Business and risk are joined at the hip. And they’re inseparable. You can’t have one without the other. It’s best to face that cold reality right from the get go.
In a worst-case scenario, you risk losing your business, all of its assets, every cent you’ve invested in it, plus most of your personal assets to satisfy the debts and obligations of your failed enterprise.
The mere prospect is enough to give even the most self-assured entrepreneur a case of hives. (If you’re deathly allergic to risk, now is a good time to rethink the notion of starting a business of your own.) But there are ways to structure your business that reduce the risks by reducing the personal liability.
The limited liability company – or LLC – is one of the most popular legal structures for a business today. An LLC offers the personal liability protections of a corporation, meaning the personal assets of members are insulated from claims against the company in most cases. It also has great flexibility when it comes to how the business is taxed and how profits and losses are passed through to the owners.
Is the LLC the right business structure for you? There are several factors to consider:
The way you form and operate a limited liability company in Minnesota is governed by state law, and it’s a good idea to take a look at the statutes. You’re not doing this to be your own attorney, mind you, but just to get a good general understanding of what the laws cover. Among other things, the laws include such basics as articles of organization; powers and member interests; governance and management; distribution of profits; loans and obligations, and merger, exchange, transfer or dissolution.
The articles of organization may add to or modify many of the basic provisions set out in state law. An attorney should assist in drafting articles of organization to assure that the needs and desires of the members, as well as legal requirements, are met. Here are some key components of the articles:
State law has certain requirements for naming limited liability companies. The name of an LLC must:
The name you choose must also be distinguishably different from the names of any other LLC, corporation, limited partnership, limited liability partnership or any reserved name, assumed name, trademark or servicemark already on file with the Secretary of State. You can find out whether the business name you want is available by searching the Secretary of State’s database . Here are some guidelines to help you search.
A limited liability company must have a registered office located in the state of Minnesota at a physical location (not a post office box, for instance) where a person who represents the company can be found. The registered office may be the place where the business is located or it may be in a different location. Acceptable registered office addresses include a complete street address, a rural route and rural route box or fire number or directions from a landmark to the office location. If directions are given, a mailing address in the same or an adjacent town must be given. All addresses must have a zip code.
Although it is not required, an LLC may list a registered agent in the articles of organization. In that case, the agent’s full name must be shown and he or she must be located at the registered office.
Every time a limited liability company moves or changes its registered agent, it must report the new information to the Secretary of State on a change of address/agent form.
The articles of organization must list the names and complete mailing addresses, including zip codes, of each of the organizers. There must be at least one organizer. Each organizer must be at least 18 years old and must sign the articles.
There are many provisions that may be altered in the articles of organization but need not appear in the articles in order to properly form a limited liability company. Some of these provisions include:
A limited liability company may amend its articles of organization to include or modify any provision that is required or permitted to appear in the articles or to omit any provision not required to be included. Amendments are required when any changes are made in the articles of organization, and you must file an amendment of articles form with the Secretary of State.
The amendment must be approved by a majority of the voting power of the members unless the articles require a larger majority or the amendment will increase a majority already required in the articles of a closely held limited liability company. If this larger majority is to be adopted, the amendment must be approved by this higher majority.
The articles of amendment must include the name of the limited liability company as it appears in the records of the Secretary of State, the text of the amendment, and a statement that the amendment was adopted according to state law. Articles of amendment must be signed by a person who has been authorized by the limited liability company to sign such documents.
After the LLC is formed, it must perform certain start-up tasks, such as obtaining federal and state tax identification numbers, obtaining an unemployment insurance employer account number, setting up and maintaining the books and records of the business, calling and conducting the initial meeting of the board of governors or members, and taking other actions.
All actions taken and decisions made by the limited liability company through its governors, managers and members must conform with the articles of organization, operating agreement, and applicable law. All actions and decisions should be recorded in the company’s minute book. It’s a good idea to get specific guidance on post-organization issues from an attorney and tax adviser.
Failure to file will result in administrative termination. Reinstatement may occur within one year of the date of the administrative termination by filing the registration form and paying a reinstatement fee.
Many aspects of business can be controlled by a document called an operating agreement, which is similar in function to a corporate shareholder agreement. Operating agreements are fact-specific to the circumstances of each limited liability company, and limited liability company members should consult with legal counsel in creating or signing such agreements.
Consultants at our Small Business Assistance Office can help you understand more about Limited Liability Companies. 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 Limited Liability Companies, 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.