Minnesota recognizes business entities that are similar to those that are established in all of the other states. These are known as corporations, partnerships, limited liability companies (LLCs) and limited partnerships. There is also the simplest of all business structures, which is called the sole proprietorship, a business owned and operated by one person. Business formation is something that is done in the initial stages of determining how the legal and financial characteristics of the company will best be served.
Business formation is ideally done with the assistance of an experienced business attorney and a C.P.A. or other tax specialist. Each type of legal entity will have different types of tax treatment, which may or may not be of crucial concern for the intended business operation. The personal aspects of choosing a specific entity for a specific business are beyond the scope of this article, but some of the key concepts can be introduced for one’s further inquiry.
The business corporation is owed by shareholders and run by officers and a board of directors. There is lot of paperwork required by government agencies in connection with the operation of a corporation. A corporation is subjected to double taxation.
In other words, the corporation pays an income tax on its taxable income and then the shareholders pay a tax on the return on their shares. In that way the shareholder gets taxed twice. A partnership, on the other hand, generally has a potential advantage of having the partners paying only one income tax, which is computed as a part of each partner’s personal return.
A popular entity for business formation in recent years in Minnesota and elsewhere is the LLC, which allows the company to be organized with some of the aspects of both the corporation and the partnership. In general, there is currently less paperwork associated with the LLC. However, it is important to again stress that the selection of business entity is a fact-specific process that is best done in collaboration with an experienced business attorney.
Source: nevadaappeal.com, “Jennifer Mahe: What type of business entity should I form?“, Jennifer Mahe, June 11, 2016