There’s a joke in the small business and startup world that compares entrepreneurship with having a child. It never feels like the “right” time to make the leap, but you do it anyway. Why? Because it’s a big part of the dream you have for yourself and your future; you’ll never know what’s possible if you don’t give it a shot.
While having a vision is important in launching and building your business, so is taking the proper steps to ensure you are setting yourself up for success from the start. It’s important that you choose a business entity to legitimize your company, offer you legal protections, properly handle tax matters, and ultimately bring you closer to your professional and financial goals. In fact, selecting the right legal structure for your company is one of the most important choices you can make when starting your own business; it affects everything from daily paperwork to federal and state taxes. It also boosts your company’s credibility as well as your ability to raise money with investors. The right entity can also protect you from personal debt and personal liability in the event of a lawsuit.
We Can Help to Ensure Your Success
Choosing an entity for your business is a big decision – and it can feel overwhelming on top of everything else you have going on. It’s crucial to have an experienced Edina Business Development Attorney by your side to review your options and walk you through the entire process. The business law attorneys at Morris Law Group, P.A. advise clients on the best entity for their business and help them through the registration process, whether it’s preparing articles of incorporation or partnership agreements, or even maintaining corporate records. Morris Law Group also counsels clients on their day-to-day business activities including employee matters, customer relations, and business-to-business transactions. Give our business development team a call at 952-932-2000 or email firstname.lastname@example.org to schedule a free consultation.
Types of Minnesota Business Entities
Businesses of nearly any kind can select what kind of company they want to be based on the tax structure and subsequent implications, as well as the legal protections they need. Here is a rundown of your options, however, it’s important to speak to an experienced business attorney before you decide. And remember, your entity must be filed, with all the correct paperwork in place, with the Minnesota Secretary of State’s Office. We can handle that part, too.
- Limited liability company or LLC. A limited liability company, or LLC, protects its owners (also called members) from being personally responsible for any debts the business accrues during the course of its operations. In addition, an LLC safeguards its owners from being personally liable in a lawsuit, even if the company itself is sued. In other words, the persons who form the LLC don’t have to use their own money or assets to settle debts or judgements. That includes bankruptcy. To date, there are about 21.6 million LLCs in the U.S.
An LLC doesn’t pay federal income taxes, so owners must pay taxes every year. And in Minnesota, LLC owners pay taxes to the state on their personal returns, but the LLC itself does not pay a state tax. However, the LLC can choose to tax itself as a corporation, which allows federal and state income tax to be paid yearlong and can reduce the company’s annual corporate tax burden. More on this below.
- Partnership. In Minnesota and most states, a partnership is where at least two people legally agree to manage and run a company and receive a share of its profits and liabilities. There are roughly 2.2 million partnerships in the U.S. There are a few different types of partnerships, including:
- Limited Partnership. In a limited partnership, two or more company owners agree to form a business together, but only the general partner has unlimited liability. The other partner or partners are limited to liability as far as their investment.
- Limited Liability Partnership. An LLP is a general partnership that gives at least one of the partners some limited liability.
- Joint Venture. A joint venture can take on any legal structure and are often formed to work on specific projects.
- C Corp. Owners are taxed separately from profits under under subchapter C of the United States Code. There are many advantages to forming a C Corp, including limited liability, perpetual existence, unlimited shareholders, unlimited growth, and high-level credibility.
- S Corp. An S Corporation is a type of corporation that is given the benefits of incorporating while being taxed as a partnership. S Corp shareholders – there must be 100 or fewer involved – report income or losses on their own tax returns. An LLC can operate from an S Corp tax structure to pay members and reduce the amount of tax owed annually. There are about 3.65 million S corps in the U.S. Attaining the S-Corp status requires the filing of additional document with the IRS.
- Sole Proprietorship. A sole proprietorship is an unincorporated business owned and run by one person with no distinction between the business and the owner. For example, a web designer or freelance writer often form sole proprietorships to run their small businesses. In a sole proprietorship, the owner is entitled to all profits. However, he or she also is liable for all debts, losses, lawsuits, and other liabilities. About 20.3 million businesses in the U.S. are sole proprietorships.
