How to start a business in Minnesota
Starting a business can be an exciting and stressful time. Knowing where to look to find the information you need to start your business can be challenging. But whether you currently live in Minnesota or are contemplating a move to open a business, this guide can help you get started. Here are the most crucial steps to creating a Minnesota business.
What do you need to start a Minnesota business?
Prospective business owners in Minnesota must follow a series of steps to plan and start a business in the state of Minnesota. No matter the type of business you’re looking to start, you’ll need to work with local, state, and federal government agencies.
Here are the nine necessary steps to beginning any type of business in Minnesota:
Choose a business idea and develop a business plan
The first step in starting a business is to develop a good business idea. Good ideas can come from anywhere – maybe you’re fulfilling a lifetime goal of starting a specific business or recently found inspiration somewhere. Many successful businesses grow out of passion, so don’t be afraid to explore your passions.
No matter where you start with your initial business idea, you’ll want to perform some research. Look into your target market and identify your biggest competitors. Who are they? Do they sell similar products? How will your business set itself apart? After this research, you should develop a business plan.
A business plan is a document that outlines the most pressing questions about how you will operate, fund, and grow your business. All interested parties – lenders, partners, investors, and clients – will use this document to determine your business’ potential success. A business plan is also crucial for seeking bank or Small Business Administration (SBA) loans. Here’s what you need to include in your business plan:
Start by including a brief company overview with a mission and vision statement. You’ll describe the general business idea, the goods or services you sell, your leadership structure, and any relevant financial information.
You’ll include financial projections and how you came to these numbers. The critical points of this section include how you’re going to be profitable and what you see as your potential profit.
You’ll need to include more details about your company in this section. Here, you’ll list problems, and pain points your business solves and include information about your customer base and whether you’re a business to business (B2B) merchant or a business to consumer (B2C) business. Take time to list your competitive advantages in this section.
Use this section to explain the current market conditions, analyze your competitors and include customer demographics. In addition, detail how your business can be successful given the current market climate.
You’ll need to explain your business structure and include details about why you chose this particular business structure. Also, you should include your internal organizational structure here.
Products or services
In this section, you’ll detail your product or service offerings and pricing. Describe the entire product or service lifecycle and include any of the company’s intellectual property.
If you need financing, detail the type of financing you’re seeking. You should include your funding requirements and detailed descriptions of using this capital for your business.
Market and sales
Describe how you’ll market your products or services here, including the entire sales process and payment collection methods. Provide projected sales numbers here to help you with outside financing.
You should include all other necessary information here. For example, you may include product descriptions, permits and licenses, resumes and relevant industry-specific credentials.
Decide on the legal structure of your business
Your company’s legal structure can significantly influence a lot of your other business decisions. It can impact your personal liability, business liability, and access to funding. It’s important to choose your legal structure wisely. So if you’re unsure of the best legal structure for your business, contact a local attorney or accountant who can provide some guidance.
As you might guess, a sole proprietorship is a business owned and operated by a single person. Because of its simplicity, it has the least legal or regulatory requirements. But keep in mind, this also means the personal liability and risk are much higher for a sole proprietor.
Most of the time, a sole proprietorship is just the person’s name. However, some sole proprietorships operate with a doing business as (DBA) name. For example, if a woman named Sheri Smith sells strawberry products, she may register her sole proprietorship as Sherri Smith, and operate under the DBA name of Smith’s Strawberries. We’ll discuss other considerations for choosing a business name in step 3.
If you choose to do business with a DBA, you must file a Certificate of Assumed Name with the Minnesota Secretary of State for Minnesota businesses. You must also pay the fee of $30 if submitted by mail or $50 for expedited service in-person or online. The government taxes sole proprietorship business income through the proprietor’s tax return.
