From Employee to Owner: What Nobody Tells You About Starting Your Own Business

In June 2014, the company I worked for sold, the site closed, and I laid off my entire team — including myself. My wife and I had welcomed our second child that Monday. By Friday I was out of a job.

That summer I studied for my insurance license with two kids under three at home, and in June I opened an agency out of a 10x10 office in Wayzata with a 4G hotspot for internet. A few months in, a good offer came to go back to mortgage. I turned it down. That was the actual hard part — not the paperwork.

But the paperwork is where most people get stuck, because nobody teaches it. You spent ten years becoming excellent at a trade or a discipline, and none of that training covered whether you should be an LLC or an S-corp, or when you’re legally required to register with the state for unemployment insurance. This is the operational side of going out on your own, in roughly the order you’ll encounter it.

Phase 0: Before You Give Notice

This phase costs nothing and is the one people skip.

Read your employment agreement. Specifically look for non-compete clauses, non-solicitation clauses (often more enforceable than non-competes and more likely to matter), confidentiality and trade secret provisions, and any assignment-of-inventions language. Minnesota banned most new non-compete agreements entered into on or after July 1, 2023 — but agreements signed before that date may still be enforceable, and non-solicitation clauses were not covered by that ban. If there is any ambiguity, spend the money on an hour with an employment attorney before you resign, not after.

Know your runway. Count the months you can cover personal expenses with no business income. Then plan for it to take longer than that. Revenue in a service business almost always arrives later than projected, because the gap between doing the work and getting paid for it is real.

Line up health insurance. This is the single most underestimated line item for someone leaving a corporate job. Employer coverage disappears, and what replaces it is either COBRA (expensive but continuous) or an individual marketplace plan. Losing employer coverage is a qualifying life event that opens a special enrollment period, so you have a window — but you need to act inside it.

Phase 1: Choose and Register Your Entity

Your entity is the legal structure the business operates under. The main options for a new small business:

Sole proprietorship. The default if you do nothing. No filing required, no liability separation. Your personal assets are exposed to business liabilities. Fine for a very low-risk side venture; rarely the right answer for a real operating business.

LLC (Limited Liability Company). The most common structure for small businesses in Minnesota. Creates legal separation between your personal assets and business liabilities, provided you maintain that separation in practice. Flexible on how it’s taxed.

Corporation. More formal governance requirements, more administrative overhead. Usually chosen when there are outside investors or specific structural needs.

In Minnesota, you form an LLC by filing Articles of Organization with the Secretary of State. The fee is $155 online or $135 by mail. Online filings are processed faster. You’ll need a business name that’s distinguishable from existing registered entities — search the state’s business database before you get attached to a name, and before you buy the domain or print anything.

Minnesota also requires a registered office with a physical street address in the state (a P.O. Box does not satisfy this), and an annual renewal filed by December 31 each year. The renewal is free, but the penalty for missing it is not a late fee — the state administratively dissolves your LLC, which strips its legal standing until you file the overdue renewal and pay to reinstate. Put it on a recurring calendar reminder the day you form.

Phase 2: Get Your EIN

A federal Employer Identification Number (EIN, sometimes called a FEIN) is your business’s tax ID. You need one to open a business bank account, hire employees, and file business tax returns.

It is free, you get it directly from the IRS at irs.gov, and the online application issues your number immediately. Services that charge $75 to “obtain your EIN” are filling out the same free form you could complete in about ten minutes.

Apply after your entity is formed, so the legal name on the EIN matches your registered entity exactly. Getting these out of order creates mismatches that surface later at banks and with payroll providers.

Phase 3: Decide How You’ll Be Taxed

This is where the most confusion lives, because people treat “LLC” and “S-corp” as competing options. They’re not the same category of thing.

Your entity is a legal structure. Your tax treatment is a separate election. An LLC can be taxed as a sole proprietorship (default for single-member), a partnership (default for multi-member), an S-corporation, or a C-corporation.

The practical question most new owners face: should my LLC elect S-corp taxation?

Default LLC taxation means all net profit flows to your personal return and is subject to self-employment tax — 15.3% on 92.35% of net profit — on top of income tax. With an S-corp election, you pay yourself a reasonable W-2 salary subject to payroll taxes, and remaining profit distributions are not subject to self-employment tax.

The catch is that the election adds real cost and complexity: you must run actual payroll, file quarterly payroll returns, file a separate business tax return, and pay yourself a salary the IRS would consider reasonable for your role. Below a certain profit level, those costs exceed the tax savings.

There is no universal threshold, despite what you’ll read. This is a conversation to have with a CPA using your actual projected numbers. Find one before you need one — a good accountant will save you more than they cost, and the relationship is worth establishing in your first year rather than in the middle of your first April.

Phase 4: State Registrations

Which of these apply depends on what you do and whether you have employees.

