Minnesota Business License Basics

Establishing a business in Michigan requires navigating a series of official steps. Each step plays a role in turning your idea into a legitimate operation, from selecting your business structure to acquiring the necessary permits.

Many entrepreneurs can find themselves unsure where to begin, faced with a list of forms, agencies, and regulations. The good news? With our guide, you can confidently move through each stage of the process.

Related: Starting A Business In Minnesota Checklist

Step 1: Choose a Business Structure

The first step in registering a business in Minnesota is selecting a business structure (also called a business entity). A business structure is how a business is legally set up to operate and defines its owners’ liability exposure, tax implications, and other aspects of its operation.

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

Related: Comparison of Business Structures

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.

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 each 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 liability concerns.

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 administrative requirements (board of directors meetings, issuing shares, appointing a Minnesota registered agent, etc.).
• Tax structure: A corporation can choose to be taxed as either a C corporation or an 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 for: Medium to large businesses seeking external investment and aiming for long-term growth.

How to Form 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: More complex and expensive setup compared to the sole proprietorship or partnership (though less than a corporation).
• 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.
• 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 a Minnesota LLC 

Step 2: Select a Business Name

After choosing a business entity, selecting a business name is an integral part of registering your company in Minnesota. The process varies depending on your business structure.

For sole proprietors and general partnerships in Minnesota, registering a business name becomes necessary when you plan to operate under a name different from the owner’s full legal name(s). This registration is typically done through a Michigan Assumed Name Certificate, also known as a “doing business as” (DBA) filing. For instance, if Sarah Johnson wants to open a food truck, she might choose to operate as “Sarah’s Sensational Hotdish” instead of “Sarah Johnson.” In this case, she would need to file for a DBA with the Minnesota Secretary of State.

It’s important to note that every DBA filing in Minnesota must be unique and cannot closely resemble other registered names. To avoid potential delays in your paperwork, conducting a Minnesota business name search on the Office of the Minnesota Secretary of State’s website is recommended before filing.

For corporations and Limited Liability Companies (LLCs), the business name is selected during the formation process. Similar to DBAs, these names must also be unique within Minnesota. A thorough search of existing business names can help ensure your chosen name is available and prevent potential setbacks in your registration process with the Minnesota Secretary of State.

Step 3: Federal Employer Identification Number (FEIN)

The next step for many Minnesota businesses is obtaining a Federal Employer Identification Number (FEIN). This unique nine-digit number, issued by the Internal Revenue Service (IRS), serves as a federal tax ID for your business.

You’ll need an EIN if:

• Your business has employees
• You’ve structured your business as a corporation, partnership, or multi-member LLC

While sole proprietorships or single-member LLCs with no employees can use the owner’s Social Security number, many choose to obtain an EIN for added privacy.

Obtaining an EIN is straightforward and cost-free. The most efficient method is to apply online through the IRS website, which typically takes just a few minutes. For those who prefer alternative methods, applications can also be submitted by mail or fax.

How to Apply for a FEIN

Step 4: Professional Licensing

Some occupations in Minnesota require professional licensing before practitioners can offer their services. The Minnesota Department of Labor and Industry oversees licensing for numerous trades, while other professions are regulated by specific boards.

Common professions requiring licenses include:

• Cosmetologists (Board of Cosmetologist Examiners)
• Accountants (Minnesota Board of Accountancy)
• Nurses (Minnesota Board of Nursing)
• Teachers (Professional Educator Licensing and Standards Board)
• Contractors (Department of Labor and Industry)

Each profession has its own licensing requirements, fees, and renewal processes. For detailed information on specific occupational licenses, visit the Minnesota eLicensing website or contact the relevant licensing board.

Step 5: Minnesota Tax ID Number

A Minnesota Tax ID Number, issued by the Minnesota Department of Revenue, is a common registration for businesses in the state. This number is distinct from your Federal Employer Identification Number (FEIN) and is used for reporting and paying various state taxes, including sales tax, withholding tax, and corporate taxes.

Who needs to register:

• Businesses selling products or taxable services
• Entities filing as partnerships or corporations
• Companies with employees
• Vendors receiving payments from Minnesota state agencies

Apply for a Minnesota Tax ID Number through the Minnesota Department of Revenue e-Services system.

Step 6: Certificate of Exemption

A Minnesota Certificate of Exemption, often referred to as a resale certificate, is a valuable tool for businesses that purchase inventory for resale. This certificate allows these businesses to buy goods without paying sales tax at the time of purchase. When the customer purchases the item at retail, the business collects and remits the sales tax.

Who needs one:

• Retailers
• Wholesalers
• Manufacturers who resell finished products

Before registering for a Certificate of Exemption, you’ll first need your Minnesota Tax ID Number.

Step 7: Local Business Licenses

There isn’t a general statewide business license in Minnesota, but many cities and counties require local business licenses. The specific requirements vary widely depending on the location and type of business.

Examples of local business licensing in Minnesota:

• Food Service: Restaurants, food trucks, and caterers often need local health department licenses. Minneapolis, for instance, requires food businesses to obtain licenses through its Health Department.
• Professional Services: Personal service providers like massage therapists may need local permits. St. Paul is one city that requires massage therapists to be licensed through its Department of Safety and Inspections.
• Home-Based Businesses: Some cities regulate businesses operated from residences. Bloomington, for example, requires certain home-based businesses to obtain a home occupation permit from its Planning Division.
• Contractors: Many cities require local licenses for construction professionals. Duluth mandates that contractors obtain a license through its Construction Services & Inspections Division.
• Specialty Retail: Businesses selling specific products often need local permits. Rochester is one that requires tobacco retailers to obtain a license from its City Clerk’s office.

These examples illustrate the diverse nature of local business licensing in Minnesota. Business owners should always consult their specific local government offices for the most up-to-date and accurate licensing requirements.

Step 8: Local Building & Zoning Permits

When setting up a business location in Minnesota, it’s important to consider building and zoning requirements before committing to a property purchase or lease. These regulations ensure that businesses operate in appropriate areas and meet safety standards. Common requirements include:

Zoning Regulations: Zoning laws determine where specific types of businesses can operate within a city or county. Before establishing your business, check with your local planning or zoning department to confirm that your intended use is allowed in the chosen location. This applies to home-based businesses as well, as some residential areas may have restrictions on commercial activities.

Building Permits: If you plan to construct a new building or modify an existing one, you’ll likely need building permits. These ensure that any construction or alterations meet local building codes and safety standards. Contact your local building department or permitting office to learn about the specific requirements for your project.

Certificate of Occupancy: Many Minnesota municipalities require a Certificate of Occupancy before a business can operate in a building. This document certifies that the structure is safe for occupancy and complies with all building codes and zoning laws. You typically obtain this from the local building department after passing final inspections.

Special Use Permits: Some businesses may need special use permits if their activities don’t fit standard zoning categories. These permits allow exceptions to zoning rules under specific conditions. Check with your local zoning office to see if your business might require such a permit.

Sign Permits: Many cities in Minnesota regulate business signage. Before installing any exterior signs, check with your local planning or zoning department about sign permit requirements and any size, placement, or illumination restrictions.

By addressing these building and zoning requirements in your business planning process, you can avoid potential delays or issues when establishing your business location in Minnesota.