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When you decide to start a business, the next decision you should make is what type of legal structure is best for your business. Traditionally, the law only recognized three legal entities: sole proprietorship, partnership, or corporation. Today, we have hybrid options that combine many of the benefits of those traditional options. One of those is a limited liability company, commonly referred to as an LLC. An LLC offers many of the benefits found in a corporation without the difficulty and complexity involved in forming and operating a corporation.
A limited liability company is a distinct legal entity owned by “members,” although it shares some characteristics with both partnerships and corporations. One of the primary advantages of registering an LLC is that, as the name implies, an LLC offers limited personal liability to the members for debts and liabilities of the company.
Specific benefits of forming your LLC in North Dakota include:
In this guide we’ll cover all steps necessary to start your LLC, as follows:
Let’s explore each in detail:
After choosing a limited liability for your company structure, you must decide on an official name for your business. The name of your North Dakota LLC must include the phrase “limited liability company” or the abbreviation “LLC” or “L.L.C.”
The name of your North Dakota LLC cannot contain the following words/phrases or their abbreviations: corporation, incorporated, limited partnership, limited liability partnership, or limited liability limited partnership. Furthermore, the words “limited” or “company” cannot be used in your business name without association with the words “limited liability company” or one of the acceptable abbreviations (LLC or L.L.C.).
If you plan to form a professional LLC, defined as a limited liability company made up exclusively of licensed professionals, the name must contain the words “professional limited liability company” or “limited liability company,” or the abbreviations “P.L.C.,” “PLC,” “P.L.L.C.,” “PLLC,” “L.L.C.,” or “LLC.”
In addition, your North Dakota business name must not be the same, or deceptively similar to, the name of the following entities already registered to do business in North Dakota:
The last step before officially naming your business will be to make sure another business is not already using the name you have chosen. You can conduct a name search using the North Dakota Secretary of State database, which includes all active records and those records inactivated within the past twelve months. To be certain that your name does not conflict with an existing name, try several variations of the name when conducting your search. For example, if your chosen name is “Best North Dakota Widgets, LLC” you might also search for “North Dakota Best Widgets, LLC” and “Best Widgets North Dakota, LLC.”
If you are not yet ready to file your Limited Liability Company documents with the Secretary of State (SOS), but wish to make sure your chosen name remains available, you can file a Reserved Name Application form with the SOS. Doing so will reserve the name for one year. The form can be filed online using the SOS “First Stop” website.
If you plan to use a name different from the official name registered with the State of North Dakota for your day-to-day operations, you will need to register a “Trade Name” with the Secretary of State. A trade name (often referred to as a “Doing Business As” (DBA) in other states) is a name assumed to identify the business or activities of an individual or organization and which does not include any of the following in the name:
Registering a trade name provides you with the exclusive right to use that name in the State of North Dakota and establishes a public record from which the name of the owner of the business can be identified. A trade name can also be registered using the First Stop website.
Keep in mind that registering your business name and/or trade name with the North Dakota Secretary of State does not completely eliminate the possibility of a name conflict or trademark infringement with a company registered outside the State of North Dakota.
To further protect your newly formed business, you may wish to register a trademark or service mark with the North Dakota SOS. A trademark or service mark is a word, symbol, device, or any combination thereof adopted and used by a person or business to distinguish goods or services made or sold from those made or sold by another.
You can register a trade/service mark online through First Stop or by contacting the Secretary of State’s Business Division in person at 600 E Boulevard Ave Dept 108, Bismarck ND 58505-0500, by telephone at (701) 328-4284 or (800) 352-0867, extension 328-4284, or via email at [email protected].
Your trade or service mark must not consist of or comprise a mark that resembles a mark already registered with the State of North Dakota. When submitting your application, you will need to include a sample of the proposed trade or service mark. If the application is approved, you will receive a “Certificate of Registration” from the SOS. A registered trade or service mark is good for ten years and may be renewed prior to expiration.
Keep in mind that registering a trade or service mark in North Dakota does not provide protection against a claim of unauthorized use outside of North Dakota. To register and protect a trademark throughout the United States, you must file a trademark application with the Trademark Section of the United States Patent and Trademark Office.
Used to form an LLC, Articles of Organization are similar to the Articles of Incorporation used to form a corporation. Articles of Organization provides the framework for operating the business by outlining the rights and powers of the members, the duties, liabilities, and obligations between the LLC and the members, and the obligations, liabilities, and duties that the members have to each other.
Several mandatory fees will be required when forming your LLC in North Dakota. Because not every business will file the same forms and documents, the total cost will vary; however, some of the most common fees you can expect to pay when forming a North Dakota LLC include:
The requirements for a North Dakota LLC are governed by Chapter 10-32 of the “Limited Liability Company Act.” One or more members are required to form a North Dakota LLC, and all members must be over the age of 18.
