How to legally start and operate your business

It doesn’t matter if you own a restaurant, a coffee shop, or a cleaning business, or if you do construction, auto repair, or paint homes and buildings. You need to operate your business according to Minnesota law. If you don’t do it, you may get in serious problems with the law.

Inti Martinez Aleman
June 12, 2018

It doesn’t matter if you own a restaurant, a coffee shop, or a cleaning business, or if you do construction, auto repair, or paint homes and buildings. You need to operate your business according to Minnesota law. If you don’t do it, you may get in serious problems with the law. Here you’ll read what are the first steps to legalize your current business or open the one you have in mind. Remember that every rule has exceptions, so you will want to do your homework and perhaps talk with an attorney before you decide what to do.

 

Selecting your type of company


You can start most businesses just by doing the work.  But you can get additional protections and benefits of the law by creating your business on paper and registering it with the state of Minnesota. Businesses can be organized on paper in different forms, such as a corporation, a partnership, or a sole proprietorship. Lawyers call those different forms “entities.”  Most businesses nowadays organize themselves as Limited Liability Companies (LLC) before the Secretary of State of Minnesota. Since this type of entity is the most common and easiest to operate, it’s the one we’ll discuss here.

The benefits of an LLC are very good. You can run an LLC with as few as one member. (Members in an LLC are the equivalent to shareholders in a corporation.) If it’s set up right and you follow the rules, an LLC should provide all the registered business members with protection of their personal assets. One important rule to remember is not to mix personal and business matters. For example, if the business owes money to a creditor, and the business is an LLC, the registered business members’ personal assets and accounts will not be touched. Only the business assets and accounts would be affected. There are exceptions to this rule.

You may call your LLC whatever you want, as long as it’s allowed by the law and that the name is not being used by someone else. You may also use a different commercial name for your business. For example, your business may be legally called Pine Crest, LLC, but your commercial name for the public may be Ramirez Construction. They need not be the same name, but they may.

 

Business plan and member agreement

It’s not necessary in Minnesota to have a business plan or a member agreement. However, if you want to get a loan or a credit line, your lender will probably want to see your business plan. Likewise, you don’t have to have a member agreement, but if you have more than one member in your LLC, you will want to have a member agreement. With a member agreement, all the business members will know who has what responsibilities and rights; that way, you may reduce confusion and conflicts. With a clear plan and agreement, you may ensure that your business is developing in an orderly way.

 

Accounting

Even smart business people can make the serious mistake of managing businesses too informally. They don’t have clear books, they don’t back them up in case of emergency, they don’t pay taxes on time and in full, and they mix personal and commercial expenses. These are very bad practices that you must avoid. It’s highly recommended to have an accountant who will advise you and manage your books. With a good accountant, you may rest assured everything is in order. If your business is simple enough, you may do your own accounting using Excel or Quickbooks, but you must manage it very carefully.

Paying your taxes in full and on time will make it less likely that the IRS will auditing you in the future or end up in prison for tax evasion.

 

Licenses and permits

There are some businesses that can’t be started just by doing the work, because the state will require you to have a license or permit.  Venturing into businesses without licenses or permits is another serious mistake. The government takes this matter very seriously because it wants to protect the public and consumer rights. Having a license or permit for a specific job (as small or short as it may be) is absolutely essential—no exceptions. You might be required to take courses, workshops, and exams to get a license or permit, but it’s all worthwhile because you will avoid penalties and be able to take on more jobs in the future.


If you start working without licenses and permits, you run the risk of a fine, sanction, civil lawsuit, and even time in jail in the worst of cases. Get advice from an attorney about which types of jobs and fields require licenses and permits, and which ones don’t.

 

Insurance

We all know that unexpected things can happen.  Sometimes your work does not go as expected and a client is unhappy.  Sometimes there is an accident and people get hurt.  The consequences can be devastating if you’re not prepared. If a client or injured person brings a claim against your business to compensate them, you need to be prepared to respond. Although an LLC may protect your personal assets and accounts, it will still be costly to have to compensate an injured person or an unhappy client your business accounts. That’s why it’s crucial to have insurance, or be able to get a bond, so that your business is not affected if something unexpected happens.  

There are insurance policies of all kinds. Depending on your business, you may need to have unemployment insurance or workers’ compensation insurance. It’s also recommended to carry General Liability Insurance (GLI).

Starting a business is exciting, and a little help from a business lawyer can ensure you get off to a good start. As you can see there is so much to discuss about these general topics pertaining opening and operating your business in Minnesota. A business lawyer who knows about these topics can give you advice so that you are clear about your rights and duties.   

 

For more information, you may check out these links:
 
Department of Employment and Economic Development

Latino Economic Development Center

Minnesota Secretary of State

About The Author
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I represent Latinos in civil, business, and employment litigation matters, ranging from contract disputes or employment issues to small business litigation or landlord-tenant matters. In May 2016, I obtained my second law degree (JD) from Mitchell Hamline School of Law in St. Paul, Minnesota. ...

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