An LLC operating agreement sets out how your business runs, who owns what, and each member’s role. In North Dakota it isn’t required by law, but having one keeps your company aligned and prevents default state rules from applying. A well-drafted agreement also helps protect liability status, clarifies decision-making, and reduces the risk of disputes. In this guide, we’ll cover why every LLC should have an operating agreement and how to create one in North Dakota.

What is an LLC operating agreement?

An LLC operating agreement is a formal internal contract among your LLC’s members. Even though you won’t file it publicly in North Dakota, it’s still vital to help you establish aspects of your business like:

• The voting structure
• Ownership percentages
• Manager and member roles
• Procedures for membership changes
• Profit and loss distribution
• Dissolution processes

If you’re starting your North Dakota LLC, creating an operating agreement early can help set clear expectations. In North Dakota, the definition of an operating agreement is quite expansive. It can be written, oral, or implied. However, to make things as clear as possible and to prevent disputes, it’s best if this document is not only written, but also signed by all members.

Why is an operating agreement important for North Dakota LLCs?

In North Dakota, if your business doesn’t have an operating agreement, it will be subject to the state’s default statutory LLC operating rules. This means that:

• The business will be assumed to be managed equally by all members.
• All members will receive equal distribution of profits and losses.
• All members owe fiduciary duties to each other, which means that each must act in good faith and the best interests of the LLC.
• During dissolution, final distributions could be unequal in order to return capital contributions to higher contributing members.

One or more of these rules may not be ideal for your business, and a standard operating agreement allows you to create your own structure and rules that are more tailored to the unique needs of your business. That’s in addition to other advantages, which include deeper clarity into your organization’s structure, and a reduced risk of disputes or legal issues due to different interpretations of North Dakota’s rules.

Key components of a North Dakota LLC operating agreement

In North Dakota, most LLC operating agreements include the following sections:

• Ownership structure: This specifies each member’s share of the company including any requirements for future capital contributions.
• Management roles: This clarifies whether the LLC is member-managed or board-managed.
• Voting and decision making: This section details who can vote, how those votes are weighted, and when unanimous consent is required.
• Profit and loss allocation: These allocations can be adjusted through the operating agreement, usually to align with member contributions.
• Membership changes: In this section, you’ll outline processes for changes in membership, establish buy-out processes, and create approval standards for new members.
• Dissolution: This section details conditions in which the LLC may be dissolved, and can be used to modify North Dakota’s default triggers, like member retirement.
• Registered agent: North Dakota requires your business to have a registered agent and office, which should be documented within the operating agreement.

How to create an LLC operating agreement in North Dakota

To draft a North Dakota LLC operating agreement, follow these steps:

1. Hold a meeting with all members of the organization to discuss the organization’s structure, everyone’s roles, profit distributions, exits, and other details.
2. During this meeting, select a management mode, either member-managed, manager-managed, or board-managed, then define those management roles clearly.
3. Determine contribution and distribution methods, including wheter profit distributions will be aligned with investments into the LLC.
4. Create transfer and dissolution clauses to ensure continuity and clarity during key transitional moments like members leaving or retiring.
5. Use a template, or better yet, get legal help, to draft the operating agreement such that no clauses conflict with North Dakota law.
6. Make sure all members formally sign the agreement, then store it in a safe location along with other essential business records.
7. As your business evolves, be sure to amend the operating agreement (which is a process that generally requires unanimous member consent). 

This is a basic set of steps that will guide you through the process but it’s best to work through this process with an experienced legal professional at your side. An attorney can help you ensure that your operating agreement covers as many eventualities as possible while also aligning with both your business’s needs and North Dakota law.

North Dakota-specific considerations

North Dakota does have some specific rules for operating agreements that other states may not have. For example, it’s not required to file your operating agreement with the North Dakota Secretary of State whereas other states may require this. Other considerations include:

• Series LLCs: If your operating agreement establishes your organization as part of a series, you must disclose this to the Secretary of State.
• Duration: North Dakota rules give LLCs a 30-year maximum by default, which means that your operating agreement or articles of organization will need to specify your LLC’s duration if you plan to extend it.
• Amendments: In North Dakota, operating agreements may only be changed through unanimous member approval.

Conclusion

An operating agreement is not strictly required by law in North Dakota, but drafting one is a smart way to protect your organization’s members and maintain smooth governance. With an operating agreement, you can customize default fuels, clarify decision-making, and preserve your liability protections.

Ready to take the next steps? Try an online LLC formation service like Tailor Brands. We can guide you through your LLC’s formation, help with drafting your operating agreement, and more, all while helping you ensure compliance with North Dakota regulations.

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