A limited liability company is a form of business organization with limited liability characteristics of a corporation and the ability to be treated for tax purposes as a sole proprietorship {or disregarded entity), partnership or corporation. (It will be treated for tax purposes as a sole proprietorship (or disregarded entity), if there is a single member, or as a partnership, if there are multiple members, unless it affirmatively elects to be taxed as a corporation.) The formation and operation of a Minnesota limited liability company is governed by Minn. Stat. Chapter 322C.

In the case of a limited liability company that is taxed as a partnership or disregarded entity, business income and losses of the limited liability company are passed through to the owners of the business and are taxed to the owner’s individual tax rate. As with a corporation, liability for business debts and obligations generally rests with the entity rather than with individual owners.

A limited liability company that is taxed as a pass-through entity is not subject to many of the restrictions that apply to S corporations, such as a maximum of 100 shareholders, a single class of stock, and limited types of non-individual shareholders. All members of a limited liability company may participate in the active management of the company without risking loss of limited personal liability.

For a limited liability company that elects to be taxed as a corporation, it will be taxed as a C corporation unless it qualifies and elects to be taxed as an S corporation. As of 2009, when a single-member limited liability company that is taxed as a disregarded entity fails to pay federal unemployment taxes, the limited liability company, not the owner is now liable.

 

ARTICLES OF ORGANIZATION

A limited liability company is formed by filing articles of organization with the Secretary of State and paying the filing fee. Minimum requirements for the articles of organization are provided on an articles of organization form that is available from the Secretary of State’s website at http:// www.sos.state.mn.us/index.aspx?page=331, and also is available by mail from that office. The articles of organization may add to or modify many of the basic statutory provisions set forth in the Minnesota Revised Uniform Limited Liability Company Act. Many of these also may be, and typically are, modified in an operating agreement. An attorney can assist in drafting articles of organization to assure that the needs and desires of the members, as well as legal requirements, are met. An organizer of a limited liability company must be at least 18 years of age.

 

Limited Liability Company Name

Requirements for the limited liability company name are discussed in the section on Naming the Business Entity, earlier in this Guide.

 

Registered Office

A limited liability company must have a registered office located in the state of Minnesota. The registered office may be the place where the business is located or it may be in a different location. The registered office address must be a street address – the address of a physical location where a person who represents the limited liability company can be found. A registered office address cannot be a post office box. Acceptable registered office addresses include a complete street address, a rural route and rural route box or fire number or directions from a landmark to the office location. If directions are given, a mailing address in the same or an adjacent town must be given. All addresses must have a zip code.

 

Registered Agent

The limited liability company is not required to name a registered agent in the articles of organization, but if the limited liability company decides to name an agent, the articles must list the name of the agent and the agent must be located at the registered office.

 

Names, Addresses and Signatures of Organizers

The articles of organization must list the names and complete mailing addresses, including zip codes, of each organizer. There must be at least one organizer. Each organizer must be a natural person who is at least 18 years old. Each organizer must sign the articles.

 

Other Provisions

Under Minn. Stat.§ 322C.0201, subd. 3, the articles of organization may contain other provisions, but they will be effective only if they would be effective in a valid operating agreement.

 

Amending Articles of Organization

A limited liability company may amend its articles of organization at any time to include or modify any provision that is required or permitted to appear in the articles or to omit any provision not required to be included. Amendments are required if any provision contained in the articles of organization is, or becomes, inaccurate. The amendment form is available at the Secretary of State’s website at http://www.sos.state.mn.us/index.aspx?page=331, and is also available by mail from that office.

Articles of organization may be amended in the manner provided in the operating agreement.

The articles of amendment must include the following provisions: the name of the limited liability company as it appears in the records of the Secretary of State; the changes the amendment makes to the articles of organization as most recently amended or restated; and a statement that the amendment was adopted pursuant to Minn. Stat. Chapter 322C. There is a filing fee.

A limited liability company also may restate its articles of organization in their entirety at any time. In addition to stating the name of the limited liability company and reciting that the restatement was approved pursuant to Minn. Stat. Chapter 322C, all articles are presented in the language which the limited liability company now wishes to use. In other words, all changes are combined in one document. A restatement that includes substantive amendments must be approved by the members in the same way as any other amendment is approved.

Articles of amendment must be signed by a person who has been authorized by the limited liability company to sign such documents.

 

Change of Registered Office or Registered Agent

Every time a limited liability company moves or changes its registered agent (if it has one), it must report the new information to the Secretary of State on a change of address/agent form which is available at the Secretary of State’s website at http://www.sos.state.mn.us/index.aspx?page=331, and is also available by mail from that office. The form states the name of the limited liability company, the new address of the registered office, the name of the new registered agent, if one is being appointed, and that the change was approved by the board of governors.

As noted earlier, if a registered agent is appointed, the registered agent must be physically located at the registered office address. The statement must be signed by an authorized representative of the limited liability company. There is a filing fee.

The registered office address and agent information can also be changed using the amendment procedure described above.

 

POST-ORGANIZATION ISSUES

 

General Considerations

Until a limited liability company that has been formed has at least one member, it lacks capacity to do any act or carry on any activity except (1) delivering to the Secretary of State for filing a statement of change, an amendment to the certificate, a statement of correction, an annual report, and a statement of termination; (2) admitting a member; and (3) dissolving. Once the limited liability company has at least one member, the member(s) may ratify prior actions that occurred when the limited liability company lacked capacity.

