Professional Firms and Corporations in Minnesota

By: Skjold-Barthel

This article is to serve as a guide regarding ongoing obligations to keep Minnesota professional firms such as dentists, chiropractors and medical businesses properly registered with the State of Minnesota. While all Minnesota corporations and limited liability companies formed with the State of Minnesota have annual registration requirements, any legal entity formed under the Minnesota Professional Firms Act (“Act”) are required to take additional steps in order to institute and maintain its registration with the State of Minnesota and resulting authorization to do business. Below you will find excerpts from Minnesota Statutes showing Minnesota professional firms’ responsibilities in order to insure proper authorization.

Minnesota Statues §319B.11, subd. 3, states:

Subd. 3. Filing of organizational document and report information. (a) No professional firm may furnish professional services within Minnesota until the firm files with each board having jurisdiction over the pertinent professional services:

• a copy of the firm's organizational document, certificate of authority, or statement of foreign qualification;
• a report containing the same information as required by subdivision 4; and
• except as stated in paragraph (b), a fee of $100.

Further, Minnesota Statutes §319B.11, subd. 4 states:

Subd. 4. Annual report. (a) Every professional firm must file annually on or before January 1 with the board or boards having jurisdiction over the pertinent professional services a report containing the following:

• the name and address of the professional firm;
• the contents of any amendment made to the firm's organizational document, certificate of authority, or statement of foreign qualification since the filing of the most recent report under subdivision 3 or this subdivision;
• a designation of the position or positions within the firm that have governance authority;
• the name and address of each owner of an ownership interest and each person occupying a position with governance authority;
• a statement as to whether all employees, agents, and independent contractors furnishing professional services within Minnesota on behalf of the professional firm are professionals authorized to furnish at least one category of the pertinent professional services;
• except in the case of a professional firm that is organized under chapter 317A or the nonprofit corporation statute of another state, a statement as to whether all owners and persons occupying a position with governance authority are professionals authorized to furnish at least one category of the pertinent professional services;
• in the case of a professional firm that is organized under chapter 317A or the nonprofit corporation statute of another state, a statement as to whether at least one person occupying a position with governance authority is a professional authorized to furnish at least one category of the pertinent professional services; and
• any additional information as the board may by rule prescribe as appropriate to assist in determining whether a professional firm is complying with sections 319B.01 to 319B.12.
• The statement required by clauses (5), (6), and (7) must be made and signed under oath by a professional who is an owner or employee of the professional firm, licensed in at least one category of the pertinent professional services and duly authorized to make the statement on behalf of the professional firm.
• (b) For filing each annual report under paragraph (a), each firm must pay a fee of $25 to each board with which the report is filed.

As such, each Minnesota professional firm should file its Articles of Incorporation or Articles of Organization with the appropriate state licensing board upon filing the Articles with the Minnesota Secretary of State. In addition, each Minnesota professional firm should prepare an annual report listing the required information under Minnesota Statutes. Often, owners of a professional firm find it easier to hire competent legal counsel to complete the annual report in order to insure completeness and accuracy on each report.

The Minnesota Professional Firms Act closely regulates ownership of any professional firm. For example, no person but licensed professionals or other legal entities owned by licensed professionals is permitted to have an ownership interest in a Minnesota professional firm. It is unlawful for a Minnesota professional firm to sell, grant, give, allocate, issue or otherwise transfer an ownership interest to any person other than a licensed professional or entity owned by licensed professionals. Under certain circumstances, employees stock ownership plans may be substituted as an owner of a Minnesota professional firm. Any improper issuance or transfer of an ownership interest in a Minnesota professional firm is void pursuant to the Act. Thus, it is imperative that the integrity of the ownership of the Minnesota professional firm be established and maintained.

Minnesota Statutes §319B.11, subd. 5, states:

Subd. 5. Report of owner's death or disqualification.

• Except as stated in paragraph (b), within 30 days after the death or disqualification of an owner, the professional firm must report the death or disqualification to each board having jurisdiction over any of the pertinent professional services.
• A professional firm need not report a disqualification to a board which took the action that caused the disqualification.

Following the death or disqualification of an owner of a professional firm, certain activities must be accomplished. Generally, the Minnesota Professional Firms Act provides for a ninety (90) day period in which the deceased or disqualified owner’s interest in the professional firm must be sold or otherwise transferred to other persons who are licensed professionals and qualify to own an ownership interest in the professional firm.

In instances where there is more than one owner of a Minnesota professional firm, certain steps may be taken in order to provide for a buyout procedure for the deceased or disqualified owner’s ownership interest in the professional firm. Minnesota professional firm shareholders or members are well-advised to consider pre-arranged buyout procedures in order to avoid litigation with deceased owner’s estates and to provide liquidity for the buyout of the ownership interest in the firm.

For Minnesota professional firms where there is a sole owner, the estate of the deceased or disqualified owner must identify a licensed professional or a qualifying professional firm to purchase the ownership interest of the professional firm. If the estate is unable to identify a purchaser and close the transaction within the ninety (90) day period, the professional firm’s election to operate as a professional firm under the Act is automatically rescinded and the professional firm loses its status as a Minnesota professional firm. Thus, the authority created by such an election under the Minnesota Professional Firms Act is revoked.

Upon rescission and termination of the Minnesota professional firm’s ability to conduct business as a professional firm, the assets of the firm become those of its owners, who in certain cases, may be a disqualified professional or the estate of the deceased owner. In such a case, the assets of the firm, such as equipment and inventory may be sold to other persons, subject to any security interests, agreements or any estate plan with or against the deceased owner. Owners of a Minnesota professional firm should formulate an estate plan to deal with the ownership interest following the owner’s death in order capture the most possible value from the business.

Finally, the Minnesota Professional Firms Act limits certain persons from participating in the governance of the professional firm. The Minnesota Professional Firms Act requires that a professional firm’s governance authority must rest with one or more professionals, each of whom is licensed to furnish the type of professional service being provided under the professional firm. As such, in the case of a Minnesota professional corporation, the directors of the corporation must be licensed professionals. Similarly, for Minnesota professional limited liability companies, all governors of the professional firm must be licensed professionals. The directors or governors, as the case may be, may delegate certain administrative and operational matters to others. However, no decision entailing the exercise of professional judgment may be delegated or assigned to anyone who is not a licensed professional.

As a matter of practice, the president in the case of a Minnesota professional corporation or a chief manager in the case of a Minnesota professional limited liability company should be a licensed professional. While there may be other persons authorized to perform certain duties on behalf of the firm, such as a secretary, treasurer, or chief financial manager, it is important that the ultimate authority on the direction of the professional firm and the day-to-day operations involving professional judgment be exercised by a licensed professional.