Minnesota Tax ID. Register with the Minnesota Department of Revenue if you’ll collect sales tax, withhold income tax from employee wages, or owe certain other state taxes. Whether your services are taxable in Minnesota is genuinely not obvious in many industries — verify rather than assume.

Unemployment Insurance (uimn.org). Under Minnesota UI law, any individual or organization paying covered wages must register. Two things new owners regularly get wrong here:

• Timing: Register after covered wages have actually been paid — not when you form the business. Registration must happen before the first quarterly wage detail report is due.
• Who counts as an employee: A sole proprietor paying only themselves doesn’t register. But LLC members and S-corporation officers who perform services for the business are considered employees for UI purposes — including in a single-member LLC. Electing to be taxed as a sole proprietorship does not change this. This catches people constantly.

Minnesota Paid Leave. This one is new and a lot of guidance hasn’t caught up. Minnesota’s Paid Leave program took effect January 1, 2026, and covers nearly all employers with at least one Minnesota employee. For 2026 and 2027 the premium is 0.88% of taxable wages, reduced to 0.66% for qualifying small employers (30 or fewer employees with an average wage below 150% of the statewide average). Employers may deduct up to 0.44% from employee wages and must cover at least half the premium themselves. Registration and quarterly wage detail reporting run through the same uimn.org system as unemployment insurance. There are also required employee notices and a workplace poster.

Industry licensing. Depending on your field, a state license, bond, or registration may be required before you can legally take a single job. This varies enormously — some trades require contractor licensing and a surety bond, some professions require individual licensure, and some fields require none. Confirm this early, because it can be the longest lead-time item on the entire list.

Phase 5: Insurance

This is my field, so I’ll be direct about what actually matters and what’s situational.

General liability. Covers third-party bodily injury and property damage arising from your operations. This is the baseline for nearly every business, and it’s what most client contracts and commercial leases require you to carry. If someone asks you for a certificate of insurance, this is usually what they mean.

Professional liability (errors & omissions). Covers claims arising from professional advice or services — mistakes, oversights, failure to deliver. General liability does not cover this. If you provide expertise rather than a physical product, you need it. In some licensed professions it’s mandatory.

Workers compensation. Required in Minnesota once you have employees. Covers medical costs and lost wages for work-related injuries. The rules around who counts as an employee versus a subcontractor are stricter than most new owners expect, and misclassification is expensive. If you’re using subcontractors, get certificates of insurance from every one of them — uninsured subs can end up on your workers comp audit as your employees.

Commercial auto / hired and non-owned auto. Your personal auto policy generally excludes business use beyond commuting. If vehicles are central to your operation, you need commercial auto. If you or your employees occasionally drive personal or rented vehicles for business, hired and non-owned auto coverage fills that gap at modest cost.

Business personal property and business income. Covers your tools, equipment, inventory, and the income you’d lose if a covered loss shut you down. For a business with meaningful equipment, this is not optional. Note that property you take to job sites often needs specific coverage — a standard policy may only cover property at your listed location.

Cyber liability. Relevant far more broadly than people assume. If you store client data, process payments, or run your business through email, you have exposure. Social engineering fraud — someone impersonating a vendor or client to redirect a payment — is one of the most common losses for small businesses and is generally not covered without specific cyber coverage.

Employment practices liability (EPLI). Covers claims from employees alleging discrimination, harassment, or wrongful termination. Becomes relevant once you have staff.

A business owner’s policy (BOP) bundles general liability with property coverage and often business income, typically at a lower combined cost than buying them separately. For many small businesses it’s the efficient starting point.

Phase 6: Operational Setup

Less glamorous, equally load-bearing.

• Business bank account. Open it as soon as you have your EIN and formation documents. Never run business money through a personal account — commingling funds is one of the fastest ways to undermine the liability protection you formed the entity to get.
• Accounting from day one. Not January of next year. Whatever system you choose, start clean and stay current.
• A written contract. Scope, payment terms, what happens when things change. Have an attorney draft or review your standard agreement once; use it for years.
• Invoicing and collections process. Decide your terms before your first invoice, not after your first late payment.
• Retirement account. A SEP-IRA or Solo 401(k) is straightforward to open and lets you keep building what your employer plan was doing. Easy to defer indefinitely; worth doing early.

What I Actually Wish I’d Known

Two things.

First, the administrative work compounds if you defer it. Everything on this list is easier to do correctly the first time than to fix eighteen months later with a bank, an auditor, or the state asking questions.

Second, build the professional relationships before you need them — a CPA, an attorney, an insurance agent, a banker. Not when there’s a problem. When there’s a problem you’re making decisions under pressure with whoever answers the phone.

I ended up in this business by accident, after a layoff, with no plan beyond not wanting to ride someone else’s rollercoaster again. Twelve years later I get to talk to business owners every day about exactly this. If you’re somewhere in the middle of it, that’s a conversation I’m always glad to have.