• Registering to do business in other states increases complexity and cost • Raising capital through securities sales involves substantial compliance costs
Minnesota's simplification efforts: Minnesota has streamlined incorporation by including all internal governance rules in the Minnesota Business Corporation Act. A corporation that agrees to be governed by the statute's specifications need only file standard form articles of incorporation with the Secretary of State. Corporations wishing to vary statutory requirements generally must do so in their articles of incorporation. Consulting with legal counsel before incorporating helps determine the most appropriate approach. Further information appears in the "Forming a Minnesota Business Corporation" section of this Guide.
Limited Liability Company (LLC) Complexity: Moderate to High
The Minnesota Revised Uniform Limited Liability Company Act (Minn. Stat. Chapter 322C, effective August 1, 2015) takes a partnership-like approach. Nevertheless, an LLC often combines aspects of both partnerships and corporations. When governance and economic rights are simple: In cases where governance and economic rights are straightforward and allocated equally among members, formation complexity and cost are similar to a corporation. Statutory requirements: As with corporations, procedures and criteria for forming an LLC are specified by statute. Critical warning: Failure to follow statutory requirements can result in loss of LLC status and imposition of personal liability on organizers and members. Operating considerations: • Minnesota's LLC law is modeled on the Revised Uniform Limited Liability Company Act • Commentary from the Uniform Law Commission may provide helpful guidance • The Act contains default rules that apply absent member agreement (e.g., each member has equal management rights and equal right to nonliquidating distributions) • Members need familiarity with these default rules • A formal written operating agreement is often advisable when intentions differ from default rules • Members may need to consult frequently with professional advisors, increasing costs Tax flexibility: Under Treasury Regulations for federal income tax classification, LLC members have flexibility in choosing tax status. Professional advice in this area is strongly encouraged.
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