An LLC may be organized to transact any business except banking and insurance (insurer backing claims); however, an insurance agency selling insurance products may be formed as an LLC. Farming is permitted if the LLC complies with the provisions of Chapter 10-06.1 of North Dakota’s Corporate and Limited Liability Company Farming Act.
If you are forming a professional LLC, you must provide certification from the respective licensing board evidencing the licensure of all members. A professional LLC is one created by “licensed professionals” defined as “people who have been legally authorized to provide a professional service to the public that requires a license prior to rendering the service.”
A foreign LLC is one that has filed articles of organization under laws other than the laws of North Dakota. To transact business in North Dakota, a foreign LLC must obtain a certificate of authority from the Secretary of State.
To form an LLC in North Dakota, you must file Articles of Organizations that may include additional information but must include the following:
You can file your North Dakota LLC Articles of Organization online using the First Stop website, by mail addressed to the Secretary of State of North Dakota, Business Services, 600 E Boulevard Avenue Dept 108, Bismarck, ND 58505-0500, or via fax at 701-328-2992.
You must designate a registered agent when forming a North Dakota LLC. A limited liability company cannot designate itself as its registered agent. An LLC must continuously maintain a registered agent to receive all legal documents for the LLC, including service of process if a lawsuit is filed against the company. The registered agent is expected to forward these documents to the LLC. A registered agent may be:
Although you are not required to file an operating agreement with the SOS when registering your North Dakota LLC, creating one is an essential step in the formation and operation of your LLC. Governed by the provisions of the North Dakota Uniform Limited Liability Company Act (ULLCA), an operating agreement provides the framework for how your LLC will be financed, managed, and operated once formed. According to the ULLCA, the operating agreement governs the following:
The operating agreement (“OA”) will specify how the LLC is to be managed. A North Dakota LLC can be member-managed, board-managed, or manager-managed. The default form of management is a member-managed LLC in North Dakota unless the Operating Agreement specifically states that the LLC is to be manager or board-managed.
In a member-managed LLC, management authority is equally shared among all members. In a manager-managed LLC, a separate manager or group of managers (who may or may not also be members) is designated to manage the company. A board-managed LLC is managed by a board of governors chosen by members holding a majority of the voting power of the members.
The OA may go into great detail regarding the management of the LLC or simply provide a general management structure; however, including detailed management terms and provisions in the OA reduces confusion and the likelihood of disputes in the future.
The OA should also include information about ownership shares, initial financial contributions, and future profit allocation. You may also decide to include a buy-sell agreement within your OA that addresses what happens if certain triggering events occur, such as the death, disability, divorce, or bankruptcy of a member.
One of the primary reasons to create an LLC is to “limit” the financial responsibility of members for debts and liabilities of the company. As such, your OA should include provisions that address the protection intended to be bestowed on members to reduce the likelihood that a member could be held personally liable for company debts/liabilities down the road.
You can operate an LLC without an operating agreement; however, most LLCs do choose to create an OA because of the numerous advantages and benefits that come with having one in place.
There is no legal requirement to create an Operating Agreement for your North Dakota LLC, nor are you required to file one with the SOS. If you do create an Operating Agreement, however, the North Dakota Uniform Limited Liability Company Act will govern the agreement.
As an individual taxpayer, your Social Security number is used by the Internal Revenue Service (IRS) to identify you. A business is identified by the IRS using an Employer Identification Number (EIN), also referred to as a Federal Tax Identification Number, for tax and related purposes. Applying for licenses and permits, opening a bank account for the business, and financing loans will also typically require you to have an EIN.
You can apply for an EIN online at the IRS website as long as your principal place of business is located in the United States or one of the U.S. Territories. To apply, you need a valid Taxpayer Identification Number (SSN, ITIN, EIN).
If we assist you in creating your North Dakota Limited Liability Company, we can take care of submitting an EIN application for you.
Your North Dakota LLC will be subject to federal, state, and local tax laws. To ensure that you comply with those laws and pay all applicable taxes, you need to be familiar with your company’s registration and filing requirements as well as the company’s tax obligations.
Among the many reasons for forming an LLC is to avoid the “double-taxation” imposed on a corporation. While a corporation is taxed both at the corporate level and again at the shareholder level, an LLC enjoys “pass-through” taxation (unless the LLC elects to be treated as a corporation for tax purposes). As the name implies, pass-through taxation means that the profits of the business “pass-through” the business to the members and are only taxed as personal income on member tax returns.
Federal law treats a multi-member LLC as a partnership and a single-member LLC as a disregarded entity for income tax purposes. Either way, this means that members claim the profit from the business as income on their personal federal income tax returns each year. The amount each member claims as income will depend on the overall profit and the allocation of profit among the members as determined in the operating agreement. If you want your LLC to be treated as a corporation for federal income tax purposes, you must complete and submit IRS Form 8832.
