How to start a business in Minnesota [Updated 2024]

Thinking about starting a business? Minnesota might just be the place to set your sights on.

The state has a thriving economy with venture capitalists and angel investors willing to help fund new businesses. But it's not just about money; Minnesota also has a supportive business climate with a skilled workforce, low taxes, and numerous financial incentives. No wonder 82% of businesses in Minnesota are still going strong a year after starting!

When you start your business there, you’ll need more than just a business plan: You’ll also need to select a business structure, register with the appropriate state authorities, and navigate Minnesota’s tax requirements.

In this step-by-step guide, we'll walk you through all of the above—and more—ensuring you remain compliant with Minnesota’s unique business landscape.

1. Name your business

Choosing a name for your business should be easy, right? It can be, but you have to remember some rules and considerations. 

Here's what you need to know about naming your business in Minnesota:

For limited liability companies (LLCs) and corporations:

• Check business name availability to ensure it's different from other businesses already registered with the Minnesota Secretary of State (SOS). 
• If your name is unique, you can reserve it for 12 months by filing a Request for Reservation of Name with the Minnesota SOS.
• Note that there are specific rules for naming LLCs (like including "LLC" in the name) and corporations (like using "Company"). Find out more info here.

For sole proprietorships and partnerships:

• If you're operating a sole proprietorship or partnership and your business name differs from your own name (for sole proprietors) or your partners' names (for partnerships), you need to file a Certificate of Assumed Name with the Minnesota SOS. (Note: These assumed names expire at the end of each year and must be renewed annually.)

If you plan to operate online, consider registering your business name as a domain name. It's also a good idea to check if your chosen name is already used as a trademark on the US Patent and Trademark Office website to avoid legal issues.

2. Explore your funding options

When you need money for the startup costs of your business, there are plenty of ways to get it in Minnesota. Here are some programs and options to explore:

• Small Business Administration (SBA) loans: The SBA gives loans to small businesses to help them with startup costs. Its funding program includes loans to help businesses grow (microloans, 504 loans, and 7(a) loans), as well as disaster loans to help business owners recover from declared disasters.
• Minnesota Small Business Development Center (SBDC): The SBDC is intended to help small business owners. They offer advice and help secure loans from the SBA and other state programs.
• Community Development Financial Institutions Fund (CDFI): The CDFI puts government money and private money into businesses facing economic challenges. For example, the New Markets Tax Credit Program supports growth and community improvement in economically disadvantaged areas, while the Small Dollar Loan Program offers low-cost, small loans.
• Minnesota Department of Employment and Economic Development (DEED): DEED offers funding programs for businesses to help support in-state job creation, extend capital to minority and low-income groups, and aid small businesses. The various funds include the Minnesota Forward Fund, Minnesota Investment Fund, Emerging Entrepreneur Loan Program, and more.

3. Decide on your business structure 

Next, you need to decide on the best structure for your business. 
There are seven types of business structures you can set up in the state of Minnesota. Here's a more detailed look at each of them:

4. Register your business in Minnesota

Registering your business in Minnesota is a fairly straightforward process. Based on your chosen business structure, you have to fill out the correct registration form and pay a filing fee. Find the registration forms and costs below.

5. Decide on a registered agent

A registered agent is the person or entity responsible for handling all legal and tax matters for your business. In Minnesota, every business is required to have one.

To be a registered agent in Minnesota, you must be at least 18 years old and have a Minnesota street address. You can be your own registered agent if you meet these requirements. However, many businesses prefer to hire registered agent services. 

Why? In addition to freeing up time for more important business tasks, hiring a registered agent service is also cost-effective, typically ranging from $50 to $200 annually. Plus, you won't have to worry about keeping track of important dates, receiving legal documents, or dealing with privacy concerns.

6. Apply for an Employer Identification Number

Before you can hire employees, you need a federal Employer Identification Number (EIN). Think of it as a Social Security number but for your business. 

Your EIN is a special nine-digit code you can use for important tasks like opening bank accounts, applying for loans, paying taxes, and compensating employees. The Internal Revenue Service (IRS) issues EINs, and you can easily obtain one for free by filling out Form SS-4.

7. Get up to speed with Business Tax Credits

If you're looking to expand your business, you can take advantage of various Minnesota tax credits to help you grow. Each program has its own set of requirements, so make sure your business qualifies.

8. Stay on top of filing requirements and taxes

If you've registered a business in Minnesota—regardless of the type—you have to do an annual renewal every year, starting from the year after your initial registration. 

