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How To Start A Business In Minnesota

How To Start A Business In Minnesota

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How To Start A Business In Minnesota

How To Start A Business In Minnesota

Thinking about launching your own business in Minnesota but feeling stuck on where to begin? You’re not alone. The journey to opening your own company is full of steps and learning, and this guide simplifies those steps, making understanding what you need to do to get your business off the ground in Minnesota easier.

Steps to Starting a Business in Minnesota

Step 1: Choose a Business Idea

The first step in starting a business in Minnesota is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. Regardless, you can check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.

Step 2: Write a Business Plan

While starting a business can be done informally, creating a plan will greatly influence your success. There are many templates that can help in this process, but when done right, a business plan is a guide to keep you on track. It shows you a clear path, from validating the idea, the legal stuff, money matters, and how you’re going to run things.

This plan is important because it can also help you spot problems before they happen and figure out how to deal with them. Plus, if you’re looking to get some money from a bank or someone to invest in your idea, they’ll want to see your business plan to make sure you have done your homework.

Related: How to write a business plan

Step 3: Find the Money

After working through the business plan, you should have a detailed calculation of how much money it’s going to cost to start. Coupled with the money you have on hand, you now know how much money you need to get started. If your personal funds aren’t enough, our next step is to figure out where you’ll get the money from. In Minnesota, there are a variety of funding options available, such as:

Bank Loans

  • Advantages: Predictable monthly payments and access to multiple loan products.
  • Disadvantages: Lengthy application process, collateral requirements, and stringent credit score qualifications.
  • Eligibility conditions: Strong credit score and sufficient collateral.
  • Application process: Contact a local bank or credit union and submit a loan application, along with supporting documents (e.g., financial statements, tax returns, and a detailed business plan).

Small Business Administration (SBA) Loan Guarantee

  • Advantages: Lower down payments, longer repayment terms, and competitive interest rates (though higher than a conventional business loan).
  • Disadvantages: Lengthy and complex application process and specific eligibility requirements.
  • Eligibility conditions: U.S.-based for-profit business, owner equity investment, demonstrated need for financing, and a sound business purpose.
  • Application process: Find an SBA-approved lender, complete the SBA loan application form, and submit supporting documentation (e.g., personal financial statement, business financial statements, and projected financial statements).

Microloan Programs

  • Advantages: Accessible to businesses with limited credit history, smaller loan needs, and flexible repayment terms.
  • Disadvantages: Higher interest rates and smaller loan amounts compared to traditional loans.
  • Eligibility conditions: Start-ups or existing small businesses with limited credit history or collateral.
  • Application process: Contact a local microloan provider, such as the Southern Minnesota Initiative Foundation, Entrepreneur Fund, or WomenVenture, and submit a loan application along with supporting documents (e.g., business plan, financial projections, and personal financial statement).


  • Advantages: Access to larger funding amounts, valuable mentorship, and strategic connections.
  • Disadvantages: Equity dilution, potential loss of control, and a longer due diligence process.
  • Eligibility conditions: High-growth potential, scalable business model, and a solid management team.
  • Application process: Research and network with potential investors, prepare a compelling pitch deck, and engage in due diligence discussions.

Related: Understanding the different types of business funding

Step 4: Select a Business Structure

The next step in starting a business in Minnesota is selecting a business structure (also referred to as a business entity). A business structure is how a business is legally set up to operate and defines the liability exposure of its owners, tax implications, and other aspects of its operation.

Minnesota has four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Understanding the unique characteristics of each will help you make an informed decision about the best structure for your business.

Sole proprietorship: In a sole proprietorship, one person owns and operates the business.

  • Pros: Simple to set up, complete control of business decisions, and minimal legal requirements.
  • Cons: Unlimited personal liability, limited funding options, and difficulty transferring ownership.
  • Tax structure: Pass-through taxation, where business income is reported on the owner’s personal tax return.
  • Legal requirements: No formal registration is required, but you may need to file for an Assumed Name (also referred to as a DBA or “Doing Business As”) if using a business name different from your legal name.
  • Best suited for: Small businesses with minimal legal risks and owners who prefer complete control.

