What is a Minnesota Limited Liability Company (LLC) and do I need one for my small business?
Anyone thinking about starting a business or even those with an existing sole proprietorship has likely heard the term “Limited Liability Company” bandied about.
Friends and family members may suggest you incorporate quickly to ensure you secure the benefits of being an LLC. But before you race off and file papers with the state, it’s probably a good idea to understand what a Minnesota limited liability company is and why it matters.
What does limited liability in Minnesota mean?
Limited liability sounds like a good thing right off the bat, doesn’t it? After all, when it comes to financial matters, who wants to be fully liable? As the name implies, limited liability entities exist to shield the owners (also known as “members”) of personal liability for business obligations. Specifically, LLC’s act as a protection for individual owners so that their personal assets are not in jeopardy in the event that the actions of the company, it’s products or employees lead to debts or other legal obligations.
What are the benefits of a Minnesota LLC?
A good example to highlight the benefit of an LLC is that if a sole proprietorship is sued for let’s say selling a faulty product, the owner of that company will likely be held personally liable (and have his personal assets in jeopardy). However, if that company were instead an LLC, in most cases, only the business’ assets would be at risk, not the individual owner’s.
Another benefit of an LLC involves taxation. LLC’s allow pass-through taxation which means owners can avoid the burden of double taxation that happens in the case of many other types of corporations. With an LLC, owners only pay taxes once and avoid paying taxes on corporate profits.
What are the drawbacks?
Though there are a variety of advantages to a Minnesota LLC, there are some circumstances where an LLC may not be your best option. One such case is when an owner intends to issue shares of the company to others. If you anticipate distributing shares to the public, an LLC is not the best legal entity to handle the task of going public. Another downside is that the LLC cannot live on independent of its owners. If the owner dies, the company will be forced to dissolve, something that does not have to happen in other corporate forms.
When is limited liability lost?
Though LLC’s can confer an important protection to owners, it’s good to know that this limited liability is not absolute. Owners will remain personally liable for their own tortious conduct even if it occurred in the context of work. Owners are also fully liable when they personally sign contracts (like personal guarantees) agreeing to such liability. Finally, LLC’s can also be weakened if a person successfully “pierces the veil” of the limited liability protection. For this to happen, another party would have to demonstrate that the LLC was nothing more than a sham and not worthy of the legal protection that the entity typically provides.
How do you set up an LLC?
Creating an LLC in Minnesota is relatively simple with the help of an experienced Minnesota small business attorney. The process requires picking a name, filing your company’s Articles of Organization with the Minnesota Secretary of State and appointing a registered agent who will accept legal papers on behalf of the LLC. Doing these things and filing for an annual renewal will ensure your company is properly registered with the state and able to conduct business.
It’s good to know that with the right help, establishing a Minnesota small business does not have to be a scary proposition. An experienced Minnesota small business attorney can help walk you through the process of setting up your new company and ensure it offers the maximum benefits for your individual situation. For more information, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398 or contact the firm for a free initial consult at it’s main Eagan, Minnesota small business office.