How to Start an LLC in North Dakota? (Step by Step Guide)
If you are looking to start a limited liability company in North Dakota, it is essential to know the procedure involved and the legal documents you need to file.
Since I’ve helped countless clients with business formation over the last decade, I’ll provide you with all pertinent information on how you could start a North Dakota LLC.
I collaborated with limited liability company experts in the state to gain in-depth knowledge of the North Dakota business industry.
As an added option, you can get help from a North Dakota professional LLC service to form an LLC on your behalf.
Quick Summary
- To start an LLC in North Dakota, you should choose an available name, hire a registered agent, file the articles of organization, draft an operating agreement and obtain an EIN.
- After you form the company, open a business bank account, obtain licenses and permits, and file annual reports.
- North Dakota small businesses comprise 98.7% of all businesses in the state, highlighting the significant role of small enterprises in the local economy.
- In my opinion, the flexibility in profit distribution and limited liability protection make forming an LLC in North Dakota an attractive option for entrepreneurs.
How To Form an LLC in North Dakota
In the context of North Dakota's economic landscape, it's noteworthy that, as stated in the U.S. Small Business Economic Profile, 73,822 small businesses make up 98.7 percent of all businesses in the state [1].
This statistic not only highlights the critical role of small businesses in the local economy but also underscores the opportunities available for new LLCs.
To form an LLC in North Dakota, you should follow the business protocols and produce the necessary legal documentation.
1. Choose the Type of Your LLC (Mandatory)
When setting up an LLC, it's crucial to select the type of LLC structure that aligns with your business objectives. The primary options are Single-Member LLC and Multi-Member LLC.
Single-Member LLC
This structure is well-suited for individual entrepreneurs. It provides ease in management and tax preparation, as the business is owned and operated by one person. However, it might be less appealing to lenders and investors due to its sole proprietorship nature.
Multi-Member LLC
Ideal for businesses with multiple owners, this structure allows for shared decision-making and resources. It can foster a collaborative environment but requires more complex management strategies. It's essential to have a well-defined operating agreement to manage the relationships and responsibilities among members.
Based on my experience, your choice should reflect your business needs, management preferences, and the number of people involved in your business. Each structure has its own set of pros and cons, which should be carefully considered.
2. Choose a Name for Your North Dakota LLC (Mandatory)
Drawing from my experience in guiding numerous clients through the process of starting their LLCs, I strongly emphasize the importance of carefully selecting a business name. This step is not just a formality but a crucial aspect of your brand identity and can significantly impact your business's public perception and legal standing.
Additionally, it's important to recognize the workforce that powers these small businesses.
According to U.S. Statistics of Business, 198,871 small business employees constitute 56% of North Dakota's employees, showcasing the significant impact of small businesses on employment rates [2].
The North Dakota Secretary of State's office has specific naming guidelines, which include the following:
- You'll want to make sure the name you choose is unique and not already taken by another company in North Dakota.
- The business name should include the terms “Limited Liability Company,” “LLC” or “L.L.C”.
- The business name cannot include or end in “Corporation,” “Incorporation” or its abbreviations.
- It must not contain words used to name a government agency or private institutions.
You can search for available company names by looking up LLCs in North Dakota on the Secretary of State's website.
If you find a name that is not already taken, you can reserve it for up to 60 days by filing a Name Availability Request Form.
Ensure that the name you pick complies with the North Dakota naming requirements.
3. Select a Registered Agent (Mandatory)
In order to form an LLC in North Dakota, you must appoint a registered agent. An LLC registered agent is an individual or business entity that will act as the official representative of your business in legal matters.
North Dakota registered agents must have a physical address in North Dakota and be available during normal business hours. They can receive vital legal documents on behalf of your company at this address.
The easiest way to find an agent is to use registered agent services, but you can also look for them yourself.
The other option is to hire a noncommercial registered agent who is not registered with the Secretary of State.
There is also an option for you to be your own registered agent, but it is not recommended, as you might travel for business and fail to receive service of process.
4. File Articles of Organization (Mandatory)
The next step is to file articles of organization with the Secretary of State's office.
The articles of organization are a document that officially creates your LLC and must include the following information:
- The name and address of your company
- The registered agent's name and address
- A statement declaring the purpose of your LLC
- The names and addresses of the LLC's members or managers
- Signatures of organizers
- Date the LLC begins-upon filing article or a later date
- The LLC's term of existence-perpetual or for a period of years
The articles can be filed online, by mail, or by fax with the North Dakota Secretary of State's FirstStop website. A filing fee of $135 is required.