Limited partnership (LP)
Two or more people agree to form a business in a limited partnership. Limited partners have at least one general partner and at least one limited partner. The general partner(s) share the liability for debts and obligations, while limited partners have limited liability based on their contributions. To form a limited partnership in Minnesota, you must file a Certificate of Limited Partnership with the Minnesota Secretary of State. In the case of limited partnerships, tax obligations fall to each partner for their share of the business’ income on their personal income tax return.
General partnership (GP)
In a general partnership, two or more partners go into business together for profit. Each of the general partners is liable both jointly and severally. Minnesota does not require general partnerships to register at the state level, except by applying for a state tax identification number and registering the business name as an assumed name. A general partnership is a pass-through entity, so each partner assumes responsibility for tax obligations through their personal tax returns.
Limited liability company (LLC)
A limited liability company is an entity that provides the advantages and liability protections of a corporation while providing tax benefits similar to a sole proprietorship or partnership.
To form a Minnesota LLC, you must file Minnesota Limited Liability Company Articles of Organization with the Secretary of State and pay the filing fee. For expedited filing, either in person or online, the filing fee is $155. Standard by-mail filings cost $135. You may also need to file a Certificate of Assumed Name. While you are not required to name a registered agent, you must have a registered office in the state. Unlike the previously mentioned business structures, an LLC offers limited personal liability. LLC members should have an operating agreement in place, which outlines the business relationship between members of the LLC.
A corporation is a legal entity separate from its shareholders. In this structure, the shareholders elect a board of directors responsible for controlling and managing the business. Because this structure makes the business its own entity, the corporation is responsible for the debts and obligations of the business, protecting shareholders from personal liability for claims against the corporation. However, this usually comes with an increased tax rate for the corporation.
Registering a corporation in Minnesota is a straightforward process. First, one or more of the incorporators file the articles of incorporation with the Secretary of State and pay the filing fee. All incorporators must be over 18. All corporations must maintain a registered office in the state. You may also choose to designate a registered agent. You should also write corporation bylaws, appoint directors, and hold directors’ meetings. Contact a local professional for more information and help to register a corporation.
Select a business name
You’ve chosen your business idea, written your business plan, and decided on your business’ legal structure. Now, it’s time to choose a business name. As you decide on the name, you should consider a name that stands out from the competition while also informing your customers about your business. As you research possible business names, use the Minnesota Secretary of State’s search to check on business name availability.
To reserve a business name before you file the business paperwork, you may fill out the Request for Reservation of Name form and pay the applicable fee. Name reservations are valid for a period of one year.
Register your Minnesota business entity
Once you’ve filled out the appropriate paperwork and decided on your business name and structure, it’s time to register your business for tax purposes. You’ll be required to pay local, state, and federal taxes. The first step is to apply for a federal employer identification number (EIN) to pay the Internal Revenue Service (IRS).
This unique tax identification number helps identify your business for payroll and income tax purposes. An EIN has other essential uses, such as opening a business bank account, applying for the correct licensing and permits, and hiring and paying employees. Sole proprietors have a choice: They may apply for an EIN or use their social security number.
If you need a Minnesota tax ID number, you can register with the Secretary of State. You’ll also need to register with the Minnesota Unemployment Insurance (UI) Program if you plan to hire employees. You don’t need to register for this until after you pay your first wages.
Depending on your business, you may also need to register for certain tax types (sales tax, for instance). It’s best to consult a local professional to ensure you’re registered for the correct taxes.
Apply for Minnesota licenses and permits
Next, you’ll need to determine if your business requires special licenses or permits. These permits are industry-based, so requirements vary. To determine if your business needs licenses or permits, visit the Minnesota ELicensing website.
Because some counties and cities require business licenses and permits, you’ll need to research the specific requirements of the city and county where you will conduct business. Sometimes, this means registering and paying a fee. Other times, it means adhering to ordinances specific to your business type. Contact your local city and county officials to inquire about the necessary permits.
Pick a business location and check zoning laws
Once you’ve completed all the necessary steps for business licensing and permits, you’ll need to choose a business location. Small businesses can be run out of your home. However, your business may necessitate physical retail or warehouse locations. Therefore, it’s essential to consider your business requirements to ensure a suitable place.
