The number of new corporation filings – Domestic Corporation is the official designation – with the Minnesota Secretary of State’s office are down 13 percent or 1,030 through the first 11 months of the year.
With all the dire economic news, it would be tempting to chalk up the sudden decline to the broader financial malaise.
What’s really happening in Minnesota is new companies are choosing the Limited Liability Company organization format rather than Incorporation, according to the Secretary of State’s office. From January through November 2007, there were 8,750 corporation filings with the state. For the same period in 2008, the number was 7,720.
In the later part of 2008, the SOS office is seeing a surge in LLC filings and with one month to go, things are getting even busier. 2008 is the first year that LLC filings have exceed Assumed Name filings.
And the Minnesota Department of Labor and Industry has some new rules for independent contractors in the building and construction trades that are causing more of them to file for LLCs. As of Jan. 1, 2009, they have to file for an Independent Contractor Exemption Certificate unless they have already filed with the state as a corporation, LLC or partnership.
The exemption costs $150 to apply for, and $150 a year to renew. The LLC costs just a little more initially, but has lower renewal fees and tax and liability advantages. Though this is causing a surge now, it will provide an ongoing reason for more LLC filings in the future.
If you’re starting a business or even if you’ve been operating for a while, business organization is one of those questions you should talk to both your attorney and accountant about.
A trend toward LLCs suggests that there is a reason for its ascendancy.
LLCs are definitely on the up and up – before 1986, only two states allowed LLCs, now every state recognizes this form. It allows the tax benefits of an S Corporation without having to deal with all the restrictions associated with S Corporations. With federal and state governments trying to tighten regulations regarding LLCs, it will be interesting to see what the future holds.
Thanks for the information – I appreciate the question/answer format! You mention that an attorney can help with determining potential business names and work with an accountant to determine whether the business should be a corporation or LLC. While I agree that consulting an expert is a smart idea, is it a requirement when forming an LLC or incorporating?