Starting a Business

The type of business you intend to operate, the number of owners of the business you intend to have, and your finances (and tax implications) are typically the primary criteria for determining what business entity, if any, you should use.  In other words, one size does not fit all and the correct business entity (i.e., limited liability company, professional limited liability company, corporation or limited partnerships) all have their benefits and drawbacks depending upon your situation.

Also, it makes good sense to have a mechanism to determine the valuation of the company so that upon its sale or division the members can determine each party’s interests.  This is typically done through a buy–sell agreement, also known as a buyout agreement.  This agreement sets forth the triggering events that will allow the other member(s) to buy the departing member’s interest and the price for that member’s interest.

As most people know, if you operate a business without using a corporate entity, you risk the possibility that your personal assets may be at risk if a problem arises due to your business’s activities.  For that reason alone, many people use corporate entities. In all scenarios, we recommend you purchase insurance if possible to help secure against any possible problems that may arise due to your future business’s activities.

One of the most popular corporate entities is the limited liability company (i.e., the LLC).  A limited liability company is a separate legal entity that can be owned by one person known as a “member” or it can be owned by many persons.  Key aspects of the LLC are that: (1) LLC’s can choose how they wish to be taxed (e.g., as a pass-through entity where the income goes directly to the owner’s tax return or as an S-Corp), so long as the tax election is proper under applicable law; and (2) members are not personally liable for debts of the LLC unless they were personally involved in a wrongful act.

One of the initial steps you should take is to check out the Minnesota Secretary of State’s website to see if the name you want to use for your business is available:  http://www.sos.state.mn.us/index.aspx?page=790

Next, you will want to have: (1) Articles of Organization (think of it as a birth certificate); (2) Operating Agreement (think of this as an agreement between the owners governing their relationship); (3) obtain an employer identification number from the IRS (can be done online); (4) start a bank account; (5) initial meeting minutes; (6) get insurance; and (7) keep good records of your regularly conducted meetings.

Give us a call or email so Kuhn can help you (the call or email is free): 612-860-8757

cjkuhn@thekuhnlawfirm.com