In addition, it’s a good idea to weigh the monthly business expenses, location, accessibility, and other factors. Ensure that the area you have in mind is zoned correctly to operate a business there. For more information about local zoning laws, you’ll need to contact your city or county clerk’s office.
File and report business taxes
No matter what type of business you operate, you’ll need to file business taxes and report business income. Different business types have additional requirements, but you can expect to pay federal, state, and local taxes. To ensure you’re registered for the correct tax types, you’ll want to visit the Minnesota Department of Revenue. You should also contact the local government to determine your local tax obligations. For more specific information, contact a professional in your area who can guide you.
Obtain business insurance
While business insurance is only required for specific instances, having a good grasp of the various insurance types can help you decide what’s right for your small business. Here are the most important types to consider:
General liability insurance: This type of insurance covers losses that your business causes to other companies, clients or vendors. While you hopefully never have to utilize general liability insurance, all companies should consider having this type of insurance.
Worker’s compensation insurance: For businesses with more than one employee, worker’s compensation insurance is required in Minnesota. This type of insurance covers any claims from work-related injuries or accidents.
Professional liability insurance: For businesses that provide professional advice, consulting or accounting services, professional liability should be a consideration. This insurance can help cover financial losses due to your business’ malpractice or negligence.
Open a business bank account
As a startup business, opening a business bank account is crucial to keep your business finances and personal assets separate. Business bank accounts also offer streamlined bookkeeping, simplified payroll and billing and invoicing services.
To open a business bank account, you’ll compare local and national credit unions and banks, choosing the best option for your needs. Then, you can visit one in person or online to open an account. Most banks require your EIN to open a business bank account. Therefore, having an EIN before trying to open a bank account for your business is essential.
Another helpful tool to consider is a business credit card. There are a few advantages: they help you keep track of your expenses and provide a line of credit that can help you get your business off the ground. To apply for a business credit card, you’ll apply online, much like a personal credit card.
Frequently asked questions (FAQs)
How much does it cost to start a business in Minnesota?
Starting a business in Minnesota costs roughly between $100-$155. Depending on your business type, industry, and permits needed, there could be additional costs.
How much does it cost to start an LLC in Minnesota?
Filing the Articles of Organization for an LLC in Minnesota costs $155 for expedited service. For regular by-mail filing, the fee is $135.
How can I start my own Minnesota small business?
How do I start an LLC in Minnesota?
Starting an LLC in Minnesota requires filing Articles of Organization and a Certificate of Assumed Name. In addition, you’ll need to pay the fees associated with starting your LLC. Keep in mind that LLCs must file an annual report with the state.
How do I become a small business owner in Minnesota?
To start a small business in Minnesota, you must have a business idea. Then, you’ll need to determine the type of business entity you want to form. Then, you’ll need to fill out the necessary paperwork. For a complete description of the process, read this guide. The Minnesota Department of Employment and Economic Development also has many business resources online.
Ready to work with a company that knows what it’s like to start a business?
Launching a business is an exciting venture, but there’s a lot to know — and having the tools and insights you need to start a small business can help set you up for success.
As you’re putting in the work to make your business happen, we invite you to check out the Start-Up Path for Entrepreneurs. It’s a completely free, jam-packed resource with interactive worksheets and planning guides that complements the information reviewed here. Plus, you’ll get advice from real entrepreneurs who have been in your shoes.
The best part? You can move through it on your own schedule and reference it anytime as your business grows or shifts.
We know you’re busy, so if on-the-go know-how works better for your schedule, tune in to our Entrepreneur’s Studio podcast. Hear empowering and inspiring stories from Shake Shack founder Danny Myer, all-inclusive makeup studio owner Alex Bradberry and the duo behind the up-and-coming Sugar + Spoon cookie dough food truck.
Whenever you’re ready to start your business in Minnesota, Heartland is here to assist you.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us