When starting a new business in Minnesota, one of the first things that you will need to figure out is how you should structure the organization. This one decision can have huge legal implications for your business and its shareholders. Given the importance of the company’s structure, there are some things that you will need to consider before deciding which option is right for you, such as:
As with most things in business, money will play a large role in determining your company structure. If you would like things to remain relatively simple during tax season, a pass-through structure such as an LLC, S-Corp, or partnership may be the way to go. Despite each of these entities having a pass-through status, there remains subtle distinctions in how they are taxed. Choosing the appropriate form depends on the nature and size of your business.
Before you decide on a structure for your Minnesota business, you will need to give careful consideration to any potential liability and your desire to avoid it. If you are operating in an industry that is quite litigious, it is probably a good idea to opt for a structure that will offer you protection from liability – such as an LLC. If, however, you believe that it is unlikely that your business will ever receive a lawsuit or incur a large amount of debt, you may find that structures such as partnerships and sole-proprietorships better suit your needs.
Choosing your business structure isn’t just about deciding how your company will interact with external parties such as the IRS or a potential litigant. You will also need to consider the implications of your corporate structure on the internal workings and governance of the company. For example, if you opt for a partnership structure, you will likely need to draft and sign agreements that outline how the company is to be run. If you choose to operate as a corporation, you will be required by law to have a board of directors. Of course, if you run the company as a sole proprietorship, you will generally be able to operate in just about any manner that you see fit.
The final thing that you will need to consider before choosing your corporate structure is the amount of administrative work that is required to remain compliant with the law under each structure. With non-corporate structures such as sole proprietorships and partnerships, the paperwork load is usually fairly light. On the other hand, if you opt for a more complicated structure such as a corporation, you can expect to complete quite a bit of administrative work to remain compliant.