How to Incorporate in Minnesota vs. How to Start a Minnesota LLC

Here are the main characteristics true of all LLCs and corporations which will help you begin making your decision:

• Maintenance
  With a corporation, you can expect a high level of maintenance, both on a day-to-day and annual basis. Corporations have more formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. Conversely, you can expect a minimal amount of maintenance for an LLC. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is the best choice if you have a small to medium-sized business and can only handle a low amount of maintenance.
• Tax Structure
  With a standard LLC, tax season will require less time and paperwork for business owners, since an LLC is not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. For higher income LLCs, the tax rate is usually lower than a corporation. Corporations are more advanced for a business owner to take care of during tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
• Investors
  A corporation is the business entity you need if you are serious about gaining investors. Investors are more comfortable investing their time and money in a traditional business structure that offers stock like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. On the other hand, investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you plan to grow your business big.
• Prestigious Title
  Having the “LLC” or “Inc” ending on your business name will give it a level of prestige. These endings show permanence and encourage trust from potential investors or clients, and show that you are serious about your business. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and the prestige of an LLC is continuing to grow.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Minnesota. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

Now that we’ve explored the general characteristics true of all LLCs and corporations, next is to cover more specific characteristics of what makes a Minnesota LLC or Minnesota corporation unique from other states, which will bring us to the final answer on which entity will be best for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. The information in this section will provide these specifics for the Minnesota LLC and the Minnesota corporation.

• Minnesota Corporation Franchise Tax
  Also commonly referred to as the corporate income tax, the Minnesota corporation franchise tax is a tax on the income of traditional corporations.
  If you’re considering starting a corporation, keep in mind this tax is a flat 9.8% for corporations, which is fairly expensive compared to other states and can take business owners by surprise.
• Minnesota Minimum Fee Tax
  Many Minnesota businesses are subject to the minimum fee tax, including corporations and LLCs, with the exception of single member LLCs. This progressive fee is adjusted each year for inflation and is based on a few combined factors: the value of a business’s property, payroll, and sales.
  The brackets for 2019 are as follows:

  Less than $1,020,000	$0
  $1,020,000 – $2,039,999	$210
  $2,040,000 – $10,209,999	$610
  $10,210,000 – $20,409,999	$2,040
  $20,410,000 – $40,819,999	$4,090
  $40,820,000+	$10,210

  Compared to the additional franchise or privilege business taxes you see in other states, Minnesota’s additional minimum fee tax is exceptionally low, and should not be a make-or-break factor in your entity decision.

• Minnesota Individual Income Taxes
  The individual income tax rate in Minnesota is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Individual taxes are on a graduated scale, which is a perk for smaller LLCs getting to pay lower taxes annually.
  The individual income tax brackets are as follows:

  $0 – $26,520	5.35%
  $26,520 – $87,110	6.80%
  $87,110 – $161,720	7.85%
  $161,720+	9.85%

• Minnesota LLC Interest Foreclosure Vulnerability
  As of 2018, LLCs in Minnesota do not have the same level of protection as most states, and creditors (a person who is owed funds or assets by a debtor) in Minnesota have an extra remedy against LLCs that owe them, and can order a foreclosure on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. For Minnesota LLCs, this same charging order and lien can be placed, except a court can also “order a foreclosure of the interest” (MN §322C.0503 Subd. 3) on the LLC.
• Free Annual Renewal Filing
  An annual report is meant to update or confirm the records for your business, and lets your business remain in good standing. There are only a few states that wont charge your LLC or corporation potentially hundreds of dollars every year to file a mandatory annual report, and Minnesota is one of them. This is a great advantage to keep in mind when you are considering forming an LLC or corporation in Minnesota.

Minnesota LLC or Minnesota Corporation? Final Answer.
The answer to whether you should form either a Minnesota LLC or a Minnesota corporation can be made by considering the size of your business, level of maintenance you require, priority of investors, and the most beneficial tax structure for the future of your business.

The Minnesota LLC wins the decision if you have a small to medium-sized business. LLCs in Minnesota are less time-consuming to form and maintain than corporations, and provide easy management, flexibility and liability protection (despite the foreclosure vulnerability discussed earlier). If investors and growing your company large are not your top priorities, and you’re looking for the least expensive and sophisticated taxes and liability protection for your business, the LLC is your answer.

