FRIENDLY YEAR-END REMINDER
At EntrePartner, we’re busy helping our clients prepare for year-end and set themselves up for a successful 2020! This serves as a friendly reminder with respect to one easy part of this process. All Minnesota entities must file an annual renewal once every calendar year with the Minnesota Secretary of State, beginning in the calendar year following the initial filing. If you do not submit the annual report, your entity will be “statutorily dissolved” (no longer recognized as existing in Minnesota), and you’ll need to pay a fee to get it reinstated. Filing the annual report is easy (less than 10 minutes) and free as long as you file on time.
If you own an LLC, corporation or other legal entity in Minnesota, make sure to go to the Secretary of State’s website and follow the instructions here: https://www.sos.state.mn.us/business-liens/start-a-business/how-to-renew-or-amend-your-business-filing/
If we don’t get a chance to tell you, please have a wonderful holiday season. We look forward to helping you achieve your goals in 2020!
One of the primary motivators for operating a business through a separate entity is to insulate the owners of the entity from the liabilities of the business. Typically, a corporation shareholder (or a member of a limited liability or a partner of a limited liability partnership) is not personally liable for the debts of the business. In most instances, the most that a shareholder (or LLC member or LLP partner) will lose in an unsuccessful business venture is their initial capital contribution and time.
Practitioners of some professions, however, are prohibited by the ethics rules of their respective licensing boards from organizing their businesses in such a way to limit their professional liability towards clients. A dentist, for example, cannot simply organize his or her practice as a limited liability company as a means of preventing patients from recovering damages for malpractice claims.
Are practitioners able to organize their practices in such a way, however, to limit liability for otherpotential claims against their business unrelated to the actual providing of services to clients? Fortunately for practitioners in Minnesota, the answer to this question is yes. Under the Minnesota Professional Firms Act, Minnesota Statutes, Chapter 319B, practitioners of certain licensed professions may elect to be professional firms under any one of three different forms of organization: corporations, limited liability companies, and limited liability partnerships. Organizing an entity under the Professional Firms Act does not affect a practitioner’s liability for her or his own malpractice or other wrongful conduct directly arising from the provision of professional services, but it does permit the professional to limit their liability for other debts or obligations of the business itself to the extent permitted by the law governing the chosen form of organization.
The Professional Firms Act provides that members of the following professions may elect to be professional firms: medicine and surgery, physician assistant, chiropractic, registered nursing, optometry, psychology, social work, marriage and family therapy, professional counseling, dentistry and dental hygiene, pharmacy, podiatric medicine, veterinary medicine, architecture, engineering, surveying, landscape architecture, geoscience, certified interior design, accountancy, and law
To operate as a professional firm, a Minnesota entity must be formed under the chosen statute: the Minnesota Business Corporation Act (Minnesota Statutes Chapter 302A), the Minnesota Nonprofit Corporation Act (Minnesota Statutes Chapter 317A), the Minnesota Revised Uniform Limited Liability Company Act (Minnesota Statutes Chapter 322C), or the Minnesota Limited Liability Partnership Act (Minnesota Statutes Chapter 323A). Then, either as part of the original formation documents or as an amendment to those documents, the firm must include language stating that it (1) elects to be covered by the Minnesota Professional Firms Act, and (2) acknowledges that it is subject to the provisions of the Act. The documentation must also specify the profession(s) to be practiced by the firm.
Finally, the Professional Firms Act requires that the professional firm’s name reflect the nature of its limited liability structure. If it is a corporation, the firm’s name must include one of the following designations or abbreviations: Professional Corporation, Professional Service Corporation, Service Corporation, Professional Association, Chartered, Limited, P.C., P.S.C., S.C., P.A., or Ltd. If the firm is a limited liability company, the name must include one of the following: Professional Limited Liability Company, Limited Liability Company, P.L.L.C., P.L.C., or L.L.C. If it is a limited liability partnership, the name must include one of the following: Professional Limited Liability Partnership, Limited Liability Partnership, P.L.L.P., or L.L.P.
One of the most common questions that we get from our clients, contacts, family, and friends, is whether they should engage an attorney to help them start their company. There are some firms that tell their clients, no matter what, that they should engage an attorney to form their limited liability company or their corporation, and often at a high price.
At EntrePartner, we always strive to help our clients find ways to save on legal fees when the situation warrants it and the risk is low. So, here’s the honest answer we would tell our dearest relative to steer them in the right direction.
If you are a solo entrepreneur, starting an entity primarily for local operation (within the State of Minnesota, for example), and don’t plan to conduct any external fundraising, you can file an application for your entity yourself through an online process. The Minnesota Secretary of State provides a relatively simple to use online process that will guide you through the process. To do so, you will need to determine whether to form a limited liability company (LLC) or a corporation (or s-corp). In this scenario, 90% of our clients form an LLC, but this can be quickly confirmed through a quick call to your accountant. You will also need a business address within the State of Minnesota to receive notices and where third parties may serve you with documents, if the need arises.
If you go this route, you will need to visit the Minnesota Secretary of State’s website and do a quick search with the intended name of your entity, to make sure there isn’t anything confusingly similar that exists already. It is a good idea to search different variations of your proposed entity name, including specifically searching each word that is part of it, and variations on spelling, to make sure that you find all existing options. Once you come up with the appropriate name, you can answer the online questions and pay the initial entity filing fee right on the website.
All of that said, if your entity has more than one owner, we do recommend that you utilize the services of an attorney. You will want to ensure that ownership is properly issued to each party, and that an operating agreement is put into place that outlines the rights and responsibilities of each owner as to one another and to the company. For example, many typical scenarios involve a financial partner and a sweat equity partner – and the organizational documents of the entity should outline the rights and responsibilities of each role to ensure that the company has the proper capital promised and that the sweat equity partner delivers on their obligations in exchange for ownership. We have helped many clients who did not have a proper agreement in place with their partner from the start, and who later found that there were significant miscommunications or lack of follow-through on the obligations of each partner causing significant stress to the company and to the partnership.
In addition to the above, an operating agreement covers the following:
Starting a business can be overwhelming. It requires you to wear many hats all at the same time and juggle responsibilities that in a larger established company would be delegated to a dozen department heads. Sometimes lost in the shuffle are the key legal decisions that come with starting a business. These decisions can be confusing, but they ultimately can be some of the most important decisions you will make.
To help bridge that gap, EntrePartner has launched its Entre2Go website. Entre2Go’s focus is helping entrepreneurs and business owners easily navigate the process of starting a Minnesota limited liability company or corporation. Using a proprietary formulated process, our attorneys help business owners make key decisions about the management, operation and owners’ rights in the entity. The service is especially useful for business ventures with multiple owners who want to protect themselves legally and establish a solid foundation for ownership and operation of the business going forward.
To keep the business formation process simple and predictable, through our Formation Package we offer these services on a flat-fee basis. When you are Ready To Go with your new business venture, our business lawyers will form and structure your limited liability company or corporation in 3 easy steps.