Income from your LLC must also be reported on the personal state income tax returns of all members and filed with the North Dakota Office of State Tax Commissioner each year.
If your business will involve retail sales, you are also required to collect state, and in some cases city or county, sales tax. Your business may need to pay a use tax if sales tax was not collected by the seller on tangible personal property brought or shipped into North Dakota for storage, use, or consumption.
You can obtain a Sales and Use Tax permit online through the North Dakota Taxpayer Access Point (ND TAP) website. Once registered, you can also submit your sales and/or use tax returns as well as remit payments due through the website.
As a member of an LLC, the income generated by the LLC and distributed to you is taxable as personal income. Because you are an owner, not an employee, you will likely need to report that income as self-employed on your tax return. Unlike an employee, taxes were not withheld from your income during the year, meaning you will owe any and all self-employment tax due on that income when you file your yearly return.
The good news is that paying self-employment taxes means you are still paying into Social Security and Medicare. You are just making those payments yourself instead of having them withheld by an employer. For 2022, net earnings over $400 are subject to self-employment taxes with the first $147,000 of your combined wages, tips, and net earnings subject to Social Security taxes. Self-employment taxes are calculated and reported using IRS Schedule SE and paid at a tax rate of 15.3 percent (12.4 percent designated for Social Security and 2.9 percent for Medicare).
Your North Dakota LLC may also be required to deduct and remit payroll taxes if either of the following applies:
North Dakota relies on the federal Form W-4 (Employee’s Withholding Allowance Certificate) submitted by employees to calculate the amount of payroll tax to withhold. You will need to register for an Income Tax Withholding account with the Office of State Tax Commissioner online through the ND TAP website. You may also wish to read through the IRS “Employer’s Tax Guide” for additional information and guidance regarding your tax obligations as an employer.
As a North Dakota employer, your LLC may also be required to provide unemployment insurance to your employees. Within 20 days of hiring an employee, you must file a “Report to Determine Liability” with Job Service North Dakota, the agency responsible for administering the state unemployment insurance (SUTA, SUI, UI) program. For more information on unemployment insurance in North Dakota, read through the “Employer Guide to Unemployment Insurance.”
Businesses engaged in specific types of activities or sales may be required to pay additional taxes in North Dakota. For example, if your limited liability company will produce oil or gas, operates a hotel or restaurant, or sells cigarettes or alcohol, you may be subject to additional taxation. To determine if your business will owe any of these additional taxes, visit the “Starting a New Business” page on the NDTax website.
Workers’ compensation is not a tax; however, it is another state-required expense for employers in North Dakota. North Dakota law requires all employers to insure all employees unless you qualify for one of the limited exceptions. Workforce Safety & Insurance (WSI) is the sole provider and administrator of workers’ compensation in North Dakota, meaning private insurers are not allowed to underwrite workers’ compensation insurance in the state. You can complete an application for workers’ compensation coverage on the WSI website.
Congrats! You’ve finally formed your LLC. Before you can start operating your business, it’s highly recommended to take notice of these additional steps that will help you in the long run.
To further separate yourself from your new business, you should open a separate bank account for your LLC. Along with making it easy to keep track of business-related financial transactions, keeping them distinct from personal transactions of the members increases the liability protection intended to be a benefit of forming a limited liability company. You will also likely want a separate bank account to make tax payments, apply for financing, and to add legitimacy to the appearance of your business when dealing with other businesses or consumers.
On or before November 15 of each year, your LLC must file an annual report with the North Dakota Secretary of State’s office. You are required to file the report using the form prescribed by the SOS and found online on the First Stop website. It may be submitted online or printed and mailed to the SOS, and there is a $50 filing fee. Filing after the November 15th deadline will incur an additional $50 fee. Failure to file your Annual Report will result in:
The goal of any business is to maximize profits by minimizing expenses. Consulting with a certified public accountant, financial advisor, and/or a tax attorney after forming your North Dakota limited liability company—and before you start officially operating your business—can go a long way toward achieving this goal.
Your business may be eligible for tax credits or incentives provided by the state and/or federal government that could be of significant benefit to your business. You also want to be certain that you understand the various tax obligations applicable to your LLC.
North Dakota does not require a business to apply for a general business license or permit; however, specific types of businesses do require a license to operate. For example, contractors, gaming establishments, and retail sales of alcohol all require a license. Check the “New Business Registration” page of the North Dakota State Government website for additional information on state-issued licenses. Individual counties, cities, or towns may also require you to apply for a license or permit to operate within their jurisdictional limits. Be sure to check with local government officials before commencing operations.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.