An LLC is the most preferred type of business structure in Minnesota

An LLC is a hybrid type of business entity that gives business owners the tax benefits of a partnership and the limited liability of a corporation. observes that the limited liability company has become a popular business entity for entrepreneurs throughout the United States. When it comes to business formations in Minnesota, LLCs are now-according to Twin Cities Magazine-the "most common legal structure for new businesses in Minnesota." So far this year, filings for new Minnesota LLCs are 15,992 which is up from 15,495 during the same period in 2013. New LLC formations now occur more frequently than business incorporations. For example, in the Twin Cities area during the first quarter of 2014, there were 1,594 new business incorporations as contrasted with 6,106 new LLCs.

The popularity of LLCs, according to, stems from the fact that it is a hybrid of the partnership and the corporation. LLCs offer members the flexibility and organizational simplicity of a partnership without the rigid formalities inherent in a business which is incorporated. Moreover, like partnerships, profits and losses of the business pass through to the LLC owners' personal income tax statements meaning that the business itself is not liable for taxes on its profits.

While more flexible than a corporation, the LLC nevertheless offers the limited liability protection of a corporation. As observed by the U.S. Small Business Administration, LLC members are generally protected from personal liability for business decisions or actions of the LLC. Accordingly, if the LLC incurs debt or is sued, members' personal assets are typically protected.

The most critical LLC document is the operating agreement. As stated by the Small Business Administration, the operating agreement will "govern the internal operations of the business." Specifically, the operating agreement governs: (1) the members' voting rights and responsibilities; (2) the distribution of profits and losses; (3) how meetings are held; and (4) the powers and duties of members and managers. Since the operating agreement is a binding contract, it is a good idea to carefully review an operating agreement before signing one.

Recent LLC changes

Earlier this year, Governor Dayton signed legislation adopting the Revised Uniform Limited Liability Company Act. According to the Minnesota Department of Employment and Economic Development, the new Act makes significant changes to Minnesota's LLC laws and will provide LLCs with much greater flexibility. The DEED says that one change of special note is that, under the current LLC law, only natural persons can form an LLC. The new law provides that corporations and partnerships may organize an LLC as well as individuals.

Importantly, the new LLC Act continues to permit LLC members to be protected from liability for LLC debts and obligations. However, the Act does provide for liability for members in cases where: (1) deliberately inaccurate information is filed about the LLC with the secretary of state or (2) in the event of members receiving improper distributions. The new Act will apply to all LLCs formed on or after August 2, 2015, and to those LLCs that chose to be governed by the new law by so amending their governing documents. On January 2, 2018, the new LLC Act will apply to all Minnesota LLCs and the current LLC law will be repealed.

Seeking legal advice

Choosing the correct business entity is extremely important. If you are considering starting a business, you should consult with a Minnesota attorney experienced in business formation. After discussing your specific plans and goals, the attorney can advise you on whether or not an LLC is the most optimal business entity or whether you should consider a general partnership or, perhaps, an S or C corporate entity.

Keywords: business formation, LLC, operating agreement, business structure, limited liability, tax, Minnesota