Related: How to start a sole proprietorship in Minnesota

General partnership: A partnership is similar to a sole proprietorship, except two or more people own it.

  • Pros: Simple to establish, shared decision-making, and broader access to financial resources.
  • Cons: Unlimited personal liability for partners, potential for partner disagreements, and shared responsibility for partner’s actions.
  • Tax structure: Pass-through taxation, where business income is reported on each partner’s personal tax return.
  • Legal requirements: No formal registration is required, but a written partnership agreement is highly recommended.
  • Best suited for: Small businesses with multiple owners who share a common vision and have a low risk of legal disputes.

Corporation: A corporation is a business structure that is a separate legal entity from its owners (called shareholders)

  • Pros: Limited liability for shareholders, easier access to funding, and separate legal identity.
  • Cons: Complex and costly setup, potential double taxation, and extensive record-keeping requirements.
  • Tax structure: A corporation can choose to be taxed as either a C corporation or S corporation. C corporations are subject to double taxation (corporate tax and shareholder’s personal tax on dividends), while S corporations have pass-through taxation with certain restrictions.
  • Legal requirements: Register with the Minnesota Secretary of State, create bylaws, issue shares, and hold regular board meetings.
  • Best Suited ror: Medium to large businesses seeking external investment and aiming for long-term growth.

Related: How to register a Minnesota corporation

Limited Liability Company (LLC): An LLC is a hybrid business entity that combines the liability protection of the corporation with fewer administrative requirements.

  • Pros: Limited liability for members, flexibility in management structure, and pass-through taxation.
  • Cons: Complex setup compared to sole proprietorship or partnership (though easier than a corporation), and potential state-level tax complications.
  • Tax structure: Pass-through taxation, where business income is reported on each member’s personal tax return.
  • Legal requirements: Register with the Minnesota Secretary of State and Regulatory Affairs and, in many cases, create an Operating Agreement.
  • Best suited for: Businesses that desire the liability protection of a corporation with the tax benefits and flexibility of a partnership.

Related: How to form an LLC in Minnesota 

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular formation services include:

IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 5: Register the Business

Once the business structure is set up, the next phase is to register the business. The registration requirements will vary depending on what the business does and where it’s located in the state, but here are a few of the most common ones:

  • Business licenses: The state of Minnesota doesn’t have a general business license, but depending on your business location, you may need to obtain a local business license from the city or county in which you operate.
  • Employer Identification Number (EIN): If your business has employees or is structured as a corporation, multi-member LLC, or partnership, you must obtain an EIN, a unique number to identify a business, from the Internal Revenue Service (IRS). You can apply for an EIN online or by mail, and there is no fee to get one.
  • Business name registration: For sole proprietorships and partnerships operating under a business name that is different from the full name of the owner(s), an Assumed Name (also called a DBA or Doing Business As) will need to be filed.
  • Business tax registration: Businesses will need to register for a Minnesota Tax ID Number with the Minnesota Department of Revenue if they sell taxable products or services, file taxes as a partnership or corporation, or have employees.
  • Professional registration: Some services, such as cosmetologists, accountants, caterers, and moany more, need to register with the state before beginning operations.

Related: What business licenses and permits are needed in Minnesota?

Step 6: Open a Business Bank Account

With the business registered, the next checkbox is to create a business bank account. While not required, keeping your business and personal finances separate is an important step. A few reasons include:

Simplified tax preparation: Separating your personal and business expenses simplifies tax preparation, making it easier to claim business deductions and comply with IRS regulations.
Accurate financial records: Keeping separate accounts enables you to maintain accurate financial records, which is essential for tracking cash flow, creating financial statements, and making informed business decisions.
Personal asset protection: For corporations and LLCs, if you “commingle funds,” which means using personal funds to pay business expenses, and vice versa, there is the potential to lose liability protection.