If you are submitting North Dakota LLC articles by mail, this is the mailing address:
Secretary of State
Business Registration Unit
600 E. Boulevard Avenue Dept 108
Bismarck ND 58505-0500
Steps to Take After Forming an LLC in North Dakota
After you form your North Dakota LLC, it is advisable that you follow these steps, including drafting an operating agreement, opening a business bank account, and filing annual reports.
5. Create an LLC Operating Agreement (Optional, but Recommended)
An operating agreement is a document that outlines the rules and regulations for running your LLC. It is not required by North Dakota law, but it is highly recommended that you have one. An operating agreement can help prevent disagreements among members.
It clarifies member responsibilities and establishes how profits and losses will be shared. An LLC operating agreement will help the state and the LLC members understand the company's business structure.
Another reason to get an operating agreement is that it helps separate your personal and company finances. That way, you will have more protection from legal liability.
You can find a template for an operating agreement on the Secretary of State's website.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
An Employer Identification Number (EIN), also called a Federal Employer Identification Number or FEIN, is a nine-digit number used to identify businesses for tax purposes.
You will need to obtain an EIN from the Internal Revenue Service before opening a company bank account or filing your North Dakota LLC taxes.
You can apply for an EIN online through the IRS website. There is no filing fee, and you can apply immediately.
The EIN will be sent to the business by mail within a few weeks of applying online.
An Employer Identification Number ( also known as Federal Tax Identification Number) is required when:
- Opening a bank account
- Filing federal and state taxes
- Hiring employees
- Applying for a business credit card
7. Open an LLC Bank Account (Optional, but Recommended)
In my experience, I've seen how vital it is to maintain separate accounts for business and personal banking. Once you've obtained an EIN and are ready to open an LLC bank account, this separation becomes crucial.
Not only does it simplify your finances during tax season, but it also helps maintain clear boundaries between personal and business transactions.
I've witnessed cases where clients who commingled funds faced challenging tax complexities and legal issues.
In court, joint accounts can be detrimental, as they can be used to challenge the distinct legal status of you and your LLC. This separation is a key practice for organizational and legal clarity.
8. File your North Dakota LLC Annual Report (Mandatory)
All LLCs in North Dakota must file an annual report with the Secretary of State.
It is a simple form that includes your company's name, registered agent information, and address. The deadline for filing your first annual report after you have formed your LLC is November 15th. There is a $50 filing fee.
You can file your report online, by mail, or by fax with the North Dakota Secretary of State's FirstStop website.
You may be subject to fines and other penalties if you do not file your annual reports on time. It is vital to stay up-to-date on your filings to avoid any penalties.
9. Obtain Business Licenses and Permits
In my role as a business consultant, I've assisted numerous clients in navigating the complexities of obtaining the necessary licenses and permits in North Dakota. The specific requirements vary based on your business type and location [3].
Here are some key examples:
- General Business License: Some cities in North Dakota, such as Fargo, require a general business license for all businesses operating within their jurisdictions.
- Professional Licenses: Certain professions are regulated by state boards. For instance, accountants, architects, and engineers must obtain professional licenses from the respective state boards in North Dakota.
- Health and Safety Permits: If your business involves food service, you'll need health permits from the North Dakota Department of Health. Similarly, businesses dealing with hazardous materials may require environmental permits.
- Building and Zoning Permits: If you plan to construct a new building or modify an existing one, local building and zoning permits are necessary. These are usually obtained from the city or county planning departments.
- Sales Tax Permit: If your business will sell goods or provide taxable services in North Dakota, you must register for a sales tax permit through the North Dakota Tax Commissioner's office.
- Specialized Permits: For businesses like liquor stores or firearms dealers, specialized state permits are required.
It's important to research thoroughly to ensure compliance with all relevant federal, state, and local regulations. Contacting local government offices or consulting with a legal expert can provide clarity on the specific requirements for your LLC in North Dakota.
10. Choosing Your Tax Structure
Selecting the right tax structure for your North Dakota LLC is crucial. The main options are taxation as a single-member LLC, multi-member LLC, S-Corp, or C-Corp.
- Single-Member/Multi-Member LLC: These are default classifications. The profits and losses pass through to the members' personal tax returns, subject to self-employment taxes. It simplifies filing but may lead to higher taxes for profitable businesses.
- S-Corp: Electing S-Corp status can be beneficial for saving on self-employment taxes. Profits and some losses are passed through to personal tax returns, but only the salary paid to owners is subject to self-employment tax. However, it requires stricter operational procedures and payroll setup.
- C-Corp: This option is less common for small LLCs due to double taxation – the corporation and the owners are taxed separately. It's suitable for businesses planning to reinvest profits rather than distribute them.
Many small business owners prefer the S-Corp structure for tax savings, provided their income level justifies the additional administrative overhead.
Practical Details:
- The IRS allows LLCs to change their tax classification once every five years.
