Do you want to provide professional services in Minnesota through your own business but don’t know where to start? You may consider a Minnesota professional corporation. There are several important steps to the process, so let us walk you through how to form a professional corporation in Minnesota.
What is a professional corporation in Minnesota?
A Minnesota professional corporation (PC) is a business entity owned and operated by licensed professionals.
Minnesota refers to these types of entities as professional firms, and they may offer the following types of professional services:
- Medicine and surgery
- Registered nursing
- Social work
- Marriage and family therapy
- Dentistry and dental hygiene
- Podiatric medicine
- Veterinary medicine
- Physician’s assistants
- Landscape architecture
- Certified interior design
All Minnesota PC owners must hold a professional license in the service the PC offers.
Determine whether a Minnesota PC structure is right for you
Should you form a professional corporation, limited liability partnership (LLP), or a limited liability company (LLC)?
Licensed professionals in Minnesota have the option to choose from three different entity types for their business: a PC, LLP, or LLC. Firms must form a professional entity if they want an entity structure other than a sole proprietorship or general partnership.
Each of these entities has differences when it comes to tax treatment, liability protection, management requirements, and ease of formation.
PCs offer the highest level of liability protection out of the three entity types, but they have more stringent formation and management requirements. PCs can elect to be taxed as an S corporation if certain requirements are met. As an S corporation, the PC would have pass-through taxation, meaning that the federal government would not tax income at the business level; the income would only be taxed when it’s distributed to the individual shareholders.
LLCs and LLPs, on the other hand, are generally easier to form, allow for a more flexible management style, and are automatically taxed as pass-through entities.
How will ownership be divided?
Minnesota law restricts who can have an ownership interest in a PC. Owners — known as shareholders — must be one of the following individuals or entities:
- Licensed professional, general partnership, PC, LLC, or LLP who provides at least one of the PC’s categories of professional services
- Voting trust
- Employee stock ownership plan
- Surviving spouse of a deceased licensed professional who was once the sole owner of the professional firm
Minnesota law has further requirements for each type of eligible shareholder and additional restrictions on ownership interests.
How will the PC be managed?
The management structure for a PC is typically the same as for a regular corporation. Shareholders have a stake in the company through their ownership interests and exercise their voting rights. The board of directors oversees big-picture decisions for the PC. Officers are responsible for the day-to-day handling of business operations.
Minnesota requires all corporations to appoint at least a chief executive officer and a chief financial officer.
Choose a name for your Minnesota PC
Minnesota PCs must have a name that includes one of the following phrases, words, or abbreviations as part of the business name:
- Professional Corporation
- Professional Service Corporation
- Service Corporation
- Professional Association
Part of choosing a name for your PC involves checking whether the name is available for use. A preliminary name availability check may be done through the Minnesota Secretary of State.
Minnesota allows you to reserve a business name if you need more time to file your formation paperwork. At ZenBusiness, we offer our name reservation service as well as our domain name registration service. Note that reserving a business name isn’t the same as registering a business name.
Select a Minnesota registered agent
Minnesota requires all businesses formed under Minnesota law to designate a registered agent. The registered agent can be any of the following:
- A natural person residing in Minnesota
- A Minnesota corporation or limited liability company
- A foreign corporation or LLC with authority to transact business in Minnesota
The registered agent must have a physical address in Minnesota to serve. At ZenBusiness, we can connect you with a qualified registered agent in Minnesota, so you can stay compliant with Minnesota law.
Complete your Minnesota Articles of Incorporation
Articles of Incorporation are the documents filed with the state to establish a business. An incorporator is someone responsible for forming the corporation and filing the articles. Minnesota requires only one incorporator, who can be anyone 18 years of age or older.
Articles of Incorporation for a Minnesota PC must contain the following information:
- Name of corporation
- Contact information, including name and address, of registered agent
- Number of authorized shares
- Incorporator’s contact information
- Statement acknowledging that the PC elects to operate under the Minnesota Professional Firms Act
- List professional service(s) that the PC is offering
The Minnesota Secretary of State provides a sample form for your PC’s Articles of Incorporation. The incorporator may submit the organizing document online, in person, or by mail.
Establish a corporate record in Minnesota
A corporate record is a collection of important business documents, such as the Articles of Incorporation, bylaws, meeting minutes, amendments, and tax records.
Minnesota PCs must maintain corporate records and have them available for inspection.
Designate a Minnesota PC board of directors
The board of directors is responsible for managing the business affairs of a Minnesota PC. The first board of directors may be named by the incorporators in the Articles of Incorporation or elected by the shareholders. Minnesota’s Business Corporation Act has many requirements and default provisions for the board, such as term limits, powers, and removals. Alternatively, you can establish your own procedures and rules in your corporate bylaws.
