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How to start a business in Minnesota in 8 steps

When you decide to start your own business, you’re choosing to bet on yourself. You’re taking all of your drive, motivation, and energy and putting it toward the execution of something greater than you. The catch here is that launching your startup is yours, so your company's success is intimately tied to your actions, beliefs, and vision.

For entrepreneurs in the state of Minnesota, there’s a rich history of forest and agricultural initiatives that contrast with the burgeoning small business environment in cities like downtown Minneapolis. Minnesota’s rural roots mixed with its evolving startup culture is the perfect atmosphere to launch a new business initiative. If you’re striving to start your own company, the following 8 step guide will help you turn your entrepreneurial dreams into a full-fledged reality.

1) Think about the type of business you want to start

Determining what kind of business to create should not be a complicated decision. Ideally, there’s a burning desire or a sense of purpose inside you pushing you forward to accomplish a particular goal. The type of business you launch will then ideally help you achieve that goal.

If you know starting your own company is the path for you, but you're struggling to solidify an idea that excites you, it can be helpful to complete a “self-assessment” of your interests to explore activities and skills that you enjoy and could potentially monetize. These days with the Internet, there’s a market for everything, meaning it's important to follow your passions because somewhere, somehow, there is money to be made pursuing them. The question you’ll answer by starting your own business is “how” you will make that money.

Once you have a handful of interests and passions brainstormed and understand how you can potentially monetize each, it’s worthwhile to map out a rough business plan for your top 2 ideas to see what kind of work is involved in launching each venture. Drafting rough business plans will also help you visualize the type of work needed to sustain your business on a day-to-day basis. You can pick the business plan that has the highest potential for economic gain and feels the most fulfilling.

With your business ideas whittled down to one, the next step to bringing your idea to fruition is establishing a legal structure—or business structure—for your company. Your company’s business structure will create the basis for its taxation and differs from organization to organization depending on what industry a company is in and what kind of work the organization completes. In Minnesota, there are 5 main types of business structures you can choose from to set up:

  • Sole Proprietorship: Electing to be a sole proprietor is an informal business structure whereby you, the business owner, directly accept any profits derived from the company but are also responsible for any losses incurred, including lawsuits. A sole proprietorship is a “pass-through” business entity that utilizes your Social Security Number to track your income and is generally considered to be the easiest legal structure to set up in Minnesota.
  • General Partnership: With a general partnership, you’re merging two or more sole proprietors to form a single business. General partnerships operate the same way as sole proprietorships in that they're an informal, easy-to-establish business structure that has none of a corporation's tax and legal benefits.
  • Corporation: While corporations are more complex than general partnerships and are subject to more rules and regulations regarding taxation, they offer small business owners tax and liability protections, especially around their personal assets when it comes to potential lawsuits. There are 2 main types of corporations in Minnesota: The S corporation and C corporation, each subject to its own form of taxation. To set up a Minnesota corporation, you’ll need to submit your Articles of Incorporation to the Minnesota Secretary of State along with a $155 filing fee if submitting online, or a $135 filing fee if submitting by mail.
  • Limited Liability Company (LLC): Combining both the ease and flexibility of the sole proprietorship with the legal protections of the corporation is the Limited Liability Company (LLC). A Minnesota LLC is one of the most popular business structures you can establish, and to do so, you’ll need to file Articles of Organization with the Minnesota Secretary of State along with a $155 filing fee if you're submitting online, or a $135 filing fee if you're submitting by mail.
  • Nonprofit: If your business is designed to help serve the greater good of society, you may want to explore the nonprofit business structure. Unlike corporations, nonprofits are fueled by donations and are actually tax-exempt in many cases. While there may be additional paperwork to file to become a Minnesota nonprofit—such as company bylaws and solidifying a board of directors—it's all well worth it if your venture qualifies for the coveted 501(c)(3) tax-exemption status.

There’s no one-size-fits-all formula when it comes to setting up your company’s legal structure. It will be worth it in the long run if you take the time to research how your competitors have structured their companies. In response, develop a keen understanding of your business’s operating needs to ensure the legal structure you’re launching keeps you relevant with your competition now and in the future.

3) Name and register your business

After choosing your business structure, it’s time to formalize your Minnesota business by picking a name for your operation and registering it with the state. To see if your desired business name is available, you’ll need to complete a name search on the Minnesota Secretary of State website. If the name is available, you can put the name on hold and reserve it for 12 months by filling out a Request for Reservation of Name form through the Secretary of State website or lock in the name and move forward with the registration process.

For business owners who elect to operate as a sole proprietorship or general partnership and want to conduct business under a fictitious name—also known as a trade name or “Doing Business As” (DBA) —a Certificate of Assumed Name must be filed with the Minnesota Secretary of State.

