Forming a Minnesota Business Corporation

The Big Picture on Corporations

The word ‘corporation’ can conjure up some big images. Big business. Big expense. Big complexity.

While it’s true that forming your business as a corporation takes some extra pains, it comes with distinct advantages over sole proprietorships and general partnerships. And it can actually prevent some of the worst headaches inherent in those business organizations.

A corporation is a separate legal entity that is owned by one or more shareholders, and formed according to state laws. Corporations themselves are responsible for the debt and obligations of the business. In most cases, the shareholders are insulated from personal liability for company debts and expenses.

That’s a stark contrast to sole proprietorships, which are owned by one person; are legally indistinguishable from their owners; and in which the owners are personally liable for business debts and expenses.

There are two main types of corporations: “C” corporations and “S” corporations. The structures differ in how income and expenses are reported, and how profits are distributed and taxed.

Here are the major factors to consider when deciding whether a corporate structure is right for your business.

  • Complexity and Expense - Corporations tend to rank high on the scale of complexity and expense. Procedures for forming and governing a corporation are set out in state law, and penalties for not following them can be harsh. “S” corporations add an even greater level of complexity when it comes to taxes and transferability of shares.

  • Owner Liability - Because it is a separate legal entity, in most cases the corporation is liable for business debts. Shareholders are generally exempt from personal liability and risk losing only the money they’ve invested in the business.

  • Distribution of Profits and Losses - In a “C” corporation, profits and losses belong to the corporation. Profits may be distribute to shareholders in the form of dividend, or they may reinvested or retained (within limits) by the corporation. Losses are not claimed by individual investors. Shareholders include dividends and the gain or loss on the sale or liquidation of stock as income. In an “S” corporation, profits and losses flow through to shareholders in proportion to their shareholdings. Shareholders include the gain or loss on the sale of stock or liquidation of stock as income but exclude dividends.

  • Management Control and Decision-Making - The rules for corporate decision-making are set by state law but many rules may be modified by the articles of incorporation or bylaws. Shareholders elect the board of directors, which manages the operation of the business. Except in the case of very small corporations, shareholders generally will not directly participate in management decisions.

  • Financing Startup and Operation - Generally, a corporation is the easiest form of organization for raising capital from outside investors through the sale of stocks or bonds. Such sales are complex, highly regulated, and may be too costly for startups. Long-term bank financing is easier for a corporation to structure because corporate assets may be used to secure financing.

  • Transferability of Ownership Interest - Ownership is transferred by sale of stock, and a change of ownership does not affect the existence of the corporation. Technically, stock is freely transferrable, but some restrictions on stock sale may be governed by articles of incorporation or bylaws.

  • Government Regulation - Rules government corporations are driven by state law and the company’s articles of incorporation. They are far more formal and complex than those governing other business structures. Tax laws are also more complex. Some corporations may be required to file periodic reports with state and federal regulators.

  • Tax Considerations - The tax-related issues surrounding corporations are too numerous to touch on here. Two touchstones: Corporations are separate legal and taxable entities. They must file federal and Minnesota tax returns. Taxable income and tax are determined before distribution of profits to shareholders. 

Forming a Minnesota Business Corporation

The way you form a corporation in Minnesota is dictated by state law, see Minn. Stat. § 302A, and the process is pretty straightforward.

Start by filing articles of incorporation with the Secretary of State and paying the filing fee. You may file online after creating an account or download and submit a ready-made Articles of Incorporation form or you may draft and submit your own articles of incorporation (advice of an attorney is advised here).The articles of incorporation contain these elements:

Corporate Name

By state law, the name of a corporation must:

  • Be in English
  • Contain the words “corporation”, “incorporated”, “limited”, “company”, “professional association” or “chartered” (or abbreviations thereof)
  • Not contain a word or phrase indicating that the corporation conducts a business that is not a legal business purpose
  • Be distinguishable from the other company names, reserved names, assumed names, trademarks or service marks on file with the Secretary of State

Search the Secretary of State’s business filings to determine whether your chosen name is available. Here are name availability guidelines to help you search.

Registered Office

A corporation must maintain a registered office located in the state of Minnesota. The address may not be a post-office box. It may be a street address, a rural route and rural route box or fire number, or directions from a landmark. If directions are given, a mailing address in the same town or in an adjacent area must also be given. All addresses must have a zip code.

Registered Agent

The corporation is not required to name a registered agent in the articles of incorporation, but if it does name an agent, the articles must list the name of the agent and the agent must be located at the registered office.

Number of Authorized Shares of Stock

A corporation may authorize any number of shares of stock. The articles of incorporation require only the total number of shares authorized. Neither a par value nor a stated value is required, although the articles may include them. Corporations that plan to do business in another state should consider including a provision specifically stating that shares have a par value of one cent per share for franchise fee purposes. This is a restatement of Minnesota state law and may enable the corporation to avoid paying excess franchise fees in other states.

While the number of authorized shares is fixed in the articles, the decision to issue shares is up to the directors, who may reserve shares for later issuance. The board must approve each issuance and ensure that the corporation receives fair value for its shares.

Names, Addresses and Signatures of Incorporators

The articles must list the names and complete mailing addresses, including zip codes, of each of the incorporators. There must be at least one incorporator. Each incorporator must be at least 18 years of age and must sign the articles.

Other Provisions

There are a number of provisions set out in state law that may be altered or adopted in the articles of incorporation, but that need not appear in the articles in order to properly form a corporation.

Post-Incorporation Issues

Once the corporation is formed, there are the practical steps for startup and operation. It’s a good idea to get legal and tax advice at this point, but in general start-up and maintenance tasks include:

  • Obtaining federal and state tax identification numbers and an unemployment insurance employer account number for the corporation.
  • Issuing shares of stock in conformity with the articles of incorporation. Federal and state securities laws apply to the issuance of corporate shares. These laws are complicated. Consult an attorney.
  • Setting up and maintaining corporate books and records, including books of account, shareholder records, and corporate minute books.
  • Calling and conducting the initial meeting of the board of directors or shareholders in conformity with the articles of incorporation and applicable laws.
  • Assuring that all actions taken and decisions made by the corporation through its directors, officers and shareholders conform with the articles of incorporation, bylaws, and applicable law. All actions and decisions should be recorded in the corporation’s minute book.
Annual Registration

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 any calendar year will trigger an administrative dissolution of the corporation.

Business Activities Report

Every corporation that does business in Minnesota must file an annual business activities report with the Department of Revenue. Corporations are exempt from this requirement if they:

  • File a Minnesota corporate income tax return on time
  • Are a foreign corporation possessing a certificate of authority to do business in Minnesota
  • Are a tax-exempt corporation
  • Are engaged solely in secondary market activity in Minnesota
  • Are financial institutions that annually conduct business with fewer than 20 persons, and have total assets and deposits of less than $5 million

Corporations that are required to file a business activities report and fail to do so can be barred from using Minnesota courts during the violation period.

Learn More

Consultants at our Small Business Assistance Office can help you understand more about corporations. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.

For a comprehensive look at corporations, see our Guide to Starting a Business in Minnesota. Available for download in PDF, formatted for e-readers, or available in print (all free of charge), the book covers the major issues, questions and concerns about business startups.

Nothing we cover here should be taken as business or legal advice. It’s not. And it’s no substitute for the professional guidance of a lawyer or accountant.