Formation options: • Members may accept the default provisions of Minn. Stat. Chapter 322C, using standard form articles of organization • Members may vary many default provisions through operating agreements • Operating agreements may be oral, in writing, in electronic format, implied by conduct, or any combination, as long as all members agree • While writing is advisable in most instances, it is not required Further information on forming an LLC appears in the "Forming a Minnesota Limited Liability Company" section of this Guide. Distribution of Profits and Losses Sole Proprietorship . The owner keeps all profits and bears all losses, which can exceed the amount invested in the business. Partnership. In the general partnership , the limited liability partnership (LLP) , the limited liability limited partnership (LLLP) and the limited partnership (LP) , profits and losses are passed through to the partners as specified in the partnership agreement. If left unspecified, profits and losses are shared equally among the partners. Corporation. In a C corporation , profits and losses belong to the corporation. Profits and losses belong to the corporation; the board may authorize shareholder payouts as dividends only if statutory distribution tests are met, and shareholders do not deduct corporate operating losses on personal returns. In an S corporation , corporate income and losses flow through and are taxed to the shareholders in proportion to their shareholdings. Shareholders also include their gain or loss on the sale of stock or liquidation of stock as income. Generally cash distributions (dividends) received from the S corporation are not included in income to the extent the shareholder has basis in his or her stock. Limited Liability Company. Profits and losses of a Limited Liability Company flow are taxed in the same manner as those of a sole proprietorship, partnership, S corporation, or C corporation depending on how the entity has chosen to be treated for federal income tax purposes. The governing statute, articles of organization, or the operating agreement will specify how these are allocated among the members. If the operating agreement is silent, any distributions made before dissolution must be in equal shares among members, and on winding up the statute governs distribution order and equal-share residuals. Management Control and Decision Making Minnesota law sets default decision‑making rules for each entity type, and your governing documents can change many of these rules to fit how you want to run the business.
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