business name.
General corporate name guidelines
Adhere to the following naming rules when choosing a Minnesota corporation name:
- Certain restricted words like attorney, bank, or university may require additional paperwork or a licensed individual to be a part of your corporation
- Additionally, you may not include any words that may mislead the public into believing that your corporation is affiliated with a government agency. So steer clear of words like FBI, Treasury, or State Department
- Your business name must be different from other existing businesses in Minnesota
- Your business name cannot suggest that your corporation is incorporated for a legal purpose
- Your Minnesota business name must contain the word Inc., corporation, limited, or at least an abbreviation of any of these words. It may also contain the word company or an abbreviation of the word company
The Minnesota state statute provides additional guidelines on naming a Minnesota business.
After selecting a name for your Minnesota corporation, you may also choose to trademark the business name. The advantage of trademarking a business name is that it protects the name and brand from intellectual property theft or misuse. To trademark your Minnesota corporation name, submit an application to the US Patent and Trademark Office’s website.
To put it simply, an entity name is your business’s legal name. This is a name that you use on your formation documents and is also the name that the state uses to identify your business.
DBA (Doing-business-as) name
It is a requirement in the state of Minnesota that all types of businesses that regularly transact business in the state and under a different name from the entity name file a DBA with the Minnesota Secretary of State. A DBA is also referred to as a doing business as name or assumed name and allows your business to transact under a different name from its legal or entity name.
2. Nominate a registered agent
A Minnesota resident agent is required for every formal business in the state as per Minnesota state law. A resident agent is responsible for receiving all official paperwork from the state and also service of process in the event that a lawsuit is served.
You may also choose to be your own resident agent if you are an owner of the business. The only requirement is that you need to be over the age of 18 and have a street address in the state. Additionally, you’ll also need to maintain availability during typical business hours.
However, what you need to understand if you opt to be your business’s own resident agent is that you’ll have to sacrifice your privacy to an extent. This is because a resident agent’s address will be published publicly, so if you value your privacy, it is best to nominate another individual to serve as your company’s resident agent.
3. Appoint initial directors at the organizational meeting
An essential step in the Minnesota corporation formation process is holding an organizational meeting. This meeting is where the incorporators and initial directors will be appointed in compliance with Minnesota statutes.
The person in charge of calling the meeting should give at least three days’ notice of the meeting to each of the incorporators or directors that are named. The notice must state the date, time, and place of the meeting. Minutes of each of the meetings held must also be kept.
During the first organizational meeting, you’ll need to nominate at least one incorporator who will be responsible for signing the articles of incorporation and one director to oversee the operations of the company. Additionally, you’ll also need to nominate corporate officers for the company. Together, the officials assigned are referred to as the board of directors.
4. File Articles of Incorporation
The Minnesota Articles of Incorporation or Minnesota Certificate of Incorporation must be filed to establish your corporation in the state legally. The articles must be filed with the Minnesota Secretary of State by filling in the Articles of Incorporation Form. However, the articles must contain the following information:
- The name of your corporation
- The addresses and names of the corporation’s incorporators
- The registered office and registered agent information
- The stock structure and the total number of shares the corporation is going to issue
Once you gather the relevant information, go ahead and file online with the Minnesota state’s office. Alternatively, have your articles mailed to the following address:
Minnesota Secretary of State – Business Services
Retirement Systems of Minnesota Building
60 Empire Drive, Suite 100
St Paul, MN 55103
5. Create and approve bylaws
It is essential that your Minnesota corporation keep complete and correct books and records. This should start with drafting and approving corporate bylaws. The corporate bylaws are basically the governing document for the company. They contain provisions when it comes to managing and operating the business and regulating the company’s affairs.
However, it has to be consistent with both the law and your corporation’s Articles of Incorporation. The first board meeting of directors is where the corporate bylaws will be reviewed and ratified.
It’s also essential that the corporation keeps a permanent record of all the minutes of meetings pertaining to shareholders and board of directions actions and decisions taken during meetings.
It’s also recommended that you use a template to draft your corporate bylaws; however, some of the pertinent information that should be included in your bylaws includes:
- The process of holding meetings
- How the corporation will be operated
- How disputes will be handled
- The dates of the shareholders’ annual meetings
- How contracts will be negotiated
- How corporate records will be stored
6. Select a share structure
The unit of ownership of a corporation is represented by a share of stock. Each share of stock represents the percentage of ownership of the corporation. That is, if the company decides to issue stock or issue one share of stock to a stock owner, that person, also known as a shareholder, then owns 100% of the company.
