Starting a business involves many important decisions, but one of the first is determining the right business structure. There are four main options: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Choosing the proper structure is a key first step when establishing your company in Minnesota.

In this guide, you’ll learn specifically about sole proprietorships – what they are, the pros and cons, and step-by-step instructions on registering a sole proprietorship in Minnesota.

Related: How to start a business in Minnesota

What is a Sole Proprietorship?

A sole proprietorship is one of the simplest business structures. It’s a business structure controlled by one person, who is also the owner. In this structure, there is no legal distinction between the business and the owner. This means you have full control of your business but also bear all the risks.

For instance, profits go directly to the owner, but all business debts and responsibilities also fall completely on the owner’s shoulders. This is a popular structure for small-scale and minimal-risk businesses because a sole proprietorship can be established without going through a complicated registration process.

Sole Proprietorship Advantages

There are several advantages to choosing a sole proprietorship in Minnesota:

• Lowest startup costs: This structure is the most budget friendly since there are no formation documents or fees associated with creating a sole proprietorship. The only cost is registering your business name if you choose to operate under a name other than your own.
• Control: As the sole owner, you have complete authority over your business without needing approval from partners or shareholders. You can make decisions quickly without bureaucracy.
• Tax simplicity: Sole proprietorships do not pay separate business taxes. The business’s income is your income, and it’s reported on your individual tax return, making tax time a bit simpler. This structure allows for pass-through taxation, meaning that the business’s profits and losses “pass through” to the owner’s personal tax return.

Sole Proprietorship Disadvantages

However, there are also downsides to consider:

• Unlimited personal liability: This is one of the primary concerns. If the business lands in debt or is sued, your personal assets are at risk.
• Difficulty raising capital: Sole proprietorships can find it hard to secure funding because they can’t sell shares of the business like corporations or LLCs can.
• Potential tax disadvantages: Sole proprietors pay self-employment tax on all business income. Partnerships and corporations allow more flexibility in managing tax liabilities.

A sole proprietorship could be a good fit if you want less paperwork, more control, and cheaper startup costs. But, if you are worried about protecting your personal assets, it might be worth considering a Limited Liability Company (LLC) instead.

Related: How to form a Minnesota LLC

Steps to Start a Sole Proprietorship in Minnesota

In Minnesota, establishing a sole proprietorship doesn’t require any formal registration with the state. However, there are a few steps to cover to make sure your sole proprietorship business is legally set up. Here are the general steps involved in starting a sole proprietorship in Minnesota:

Step 1: Come up with a Business Name

As a sole proprietor in Minnesota, the owner can operate their business under either their full first and last name. However, if they want to operate under a specific business name, registration is required. For example, let’s say Sam Newton wants to start a landscaping business. Sam can legally operate his business as “Sam Newton,” but if he wants to operate it as “Green Dream Landscaping,” he will need to register it.

Step 2: Verify Name Availability

Every assumed name filing in Minnesota must be unique and can’t closely resemble other registered names. Before filing, search the Office of the Minnesota Secretary of State’s website to ensure the name you want to use is available.

Step 3: File the Assumed Name Form

If the business will operate under a specific business name, like “Green Dream Landscaping,” you’ll need to register it by filing the Certificate of Assumed Name form. This form can be filed online or downloaded from the Minnesota Secretary of State’s website.

Related: How to file a Minnesota Assumed Name

Registering a Minnesota assumed name won’t stop another business from using the name. For stronger legal rights to your name, you can apply to trademark.

Step 4: Publish the Legal Notice

After filing the Certificate of Assumed Name Registration, a legal notice must be published. This notice is published in the legal section of a qualified legal newspaper that has circulation in the county where the principal office is located for two consecutive issues. After the advertisement runs, the newspaper will provide an affidavit of publication, which proves the ad ran along with the notice.

Step 5: Research Business License Requirements

Regardless of the business structure, there may be specific business licenses required, depending on the business’s nature and location. For example:

Local business license: Even though there isn’t a state business license, a local business license may still be required. Check with your city officials or economic development office for more information.

Minnesota tax ID number: Minnesota businesses need to apply for a Minnesota Tax ID Number with the Minnesota Department of Revenue if they sell products and/or taxable services, or have employees.

Professional license: A variety of professions in the state are regulated and need to be registered before offering certain services. A few common professions that require licensing in Minnesota include cosmetologists, accountants, and caterers.

Federal Employer Identification Number (EIN): The EIN is a unique number required by the IRS for some businesses for tax reporting. Usually, the only time a sole proprietorship is required to get an EIN is if they are hiring employees; though some banks will require one to open a business bank account. Otherwise, they will use the owner’s Social Security number.

Related: What business licenses are needed in Minnesota

Wrapping Up

Did you find the information useful? What type of business are you planning to start in Minnesota? A sole proprietorship, partnership, or a limited liability company? What motivated this choice? Also, do you have any lingering questions or need further clarity on any of the steps? Leave your responses in the comments below. We value your feedback and are happy to offer additional assistance.