Create Minnesota corporate bylaws
Corporate bylaws are the governing documents for an organization that outline how the company is to operate. Bylaws typically include information such as the following:
- Responsibilities of the board and officers
- Office term limits
- Meeting information
- Voting rights and procedures
- How to amend the bylaws
- How officers and directors will be compensated
- Rules and procedures regarding stock issuance
- Events that will result in dissolution
Although PCs don’t need to have bylaws, they’re highly recommended under Minnesota law.
Hold first board meeting
Once the incorporators file the Articles of Incorporation, either the incorporators or the directors named in the articles must hold an organizational meeting. The following business decisions will typically be made at the first meeting:
- Adopting bylaws
- Electing directors and officers
- Making tax elections
- Agreeing on a fiscal year
- Authorizing the purchase or lease of office space and furnishings
- Issuing shares
Alternatively, the incorporators or directors may conduct this business in writing without physically meeting in person.
Handle Minnesota tax obligations
After the Secretary of State accepts your Articles of Incorporation, you will want to register for an employer identification number (EIN) with the IRS. This number is necessary to file your PC’s taxes, open a business bank account, get financing, hire employees, and offer retirement plans. ZenBusiness can secure your PC’s EIN with our EIN service.
Your Minnesota PC can be taxed as either a C corporation or an S corporation. By default, the IRS views PCs as C corporations and subjects their income to corporate income tax (when earned) and personal income tax (when distributed to the shareholders). This is known as double taxation. If the board of directors votes to make an S corporation election, the IRS then treats the PC as a pass-through entity. This means that the PC’s income passes through to the shareholders and isn’t subject to federal corporate income tax. However, to make an S corporation election, your PC must meet the following requirements:
- Be a domestic corporation
- Issue only one class of stock
- Have no more than 100 shareholders
- Have only shareholders who are U.S. individuals, certain trusts and estates, and certain tax-exempt organizations
An accountant can help you decide the most appropriate and effective tax status for your PC.
Minnesota PCs may be subject to many different state taxes, including the Corporation Franchise Tax, property tax, and withholding tax. For a full list of state taxes for businesses in Minnesota, visit the Minnesota Department of Revenue.
Depending on the type of business activity, your Minnesota PC may also owe local taxes. Check with the county and city tax departments where your PC is located to learn about all potential tax obligations.
Obtain Minnesota business licenses and permits
Minnesota has many state and local business license and permit requirements. The Minnesota Department of Labor and Industry provides a portal for you to look up state licenses and permits by type. Because licensing and permits can be required on the federal, state, and local levels, it’s your responsibility to understand and obtain them. Don’t forget that some professional industries have their own license requirements, so you may need to contact the regulatory authority for your industry.
If you’re unsure about where to find all of the license and permit information, we can help. Our partners at Business Licenses, LLC, will do the research for you and deliver a report that lists the licenses and permits your business needs to operate.
Acquire insurance for your Minnesota PC
Under Minnesota statute, employers must have workers’ compensation insurance or obtain a written exemption from the commissioner of commerce permitting self-insurance. Even if your PC employs only one worker, you must have workers’ compensation insurance.
Minnesota doesn’t require businesses to have general business insurance or professional malpractice insurance, but you may want to consider both to protect your business.
Open a business bank account
Since PCs are separate legal entities, they need their own bank account. A business bank account can provide additional limited personal liability protection, allows you to organize your business records easier, and helps you establish business credit.
To create a business bank account, have your EIN handy, as well as your formation documents, ownership agreements, and any required business licenses.
Ready to form your Minnesota PC?
We hope you’re excited and confident about creating your Minnesota PC. Once you’ve formed your PC, we offer a variety of services that are geared toward your business’s success.
Minnesota Professional Corporation FAQ
What are the filing fees for a Minnesota PC?
Minnesota’s filing fees are subject to change, so it’s best to consult the fee schedule that the Secretary of State provides.
Do I need a lawyer to form a Minnesota Professional Corporation?
No, you can form a Minnesota Professional Corporation without a lawyer, although one may offer helpful advice.
Does Minnesota have other professional entity types?
Yes, Minnesota allows licensed professionals to create professional LLCs and LLPs in addition to PCs.
Can professionals from different fields form a Minnesota PC together?
Minnesota permits combining professional services under one PC if the following requirements are met:
- The PC specifies each type of professional service it provides,
- Each PC owner is licensed in at least one of the services, and
- The applicable licensing statutes and rules specifically authorize the services to be practiced together.
The incorporator of a PC offering multiple professional services must pay careful attention when completing the Articles of Incorporation and include all the required information.
Will I be taxed as an S corporation or a C corporation in Minnesota?
The PC’s board of directors can choose the tax status of your Minnesota PC in most circumstances.