Additionally, shares may be structured into classes, with each class known as a share class holding different rights and privileges. You can have multiple classes, and each class can hold any number of shares.
7. Obtain an EIN
Every business entity in the state of Minnesota will need to acquire an Employer Identification Number, also referred to as an EIN. This is irrespective of the business type. An EIN is also known as a federal tax identification number and is used by the federal government as a way of identifying businesses in the state.
An EIN is also useful for federal and state tax purposes, opening up a corporate bank account, and hiring employees for your corporation. The EIN may be obtained from the IRS at no cost after forming your corporation.
One of the quickest ways to obtain the Employer Identification number is to apply online on the IRS website; alternatively, download the IRS Form SS-4 and then submit it to the Internal Revenue Service at the below address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
8. File Minnesota state taxes
The following corporate taxes may be applicable to your corporation depending on the type of corporation you’re running:
- Minnesota corporation franchise tax: All corporations in Minnesota are liable for corporate franchise tax, which is a tax on corporation income at a flat rate of 9.8% rate. This also includes an additional alternative minimum tax.
- Minnesota employer taxes: If you are hiring people to work for your corporation, then you must register for Minnesota employer taxes. You can do so by completing the application on the Minnesota Department of Revenue’s website.
- Minnesota sales tax: Minnesota also has a sales tax that is applicable to all corporations that are selling physical products. In this case, a seller’s permit is in order and must be obtained from the Minnesota Department of Revenue’s website. After putting in your application, you’ll receive a certificate allowing you to collect sales tax on applicable goods.
9. Minnesota business licenses and permits
Your Minnesota corporation may need to secure a few permits and licenses prior to legally operating in the state:
- Business registration: All corporations in the state of Minnesota must register with the office of the Minnesota Secretary of State. Aside from registering with the state, a business license may be required in several cities.
- Professional licensing: If you’re running a professional corporation or services such as cosmetologists, caterers, accountants, etc., then professional licensing is necessary to operate legally.
- Sales tax ID number: All businesses that file a partnership or corporation, have employees, or sell products and services must register for a tax ID number with the Minnesota Department of Revenue.
- Zoning: Ensure that you check and comply with local zoning regulations before starting to operate your business or even running a home business.
10. Annual report requirements in Minnesota
Corporations in Minnesota are required to file the annual renewal Form by the 31st of December each year. It must be filed every year starting in the calendar year of your corporation’s incorporation. You’re free to file the annual report online or submit a hard copy.
11. Costs of starting a corporation in Minnesota
The filing fees below apply to all Minnesota corporations:
- Name reservation: $35
- DBA name: $50
- Articles of Incorporation: $155
- Annual report: $135
- Minnesota Certificate of Good Standing: $15
Next steps after forming a corporation
After forming your corporation, opening up a business bank account, and obtaining business insurance, there are a few other steps that you can make use of to maintain your new business:
Obtain a Minnesota certificate of good standing
A certificate of good standing is necessary as it verifies that your corporation was formed legally and has been maintained correctly. The certificate of good standing will come in handy when forming a business as a foreign corporation in another state, seeking funding from banks and other lenders, and obtaining specific permits and licenses. You may request a certificate of good standing online, via mail, or in person.
Hire a business accountant
Hiring a business consultant makes payroll and bookkeeping easier, allowing you to focus on your business. Additionally, it prevents your business from overpaying on taxes while helping to avoid costly tax errors, fines, and penalties as well. Furthermore, hiring a business consultant helps to manage your business funding effectively and discover areas of unforeseen loss or additional profit.
An LLC or limited liability company is recommended if you want an easy-to-maintain business structure. Alternatively, a sole proprietorship is one of the easiest business structures to form and consists of a minimum amount of government regulation. However, registering a corporation offers the strongest protection to its owners from personal liability.
A C corporation or a C Corp. may have an unlimited number of owners in addition to multiple classes of stock. Therefore, it’s an advantageous business structure as it is a good vehicle for attracting various types of equity financing and venture capital.
A nonprofit corporation is recognized as a legal entity that is separate from its owners. This basically means that the nonprofit corporation does not have owners but founders.
Most small businesses are liable for tax on their business income under the individual income tax. As long as you earn more than $400, your income is considered taxable.
One of the main advantages of forming a corporation, while it is a difficult entity to create, is that it offers personal liability protection to shareholders.