If you miss this renewal, your business won't be recognized in Minnesota anymore, referred to as "statutorily dissolved." However, you can bring it back by paying a fee and filing the renewal for the current year, as long as the business name is still available.

Minnesota also imposes the following taxes on businesses:

• Income tax: Individuals and businesses are taxed based on income levels or net income for businesses.
• Sales tax: Businesses must collect and remit statewide sales tax on taxable goods and services.
• Employment taxes: Employers must withhold state income tax, pay for unemployment taxes, and offer workers' compensation insurance. Contributions to the state's unemployment insurance fund may also be required.
• Property tax: Businesses owning real property in Minnesota pay property taxes, with rates varying by location.
• Excise taxes: Specific industries, like alcohol and tobacco, may face excise taxes.
• Use tax: This tax is owed on items used in Minnesota without paid sales tax, which businesses may need to report and pay.
• Corporate franchise tax: C corporations are subject to a tax based on net income.

Consider consulting a tax professional or the Minnesota Department of Revenue to comply with filing requirements and changing tax laws.

9. Find a payroll solution

When you hire in Minnesota, there are some important things to remember. First, you must classify workers correctly to avoid penalties. You also need to be aware of overtime rules. For instance, if employees work more than eight hours a day or 40 hours a week, they should get 1.5 times their regular pay.

Additionally, Minnesota has higher minimum wages compared to the federal rate. Large employers must pay employees $10.85 per hour and other employers must pay $8.85. The minimum wage varies depending on factors like the size of your business and employee age.

To pay your employees and contractors accurately and promptly, it's a good idea to use payroll software like Rippling. Rippling does the hard work for you, making payroll and overtime calculations easier. With Rippling Time & Attendance, you can automatically track employees' hours and receive notifications when someone is approaching overtime—so you’re always compliant with overtime laws. Once you've approved the hours and clicked "Submit", Rippling quickly calculates the final pay and taxes in seconds.

Even if you’re hiring globally, Rippling has you covered. It lets you: 

• Streamline your payments for everyone—even if they're in different tax areas or use different currencies—in a single pay run.
• Include all types of workers: hourly, salaried employees, and contractors.
• Manage all of your people, data, and systems around the world in one place.

10. Support and scale your growing business with Rippling

As your business expands, you'll need an HRIS (Human Resource Information System): a software solution that simplifies tasks such as hiring, onboarding, payroll processing, benefits management, and more.

Implementing an HRIS early on makes it easier to expand, especially if you plan to grow your business globally. Rippling offers a comprehensive solution for managing your global workforce in one system. You can:

• Hire, pay, and oversee your employees, whether they work in St. Paul or anywhere else in the world.
• Stay compliant with local, state, and federal regulations, with specific action plans for each.
• Consolidate all employee benefits, such as health insurance, 401(k), and commuter benefits, into one system. Automate tasks like enrolling new hires, updating deductions, and administering COBRA.
• Keep your recruiting data updated effortlessly, from tracking open positions to managing new hires. Automate every aspect of the hiring process.
• Establish a single, reliable source for HR analytics, policies, and other important information.

FAQs about setting up a business in Minnesota

Do I need a business license in Minnesota?

In Minnesota, you usually don't need a special license to run a regular business. You can start and operate it without any special permission. But for certain businesses that have more rules or regulations, you might need a license.

Do I need a business bank account when launching a business in Minnesota?

While not mandatory, it's advisable to have a separate business bank account when launching a business in Minnesota. This practice helps maintain financial clarity, professionalism, and simplifies tax compliance. To open one, you'll typically need your business's legal paperwork and an Employer Identification Number (EIN).

Do I need to get business insurance?

In Minnesota, you must have workers' compensation insurance if you have one or more employees. And even though it’s not legally mandated, some customers and property owners might want you to have additional insurance like general liability or a BOP (Business Owner's Policy).

What are Minnesota's state payroll taxes?

Minnesota's state payroll taxes include the following:

• Minnesota State Unemployment Tax (SUTA) — employer contributions
• Minnesota Withholding Tax — withheld from employee wages
• Minnesota State Disability Insurance (SDI) — withheld from employee wages
• Minnesota Workers' Compensation Insurance — employer contributions
• Minnesota New Hire Reporting Fee — employer contributions
• Minnesota Paid Family and Medical Leave (PFML) — may include both employer and employee contributions

Local jurisdictions may also impose additional taxes or assessments.

Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.