How to Form a Minnesota LLC without an Attorney

If you want to start a small business, you can form a new LLC (limited liability company) in Minnesota without hiring an attorney. You will save the expense of attorney’s fees, but you also will not have the counsel of a business attorney and will have some other risks.  The risks are explained at the end.

Here are the steps to forming your own LLC in Minnesota:

1.       Check to see if your business name is available here: http://da.sos.state.mn.us/minnesota/corp_inquiry-find.asp?:Norder_item_type_id=9&sm=6

2.       Download the form you need to create an LLC at either of these links:

• Articles of Organization (PDF): http://www.sos.state.mn.us/Modules/ShowDocument.aspx?documentid=4388
• Articles of Organization (DOC): http://www.sos.state.mn.us/Modules/ShowDocument.aspx?documentid=4391

3.       Register your LLC by filing the Articles of Organization with the Minnesota Secretary of State’s business office. Currently the filing fee is $160.

4.       After you register your LLC, obtain your Employer Identification Number (“EIN”) from the IRS by calling 800-829-4933 or completing the form online.

5.       Bring the LLC Articles of Organization and your EIN to the bank to establish a small business checking account.

Benefits of Forming a Minnesota LLC Yourself

The benefit to this process is you save the cost of attorney’s fees.  For example, a single-owner LLC would normally cost $450 in attorney’s fees plus the filing fee, so you are saving $450 by doing it yourself.

Risks of Forming a Minnesota LLC Yourself

For a majority of small businesses, an LLC is preferred over an S Corporation, partnership, limited liability partnership, and other business types. But sometimes an LLC is not best for your circumstances. By forming an LLC without the advice of an attorney, you accept the risk that an LLC may not be the best for your situation.

When you register your own LLC using the process above, there are a few additional risks. First, you will not have a Member Control Agreement or a Member Voting Agreement, which most attorneys recommend, especially if you have multiple owners. A Member Control Agreement is addressed by Minnesota Statutes section 322B.37, and a Member Voting Agreement is addressed by Minnesota Statutes section 322B.366. Our firm provides these agreements to all clients as a part of forming their new LLC. Without these agreements, the LLC owners will be subject to the default designations for Minnesota LLCs, which are often contrary to small business owners’ intentions. If you intend to obtain a business loan, most banks expect to see that you have all these documents to ensure you are properly prepared and running your business in a professional manner.

Another risk is that the Minnesota Secretary of State’s form for Articles of Organization does not include other notices that you may want included. The Articles of Organization, and the provisions on them, are deemed published to the world to put the world on notice. Some courts have held that without certain notices on file with the Secretary of State, your business cannot enforce certain rights against other parties because those parties were never put on notice that you were preserving those rights. Our firm prepares Articles of Organization for clients with a set of notices that are not included by the Secretary of State to ensure that our clients’ rights are preserved.

Finally, if your business has multiple owners, an attorney can advise you on “best practices” for handling disagreements, tax issues, exit strategies (exits include death, disability, bankruptcy, divorce, and simply one owner deciding to leave the business), and how much an owner will be paid for being bought out of the business. If these issues are not discussed and put in writing, they can become points of contention because business owners may have different expectations or understandings. This can lead to costly legal battles that far exceed the cost of hiring a business attorney at the beginning to draft up the normal LLC operating and voting agreements.

Conclusion

In conclusion, forming an LLC on your own can save you money, but once your business becomes profitable, you face an increasing risk of problems. If your business is a very small part-time business, forming an LLC on your own may make sense. If you have multiple owners or are working in your business full-time, it probably makes sense to hire an attorney to form the LLC for you, which includes some basic tax planning, legal guidance, and LLC documents to prepare your business for success.

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