The Minnesota corporation wins the decision if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. A Minnesota corporation remains true to design in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

If you’ve decided to start a corporation in Minnesota, also known as incorporating, you must file the Articles of Incorporation with the Minnesota Secretary of State. Once your Articles of Incorporation are approved, you officially have your corporation created.

You can file the Articles of Incorporation in the following ways:

• Online at the Minnesota Secretary of State website (recommended)
• By postal mail
• In person

The filing fee for the Minnesota Articles of Incorporation costs $135 if you file by postal mail, and $155 if you file online or in person. Minnesota has quick approval times at about one to two days (not counting mailing time if you choose to file that way).

To complete your Minnesota Articles of Incorporation, include the following information:

When you’re ready to form an LLC in Minnesota, you must file the Articles of Organization with the Minnesota Secretary of State.
You can file the Articles of Organization in the following ways:

• Online at the Minnesota Secretary of State website (recommended)
• By postal mail
• In person

The filing fee for the Articles of Organization costs $135 if you file by postal mail, and $155 if you file online or in person. Minnesota has quick approval times at about one to two days (not counting mailing time if you choose to file that way).

To complete the Minnesota Articles of Organization, include the following information:

Taking care of your annual maintenance tasks will let your business maintain good standing and stay updated with the state of Minnesota.

1. File your annual renewal
2. File your annual Minnesota business taxes

In this section, we’ll walk you through the basic instructions and resources you’ll need to help you take care of your annual maintenance.

What is a Minnesota annual renewal?
LLCs and corporations that transact business in the state of Minnesota are required to file annual renewals with the Minnesota Secretary of State. The report is meant to update or confirm the records for your business, and lets your business remain in good standing. You can update information such as business address, directors, officers, and managers using the annual renewal form.

How do I file an annual renewal in Minnesota?
LLCs and corporations in Minnesota need to file their annual renewals online at the Secretary of State website (recommended), by postal mail, or in person.

How much does it cost to file an annual renewal in Minnesota?
For LLCs and corporations in Minnesota, there is no charge to file your annual renewal, as long as your entity is active and in good standing.

When are Minnesota annual renewal due?
The Minnesota annual renewals for LLCs and corporations are due by December 31st every year.

Preparing your business for tax season involves prior planning and complex paperwork, and you probably have a lot of questions. The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Take a look at our Minnesota Business Tax FAQ below:

What is the Minnesota corporation franchise tax?
Also commonly referred to as simply the corporate income tax, the Minnesota corporation franchise tax is a tax on the income of traditional corporations.
This tax is a flat 9.8% for corporations, which is fairly expensive compared to other states.

What tax form does a Minnesota corporation need to file for the corporation franchise tax?
Traditional C corporations will need to file Form M4. S corporations will need to file Form M8.

How can I file the Minnesota corporation franchise tax?
You can file your corporation franchise tax by paper return, or electronically at the Minnesota Department of Revenue website. We recommend filing electronically—the state’s website is user-friendly, faster, and more secure.

After the first time you file, all future filings will need to be electronic if you ended up paying more than $10,000 for any one business tax during the previous fiscal year.

What’s the Minnesota Minimum Fee Tax?
Many Minnesota businesses are subject to the minimum fee tax, including corporations and LLCs, with the exception of single member LLCs. This progressive fee is adjusted each year for inflation and is based on a few combined factors: the value of a business’s property, payroll, and sales.
The brackets for 2019 are as follows:

Compared to the additional franchise or privilege business taxes you see in other states, Minnesota’s additional minimum fee tax is exceptionally low, and should not be a make-or-break factor in your entity decision.

What is the Minnesota individual income tax rate?
Individual income taxes are on a graduated scale. The individual income tax brackets are as follows:

What tax forms does a Minnesota LLC need to file?
For single member LLCs, submit a Schedule C as part of your personal tax return (Form M1).
For multi-member LLCs, submit Form 1065 along with Schedule K-1, included within the form. If you LLC had a gross income for the year, you must also file Form M3.

When are my Minnesota business tax returns due?
The due date for your business taxes is on the 15th day of the 4th month after the end of the tax year, or April 15th for calendar year filers. Form M3 is due a month earlier, however, on the 15th day of the 3rd month, or March 15th for calendar year filers.