Step 7: Hire Employees

As a new employer, there are many things to take care of, starting with registering the business with the Minnesota Department of Employment and Economic Development, the Department of Labor and Industry, and the Internal Revenue Service.

Employers are also responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in Minnesota

Step 8: Obtain Business Insurance

Next, it’s a good idea to research your business’s potential risks and whether insurance should be purchased. Insurance is a necessary cost for most businesses, as it helps protect you, your employees, and your company from unforeseen risks and financial losses. Without proper insurance coverage, you risk facing significant costs in case of accidents, lawsuits, or natural disasters, which could jeopardize the business. A few types of common insurance policies to consider include:

  • General liability insurance: Protects your business against claims of third-party bodily injury, property damage, and personal or advertising injury.
  • Workers’ compensation insurance: Required by law in Minnesota for businesses with employees, workers’ compensation insurance covers medical expenses and lost wages for work-related injuries or illnesses.
  • Property insurance: Covers damage to your business property, such as buildings, equipment, inventory, and furniture, caused by events like fire, theft, or natural disasters.
  • Business interruption insurance: Provides coverage for lost income and operating expenses when a covered event, such as a fire or natural disaster, forces your business to temporarily close or relocate.

Related: Types of insurance your business may need

Step 9: Set up an Accounting System

Small business owners in Minnesota have to pay several types of taxes, such as income taxes, sales and use taxes, property taxes, and payroll taxes, so filing taxes accurately and on time is crucial for small business owners.

That brings us to our next step: setting up an accounting system. Fortunately, there are several ways that small business owners can ensure their taxes are filed correctly and on time by using pen & paper, a spreadsheet, or software such as QuickBooks, Wave, or Xero.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in Minnesota

What are the steps to starting an LLC in Minnesota?

There are three main steps to starting an LLC in Minnesota. These include:

1. Making sure the LLC name is available
2. Appointing a Minnesota Registered Agent
3. Filing the Articles of Organization

To learn more about the steps, check out our guide on how to start an LLC in Minnesota.

How much does it cost to start an LLC in Minnesota?

The cost to start an LLC in Minnesota is $155, which covers the state filing fee for submitting the Articles of Organization with the Minnesota Secretary of State.

Does a sole proprietor need a business license in Minnesota?

In Minnesota, whether a sole proprietor needs a business license depends on the type of business they’re running and where it’s located, not based on the business entity.

The state doesn’t have a one-size-fits-all business license, but local governments in Minnesota, like cities or counties, may have their own licensing requirements. In addition, certain types of businesses may require specific licenses or permits to operate legally. This could include businesses related to food service, health care, child care, construction, and many others.

Minnesota Small Business Resources

There are 525,156 small businesses in Minnesota, which is 99.4% of all businesses in the state,1 and 45.7% of Minnesota employees work for a small business.2 Because of the economic impact of small businesses, there are a number of small business resources to help Minnesota businesses start and grow. Some of these include:

  • Minnesota SCORE – With a team of volunteers who are experienced business owners, executives, and leaders, SCORE offers advice and mentorship to small business owners.
  • Minnesota Small Business Assistance Office: The State of Minnesota Department of Employment of Economic Development help entrepreneurs with access to support and resources.
  • Minnesota Small Business Development Center: SBDCs offer guidance on a wide range of topics, from startup planning to financial management.
  • National Association of Women Business Owners: If you own a business, the Minnesota chapter of NAWBO provides opportunities to network with other women entrepreneurs, influence business-related policies, and access leadership training.
  • WomenVenture: This organization helps Minnesota residents (not just women) who are looking to start or grow a business, change careers, or improve their job situation.


  1. Small Business Administration ↩︎
  2. Census Bureau ↩︎


  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Business In Minnesota

How To Start A Business In Minnesota

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