Next Steps After reviewing these options, consider consulting with: • An attorney to understand legal implications • An accountant or tax professional to understand tax consequences
The Minnesota Secretary of State's website provides forms, filing instructions, and fee schedules for registering business entities. The business registration process is covered in detail in other sections of this Guide. Changing the Form of Organization Note that although the discussion in the above paragraphs is also applicable when changing the form of business organization, (e.g., when converting a sole proprietorship to a corporation), a business owner is strongly urged to seek professional assistance when doing so, because unintended consequences may result, often including significant tax consequences. For example, contracts entered into by the business may or may not be assignable to the new entity. Also, there may be tax costs to changing the form of organization, such as when an S corporation becomes a C corporation. Minnesota law also authorizes conversions in either direction between corporations and Limited Liability Companies (including with organizations from other states that permit conversion from or into a Minnesota entity). The converting organization must adopt a plan of conversion that must be approved governors in accordance with the entity’s governing statute. Upon approval, articles of conversion are drafted and filed with the Secretary of State who then will issue a certificate of conversion and a certificate of incorporation or certificate of organization if the resulting organization is a Minnesota corporation or Limited Liability Company. Again, these changes can produce significant tax consequences and should be undertaken only when these are fully understood . For example, a conversion of a corporation into a Limited Liability Company that is taxed as a partnership is treated for income tax purposes as a taxable liquidation of the corporation, which can produce taxable gain to both the corporation and its shareholders.
NON-TAX FACTORS IN CHOOSING THE FORM OF ORGANIZATION
What to Consider Beyond Taxes Choosing the right business structure involves more than just tax implications. Several important factors will shape which option works best, including: • Complexity and cost of starting the business • Personal liability protection
• How profits and losses are distributed • Control over management and decisions • Options for financing startup and operations • Ability to transfer ownership
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