A newly formed limited liability company must perform certain start-up tasks, such as obtaining federal and state tax identification numbers, obtaining an unemployment insurance employer account number, setting up and maintaining the books and records of the business, and taking other actions to organize itself. All actions taken and decisions made by the limited liability company through its members, governors and/or managers must conform with the provisions of the articles of organization, the operating agreement, and applicable law. While not necessary, it is advisable and helpful to record all actions and decisions in a minute book or record book maintained for the company. Specific guidance on post-organization issues may be obtained from the company’s legal and tax advisors.

 

Annual Registration

Both Minnesota and non-Minnesota limited liability companies must register with the Secretary of State once every year. The Secretary of State will send a registration form to the limited liability company at its registered office. The form is also available at the Secretary of State’s website at http://www.sos.state.mn.us/index.aspx?page=331, and is also available by mail from that office. The registration is due before the end of the calendar year. Failure to file will result in administrative termination. Reinstatement may occur within one year of the date of the administrative termination by filing the registration form and paying a reinstatement fee.

 

Operating Agreements

The operating agreement is the most important contract among the members of a limited liability company. Many aspects of the members’ relationship and the limited liability company’s business can be controlled by the operating agreement, which is similar in function to a partnership agreement. Operating agreements are specific to the circumstances of each limited liability company. While operating agreements need not be in writing, and may be oral or implied by conduct, it is almost always advisable to reduce an operating agreement to writing, as it greatly increases the likelihood that the members are acting with a common understanding and minimizes the risk of disputes arising later on.

Generally an operating agreement will spell out how the limited liability company’s rules differ from the default rules that would otherwise apply under Minn. Stat. Chapter 322C. Rules that members may wish to change may include:

-Acts outside the ordinary course of the limited liability company’s business require the consent of all members. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iii), 4(16));

-All members have an equal vote and an equal say in management matters, rather than voting rights in proportion to the value of their contributions. (e.g., Minn. Stat. § 322C.0407, subds. 2(2), 4(17));

-Each member has a right to participate equally in current distributions and, upon dissolution, in residual distributions after contributions have been returned. (Minn. Stat. §§ 322C.0404; 322C.0707);

-The consent of all members is required to admit a new member (Minn. Stat. § 322C.0401, subd. 4(3));

-The consent of all members is required to: (i) sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited liability company’s property, with or without the good will, outside the ordinary course of the company’s activities. (Minn. Stat.§ 322C.0407, subds. 2, 3(4)(i), 4(16)(i)). Member consent, however, is not required for a grant of a security interest in all or substantially all of the company’s property and assets, whether or not in the usual course of business; nor is member consent required for the transfer of any or all of the company’s property to an organization all the ownership interests of which are owned directly or indirectly by the company through the wholly owned organization.;

-The consent of all members is required to amend the operating agreement. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iv), 4(16)(iii));

-The consent of all members is required to approve a merger, conversion, or domestication. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iv), 4(16)(ii)).

Limited liability company members should consult with legal counsel in creating or signing such agreements.

 

FOREIGN LIMITED LIABILITY COMPANIES DOING BUSINESS IN MINNESOTA

A limited liability company that is organized under the laws of a state other than Minnesota and transacts business in Minnesota must obtain a certificate of authority before doing business in Minnesota. The requirements for a foreign limited liability company obtaining an initial certificate of authority are specified by Minn. Stat. §§ 322C.0801 to 322C.0809, and are set forth on forms available from the Secretary of State’s website at http://www.sos.state.mn.us/index. aspx?page=331, and are also available by mail from that office. A certificate of status or certificate of good standing from the state or province of organization must accompany the registration form.

The term “transacting business” is not clearly defined in the law, but the standard used in making the determination is the “minimum contacts” standard used in determining jurisdiction. Under this standard the facts are analyzed to determine whether the limited liability company business or its local agents have conducted a continuous course of business in Minnesota or with Minnesotans sufficient to justify being subjected to Minnesota law.

Neither the Secretary of State nor any other state agency will make a determination as to whether a particular limited liability company should register as a foreign limited liability company. As a general rule, doubts should be resolved in favor of registering the organization. Minn. Stat. § 322C.0803 establishes certain activities as exceptions to the registration requirement. Limited liability companies organized under the laws of a state other than Minnesota should consult with their legal counsel to determine whether any of the exceptions apply.

In addition to obtaining the certificate of authority, a foreign limited liability company must obtain a Minnesota tax identification number from the Minnesota Department of Revenue. If the company will have employees in Minnesota, it also must complete the Minnesota Department of Revenue’s withholding tax forms and arrange for workers’ compensation insurance. The procedure for obtaining these numbers and forms is described in the section of this Guide on business taxes and the Checklist for Hiring an Employee. If the foreign limited liability company changes the name or address of its registered agent or other statements made in the application for the certificate of authority become inaccurate, the foreign limited liability company must file an amended certificate of authority with the Secretary of State. A foreign limited liability company also must obtain any state and local business licenses necessary to conduct business operations. Information on business license requirements may be obtained from the Small Business Assistance Office at the address and telephone number provided in the Resource Directory section of this Guide.

CREDITS: This is an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Thirty-sixth Edition, January 2018, written by Charles A. Schaffer, Madeline Harris, Mark Simmer, and Melody Randle. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.

 

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