Starting a Business in Minnesota

When deciding what type of structure you want to use in your business, it is important to take different aspects of each business type into account.

The preferred business type for most new businesses is an LLC or S Corporation, but some people may consider a sole proprietorship (because it is cheaper), partnership (generally a bad idea), or C corporation (generally for large companies).

For an overview of the key differences, this table compares the differences between a sole proprietorship, general partnership, limited partnership, limited liability partnership, LLC, S corp, and C corp

Sole Proprietorship and Partnership

In the old days, a new business may have begun as a Sole Proprietorship or General Partnership. In a Sole Proprietorship, a single individual owns the business and in a General Partnership there are multiple owners that serve as co-owners. In either case a corporation or limited liability company has not been formed. This means that the business is not capable of owning assets because everything owned is considered personal property of the owner(s). Here the owner(s) are only partially liable for the business debts.

Furthermore, neither a Sole Proprietorship or General Partnership require legal document filings or other formalities. Their only concern is to comply with state and local licensing requirements. These may include registering the business with the Minnesota Secretary of State and other local authorities so that the business’s personal property can be properly assessed and it can obtain state and local licenses.

In either case it is recommended that a corporation or limited liability company (LLC) is formed in order to decrease personal liability.

LLC and Corporation

Today, most knowledgable business owners begin by forming an LLC or corporation (including a S corp). An LLC or corporation will give the owner protection from personal liability for harm caused by the business.

Owners of an LLC or corporation may elect to be taxes as an S corp, providing additional tax benefits for successful businesses. However, an S Corp election also requires additional paperwork for quarterly tax reporting and payments, so smaller businesses typically find an LLC is the best option until the business is generating significant profits.

Minnesota Business Formation Attorney

People often ask why they should use an attorney for business formation in Minnesota. There are two reasons:

  1. to ensure that your business is set up with a good foundation and in compliance with the law; and
  2. to educate you on how to maintain legal compliance, minimize taxes, and reduce legal risks.

Business Formation Services

Limited Liability Partnership

A limited liability partnership or LLP is a partnership business that provides limited liability for its partners under Minnesota’s Limited Liability Partnership Act in Minnesota Statutes Chapter 323A. In an LLP, partners are not personally liable for debts of the partnership. In this way, an LLP is like an LLC or corporation. An LLP is often the entity of choice for a partnership that wants to convert to a business with limited liability.

LLC Formation

A limited liability company and corporation are the only types of business that give the owners complete limited liability. Therefore, if the business acquires debt it will not affect the owner’s personal assets and vice versa, if the owner goes into debt, the business cannot be held liable.

S Corp Formation

An S corporation is a corporation that is not taxed at the corporate level, passing profits on to the individual owners, who are then taxed on their personal income tax returns. This means the profits are taxed once, rather than twice. In this way, an S corporation is like an LLC.

Corporation Formation

A limited liability company and corporation are the only types of business that give the owners complete limited liability. Therefore, the owner(s) of the business would be protected from any problems the business has in the future because they would only be liable up to the amount they have invested in the business.

Limited Partnership

A limited partnership is a co-owned business that has not been made into a corporation or LLC. In a limited partnership, the general partner is liable for the debts of the business but the limited partner is not. For this reason, a corporation or LLC is typically better.

Partnership Formation

A general partnerships is a co-owned business that has not been made into a corporation or LLC. Because partners in a general partnership can be liable for the business’ debts, it is recommended that a corporation or LLC is formed.

Sole Proprietorship Formation

In a sole proprietorship, the individual is the sole owner of the business. Sole proprietorships contrast corporations or LLCs in that the sole proprietor has increased liability. It is recommended that a corporation or LLC is formed to reduce liability.


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