Considering the Extent of Government Regulation When Selecting a Business Type

August 15, 2011

Certain types of government regulation will apply to the business regardless of the form of organization. Licenses or permits, where required, will be required of all business entities conducting the regulated activity. Note that businesses operating in multiple jurisdictions (whether cities, states or counties) should inquire about licensing requirements imposed by each of those jurisdictions. This is equally true of businesses using the Internet.

Federal, state and local consumer protection laws regulate business relationships with the public, without regard to the form of organization. Every business that hires employees will be required to comply with certain federal and state labor and tax laws governing the employment relationship. The following paragraphs identify the major differences in the extent of regulation of the form of organization itself.

Sole Proprietorship

The sole proprietorship, as a form of business organization, is not generally regulated by the state. Other than tax filings and specialized reports applicable to certain kinds of businesses (e.g., hazardous waste generators), no special governmental filings or reports are required, making the sole proprietorship the least restrictive, most private form of organization.


A general partnership, like a sole proprietorship, operates with relatively few governmental controls. RUPAprovides statutory rules forbasicquestionsof partnership management and relationships between the partners and third persons, but most issues are determined by the partnership agreement. No special partnership reports to or filings with government entities are required, but an assumed name certificate may be required, depending upon the partnership name. Limited partnerships, limited liability partnerships and limited liability limited partnerships must file with the Secretary of State on a yearly basis in order to retain their special status. Limited partnerships are more closely regulated than general partnerships, and public filings remove some of the privacy associated with sole proprietorships and general partnerships.


Rules governing the corporation are established by laws of the state of incorporation and the corporation’s articles of incorporation. These rules are more formal and complex than those governing partnerships and limited partnerships. In addition to complying with laws and regulations applicable to similarly situated businesses, any corporation that issues registered securities will be required to make periodic filings with state and federal regulators and must comply with other reporting requirements. Tax laws applicable to corporations generally are more complex than those applicable to proprietorships and partnerships and specific statutory procedures apply to dissolving the corporate entity. Most governmental filings are publicdocuments, making the corporation the least private form of organization. The S corporation must meet specific requirements to qualify for S corporation tax treatment, and S corporation status may be terminated when these requirements are not met.

Minnesota corporations must file an annual corporate registration with the Secretary of State which will provide corporations with a reminder-to-file notice. Failure to file an annual registration for two years will trigger administrative dissolution of the corporation.

Limited Liability Company

Rules governing the limited liability company are established by statute and by the limited liability company’s articles of organization and operating agreement (if any). These rules are similar in complexity to those governing partnerships and corporations.

CREDITS: This is an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Twenty-eighth Edition, January 2010, written by Charles A. Schaffer, Madeline Harris, and Mark Simmer. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.

This is also part of a series of articles on How to Pick the Right Business Entity Type. These articles help you select the right business type for your circumstances.

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