- To elect S-Corp status, Form 2553 must be filed within 75 days of the beginning of the tax year you want it to take effect or at any time during the prior tax year.
- For C-Corp elections, Form 8832 is used, and similar deadlines apply.
- Always stay current with estimated quarterly taxes and set up tax withholding accounts if employing staff.
- If collecting sales tax, opening a sales tax account with the North Dakota Office of State Tax Commissioner is mandatory.
Related Articles:
- How to Cancel an LLC in North Dakota
- LLC Formation Services in North Dakota
- Cost of an LLC in North Dakota
- How Long Does It Take To Start an LLC in North Dakota
Benefits and Drawbacks of an LLC in North Dakota
Benefits:
- Favorable Tax Environment: North Dakota boasts competitive tax rates, which is a significant advantage. The state's corporate income tax rates are relatively low, which is beneficial for LLCs that choose C-Corp taxation.
- Ease of Formation and Flexibility: Forming an LLC in North Dakota is a straightforward process, and the state offers a high degree of flexibility in terms of management structure and operational procedures. This flexibility allows business owners to tailor their LLC to their specific needs.
- Personal Asset Protection: Like in other states, LLCs in North Dakota provide liability protection, meaning the personal assets of the members are protected from business debts and lawsuits.
- Annual Reporting Simplicity: North Dakota's requirement for an annual report is straightforward and can be easily filed online, making compliance less burdensome for business owners.
"Registering a new business as an LLC in North Dakota offers numerous advantages, including eligibility for various sales tax exemptions on products and services, flexibility in profit distribution which is not confined to the 50-50 rule typical of partnerships, and the benefit of limited liability protection akin to that of a corporation."
-Jon Morgan, Co-Editor and Co-Founder of Venture Smarter
Drawbacks:
- Limited Market Size: North Dakota’s relatively small population and market size can be a constraint for businesses seeking extensive growth or a large customer base.
- Annual Report Filing Fee: Although the process is simple, the mandatory annual filing comes with a fee, which is an additional expense for the business.
- Economic Dependency: The state's economy is heavily reliant on certain industries, like agriculture and energy. Businesses not related to these sectors might not find as many state-specific advantages or incentives.
- Weather-Related Challenges: North Dakota's harsh winters can impact certain businesses, especially those reliant on physical locations or customer foot traffic.
DIY vs. Professional LLC Formation
DIY LLC Formation:
Pros:
- Cost-Effective: Doing it yourself saves money on professional service fees.
- Control and Learning: You have complete control over the formation process and can learn a lot about the legal aspects of your business.
- Speed: In some cases, you might complete the process quicker if you're solely focused on your specific needs.
Cons:
- Legal Complexities: Without legal expertise, you might miss critical legal requirements or make errors in filing.
- Time-Consuming: The process requires significant time investment to understand and complete all steps correctly.
- Risk of Non-Compliance: Missing important legal or state-specific requirements can lead to future legal issues or penalties.
Professional LLC Formation:
Pros:
- Expertise and Accuracy: Professionals are knowledgeable about legal requirements, ensuring accuracy and compliance.
- Time Savings: Delegating the process saves you time, allowing you to focus on other aspects of your business.
- Peace of Mind: Knowing experts are handling the process can provide peace of mind, especially regarding legal compliance.
Cons:
- Cost: Professional services can be expensive, especially for a start-up or small business on a tight budget.
- Less Personal Control: You rely on others to handle your legal documents, which might be discomforting for some.
- Generic Solutions: Some services might offer a one-size-fits-all approach, lacking customization for specific business needs.
When choosing between DIY and professional LLC formation, consider your budget, time constraints, legal knowledge, and the specific needs of your business.
While DIY can be more cost-effective and personalized, professional services offer expertise, time savings, and peace of mind, especially regarding legal compliance.
FAQs
What Is the Difference Between a Domestic LLC and a Foreign LLC in North Dakota?
The difference between a domestic LLC and a foreign LLC in North Dakota is that a domestic LLC conducts business in the state where it was formed, whereas a foreign LLC originated from another state and expands its operations in another.
Can a Non-U.S. Resident Form an LLC in North Dakota?
Yes, non-U.S. Residents can form an LLC in North Dakota without citizenship or residency restrictions. However, they should obtain an Individual Taxpayer Identification Number (ITIN) for tax purposes and consult with a professional for compliance with U.S. regulations.
How Do I Get an LLC Certificate of Good Standing in North Dakota?
You can get an LLC Certificate of Good Standing in North Dakota if you file annual reports and pay yearly franchise taxes. The document can be obtained from the Secretary of State.
References:
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-ND.pdf
- https://www.census.gov/programs-surveys/susb.html
- https://www.nd.gov/businessreg/license/
