Choosing a business entity in Minnesota for a new business venture is usually a crucial decision that can have long-lasting effects. Because the structure chosen for a new business is in fact important, it should be done with the advice of one’s business attorney and a tax advisor. Business formation is the setting of the legal and financial foundation for the venture in such a way that the business and its owners will have the fullest advantage of legal benefits that may be available, both in the short and long terms.
Some components to consider are the risk factors, funding requirements, the number of owners and/or silent investors, and the consequent tax ramifications of the different business models available. The simplest business model is available to an individual who is a sole owner of the enterprise. With no partners or part-owners, the individual may organize as a sole proprietorship, with full control over the affairs of the business. The sole proprietor, however, has personal liability for damages to third persons.
Personal liability exposes the sole proprietor’s personal assets, such as a home or personal investments, to being seized and sold to satisfy a judgment lien against the proprietor. This can happen when customers are injured by negligence or through a wide variety of other business reasons. With the disadvantage of personal liability most owners seek a limited partnership, corporation or limited liability company (LLC) status.
In Minnesota and elsewhere, one or more owners can incorporate, form a limited partnership or a limited liability company. The requirements and procedures are found in the state law where the business formation papers will be filed. The details, requirements, features, protections and risks involved in each of these entities are too complex to explain in a limited space. It is imperative that an experienced business attorney be consulted in order to learn the benefits and detriments of each business model that is available. This will include a detailed examination of the tax features of each business form.
Source: eagletribune.com, “Picking the correct business entity essential“, Maureen Louise Pomeroy, May 15, 2016