There are a lot of do-it-yourself business entity websites around. However, the process can be complicated and a mistake can cause delays, inhibit your protections, and ultimately cost you money whether it be in unnecessary taxation or in fixing issues down the road. Keep in mind that there are different tax requirements for every type of business entity; it is crucial that you understand them so you can run your company effectively and legally.
How Can An Attorney Help Me Form My Business Entity?
Run a quick Google search of “Business Entity Creation” and roughly 202 million results pop up nationwide. Add “Minnesota” and you’ll end up with 24.8 million. Why? There are a lot of options out there. Many of them, especially those at the top of Google search results, appear to be “do-it-yourself” business formation platforms, with titles like “Create an LLC in Minutes” or “Start your Corp FAST.” But once you get started, the process is usually anything but fast and easy. It’s confusing; important documents can get overlooked and you have no way of knowing how legitimate the program is or if it will be recognized by the Secretary of State’s Office. In the long run, one-size-fits-all entity formation can end up costing business owners more time and money than if they walked through the process with an experienced business lawyer. Even worse, they could choose the wrong entity for their business and get sacked with taxes and other problems in the coming year.
There are many reasons to hire a business attorney to help you form an LLC, corporation, other legal tax structure for your business. First, an attorney will make sure you choose the right option for your company, it’s revenue and number of employees, and your goals. A skilled business attorney may discover that for one reason or another, a corporation is best for you instead of an LLC. If an LLC is the way to go, your attorney can help you choose whether to make it member-managed or manager-managed. If you’re in a partnership, should it be general, limited, or limited liability? Only a business attorney can tell you for sure.
Second, your lawyer will explain all of the documents required at the city, state, and federal level. He or she will also make sure deadlines are met and fees are paid so you can focus on running your business right away. Your business attorney will probably ask you lots of questions to see what you need in your documents and then explain them to you.
Before you meet with your attorney, think about your business name if you haven’t already. Minnesota requires companies to choose a business name and register it with the state. As the Minneapolis Business Portal explains, you need to select a name that clearly tells what your company does and the products or services it provides. You need to make sure the name hasn’t been taken be another Minnesotan by going to the Business Filings search page. Type your company name in the search box. If no results come up, your name is available. You’ve accomplished one of the hardest parts of the process – coming up with a unique name. Great work.
All of this work should be accomplished with the guidance of an attorney and at Morris Law Group, we can help. We work with single-person entities and large companies alike; your goals matter to us and we take your success seriously. Give Morris Law Group a call today to discuss your options.
Schedule a Free Consultation With An Edina Small Business Attorney Today
We set our clients up for success. Our Edina business law firm provides legal services to Minnesota startups, small businesses, restaurants, real estate firms, and more. What’s more, our business development team also handles dispute resolution for companies of all kinds. We advise clients involved in a dispute on their legal position and the chances of winning their case. Whether it’s through mediation, arbitration, or litigation, we help our clients through the confusing and often stressful dispute resolution process. We won’t stop until a positive outcome is reached.
Don’t go it alone. Running a business, especially a new business, is both challenging and rewarding. Our team can help ease the headaches, answer your questions, and help give you the confidence and support you need to start making your vision a reality.
Integrity and trust is the foundation of our practice. Our passion for client success is matched only by our experience, our reputation for excellence, and our deep understanding of each and every client’s individual needs.
At Morris Law Group, we don’t just counsel our clients. We invest in them.
We’ve been serving the Edina and Twin Cities communities since 2002. Our attorneys provide personalized, cost-effective legal services to clients seeking help in real estate, business development, commercial litigation, and other matters.
Our experienced Edina attorneys – Founder Richard L. Morris, Lillian Ballard, and Nicholas Henry – believe that relationships matter, whether a client is trying to navigate a purchase agreement, get a business off the ground, or dissolve a partnership. Our lawyers appear regularly in state and federal court, in administrative hearings, and in various alternative dispute resolution forums, including mediation and arbitration.
Morris Law Group is the best Minnesota law firm for all of your real estate and business legal needs. We advocate for our clients with professionalism, vigor, and with a results-driven approach.
Let’s get started today!
For more information or to book a free consultation, call 952.832.2000 or email email@example.com.