To help facilitate all of your company’s registration paperwork in Minnesota, you’ll need to select a registered agent, which can be either an individual or a company responsible for handling all of the tax and legal documents for your business. To be a registered agent in Minnesota, the individual must have a valid physical address in the state. The company must be legally approved to conduct business in the state. Your registered agent can also help you submit the required documentation for obtaining an Employer Identification Number—or tax ID number—from the Internal Revenue Service (IRS). You’ll need a tax ID number to formalize your business at the federal level and to pay income taxes and other business taxes.

4) Apply for business licenses and permits

There are many business licenses and permits to be mindful of acquiring when you initially launch your startup in Minnesota. While your registered agent can apply for most of these licenses and permits on behalf of your company, it’s good practice to be knowledgeable and up-to-date on the state’s permit and license requirements so that your company remains compliant at all times. To better understand which licenses and permits apply to your specific industry, consult the Minnesota Bureau of Business Licenses (BBL), the Small Business Administration (SBA) website, the Minnesota Department of Employment and Economic Development website, and your local chamber of commerce.

5) Choose a location

Deciding where to launch your startup is a decision that's influenced by both internal and external factors. Internally, your business's needs will render some locations viable and others obsolete. At the same time, external factors—such as proximity to your home, traffic, and cost—will also determine what location makes the most sense for you to set up shop in. Just because Rochester and St. Paul-Minneapolis are two of the most popular areas in the state doesn’t mean they contain the best business resources for your specific operation or are worth the zoning costs you’ll incur from conducting business in a major market.

Depending on the nature of your line of work, you may even discover that having physical office space is an unnecessary cost to your overall bottom line. With more and more teams transitioning out of the office and embracing remote systems, it may behoove you to shave the costs of opening an office or storefront and opt for working out of your home.

6) Open a bank account and prepare for future taxes

A common complication plaguing new business owners is mixing their personal and business transactions. Don’t be that business owner! For fewer headaches when filing your tax return, it’s imperative to open a separate business bank account and business credit card for your company.

The process for opening a business bank account in Minnesota is pretty straightforward. You’ll need first to choose a banking institution you know and trust, and then provide some combination of the following documents: Your Social Security Number for your sole proprietorship or general partnership, your Articles of Incorporation for your corporation, your Articles of Organization for your LLC, and your driver’s license.

In addition to keeping your business and personal finances separate, a business bank account is necessary for when you want to hire employees. When it comes to hiring employees, you’ll be on the hook for covering the Minnesota state withholding tax, unemployment insurance, and payroll taxes. If trying to understand Minnesota taxes leaves you feeling flustered, you may benefit from hiring a business accountant who can provide you with peace of mind that your company is compliant with all federal tax and state tax laws.

7) Purchase business insurance

For additional peace of mind when running and maintaining a legally compliant organization, consider purchasing small business insurance. Securing a business insurance policy not only protects you from events and actions outside of your control but also adds a measure of legitimacy and professionalism to your operation.

Here are 3 main types of business insurance for Minnesota companies:

  • General Liability Insurance: General liability insurance is a basic policy that helps protect your business from any legal woes in the event of a lawsuit.
  • Professional Liability Insurance: Professional liability insurance helps protect you from malpractice lawsuits and other errors if your business sells or provides a service to others.
  • Workers’ Compensation Insurance: Workers’ compensation insurance is a policy that protects you and your employees if they’re ever hurt or injured while working on the job. In Minnesota, all businesses need to secure workers’ compensation insurance.

When choosing business insurance for your startup, you should consult your business accountant since they will know the different types of insurance that can add value to your company. Your business accountant will also understand which companies offer policies that best position small businesses for future growth and success.

8) Create a marketing plan, hire employees, and more

You’ve done it! You’ve just learned how to form a business in the state of Minnesota. But before you kick off your shoes and spend the weekend in Lake Minnetonka, you’ll want to address a few final housekeeping items that will help lay the groundwork for your future expansion.

At this stage, many small business owners find it beneficial to create a marketing plan that will help outline their budget for advertising and promotion and organize their efforts into tangible steps to follow in the years to come. Such efforts include conducting market research, purchasing a domain name and building a website, hiring employees, utilizing free social media tools and business services to power the notoriety of your business online, and helping procure new client leads.

Whatever actions you decide to take to roadmap your startup's growth, remember that Huckleberry is by your side for all your business insurance needs. A quote on a relevant policy remains only a few minutes away, helping you confidently move forward with an aggressive, forward-thinking growth strategy knowing you’re protected each step you take along your entrepreneurial journey.

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