Why Start an LLC in North Dakota?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorships and partnerships cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements for forming an LLC varies slightly from state to state.
In this article, we will be looking at how to start an LLC in the state of North Dakota. The environment is picturesque and the businesses, flourishing. More than 4,000 LLCs are formed each year in the state, and most of them live on for years and years to come, succeeding with ease as North Dakota has the single best business survival rate in the country.
Not only are these businesses surviving, they are excelling as according to the United States of Chambers, North Dakota is the uncontended number one state for growth and productivity. Naturally, Its inhabitants are crowned with the honor of having the highest quality of life in the states.
Steps to Forming an LLC in North Dakota?
STEP 1: Name of the LLC
First and foremost, you must name your North Dakota LLC in your formation documents. You would have to pick a unique name for your LLC that complies with North Dakota’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC.” or “L.L.C.”
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC.
- The name must be unique, distinguishable from the names of pre-existing business entities in North Dakota. Variations of designators, punctuations and grammar do not amount to distinguishability. According to the North Dakota Secretary of State, the distinguishing factor must be the very constituent of the name.
In order to determine if the exact name you have envisioned is available, you may perform a business search on the North Dakota Secretary of State’s website.
You may reserve the name you have envisioned for 12 months by filing a Reserve Name Application with the North Dakota Secretary of State. The reservation may be filed through the website where the form is found or through mailing a physical copy of the form to the office of the Secretary of State. The filing fee would be $25 for all routes.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “Trade Name” or more specifically a “DBA” for your LLC in North Dakota, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name in the Articles of Organization. This is achieved by filing the necessary forms online or by mailing the filled out Trade Name Registration form to the North Dakota Secretary of State’s office. The filing fee shall be $25 for either route.
STEP 2: Appointment of Registered Agent
You are required by North Dakota state laws to nominate a designated Registered Agent for your LLC in North Dakota while filling out your formation documents.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the LLC any tax forms, notices from the Secretary of State and even legal documents from lawsuits. The agent also keeps the LLC afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in North Dakota is that the agent must either be a resident of North Dakota or a corporation present within the state with authorised Commercial Registered Agent services. The agent must have a physical street address within North Dakota, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the agent must always be available during business hours to receive a Service of Process when necessary.
Anyone within the LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the Registered Agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional North Dakota Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateurish individual would make, therefore avoiding the accumulation of even more expenses over time. This suggestion is especially relevant if you yourself or your acquaintances do not have a physical address within the state.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your Registered Agent via the North Dakota Secretary of State’s website while you are filing your formation documents or by mailing a physical copy of the Articles Organization with your Registered Agent’s information filled up under Article 2 to the North Dakota Secretary of State’s office address.
It is also possible to change your nominated Registered Agent, first download and print out the online form available on the Secretary of State website. Once the necessary details are filled you could mail it or personally hand deliver it to the Secretary of State’s office.
STEP 3: Filing the formation documents
Unlike most states, an option to form a North Dakota LLC through mail is not offered in North Dakota. Nevertheless, the option they have kept is certainly the more convenient one. An LLC in North Dakota could be set up through the online filing of the Articles of Organization to the North Dakota Secretary of State’s website. Do keep in mind that you would first need to make an account with the website to proceed.
The online filing must include these necessary details of the LLC:
- Business Purpose;
- Address of Principal Office;
- Intended duration of the LLC’s existence;
- Formation Date;
- Organizers’ Name;
- Organizers’ Address;
- Organizers’ Signatures
- Registered Agent’s Name;
- Registered Agent’s Address,
The filing fee for the Articles of Organization would be $135, a one-time non-refundable fee.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 2 to 3 weeks, you would receive a stamped and approved Articles of Organization and Certificate of Organization alongside a Filing Acknowledgement.
STEP 4: Business Registration for Tax and Regulatory Requirements
Once you have formed your LLC in North Dakota, you may have to apply for business licenses or permits depending on the trade and location your LLC is in.
The specific business licenses that may be relevant to your North Dakota LLC could range from a Building Permit to a Liquor License. These business licenses are provided at a local level, through specific county offices. In order to ascertain the exact licenses you may be mandated to possess you could contact your county office and make an inquiry whereby they would direct you accordingly.
With an idea of what licenses your North Dakota LLC should possess, you may now search them up on North Dakota Department of Commerce’s website for information on the laws pertaining to them and more detailed instructions on how to procure them.
North Dakota LLCs may also be necessitated to register for one or more forms of state tax depending on the trade your LLC is in and how the business is conducted. You may find and apply for the necessary tax forms through the North Dakota State Commissioner website.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of North Dakota in order to start an LLC, it still highly suggested that you prepare an LLC Operating Agreement for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and LLC members terms. The Operating Agreement is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. North Dakota LLC Law would only affect the internal affairs of the LLC in the absence of an Operating Agreement.
The North Dakota LLC Act provides that members of a North Dakota LLC have the contractual freedom to customize their capital contributions and their shares of profits and losses through the use of the LLC Operating Agreement. They could choose to either increase their duties and therefore, their presence in the LLC or simply opt-out of certain duties by including provisions that give such effects in the Operating Agreement.
Amongst the most important structural support an Operating Agreement provides to an LLC that you should have within your own version are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for federal tax and filing purposes.
The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you need to file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN. No filing fee will be charged.
There are no filing fees necessitated for obtaining an EIN.
STEP 7: Annual Renewal
Finally, once you have done all the groundworks to set up an LLC in North Dakota, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the North Dakota LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
Like many other states, North Dakota dictates that all LLCs within it must file an “Annual Renewal” as a means to renew their applications and remain in compliance and good standing with the state laws. As indicated by the name, this report must be filed once every year – without fail.
The Annual Renewal must be filed before the 15th of November of each year, no later than that. Your very first annual report is due in the subsequent year of when your LLC was formed. As an example, if you set up your LLC in North Dakota on the 25th of October 2021, you need not worry about its Annual Renewal until the November of 2022. Nevertheless, you need to file earlier in the year to avoid complications, the earliest filing date is the 1st of January.
To file your North Dakota LLC annual report, you must once again use your account within the North Dakota Secretary of State website which you should possess as you needed to use one to start your LLC in the first place.
Virtually submitting your annual report to the FirstStop page of the website is the only route for an annual renewal, North Dakota has stopped accepting mailings since 2019. The filing fee for the annual report would be $50, a one-time non-refundable fee.
The content of an annual report must include just a few details, namely:
- The name and address of the LLC;
- The name and address of the registered agent;
- Mailing Address;
- Character of Business; and
- Management Structure
If you do not file your Annual Renewal by the yearly deadline, the 15th of November for the sake of emphasis, you would have to pay a late penalty fee of $50 which has to be made in conjunction with the aforementioned $50 filing fee, bringing up the total costs to $100. Subsequent failure to meet the deadlines would result in the state-enforced dissolution of your LLC in North Dakota. The cost of reinstating your LLC would be $135.
Additional Information on Starting an LLC in North Dakota
With all the above carried out, your North Dakota LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your North Dakota LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues and consequently, damage done to your personal assets.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As a North Dakota LLC you could choose to be taxed as either a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC as you are allowed to operate like a company without its burdening taxations.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your North Dakota LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the North Dakota LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure.
If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the North Dakota LLC
North Dakota Secretary of State’s Mailing Address:
Secretary of State
State of North Dakota
600 E Boulevard Avenue Dept 108
Bismarck ND 58505-0500
Internal Revenue Service’s Mailing Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions on North Dakota LLCs
How much does it cost to form an LLC in North Dakota?
In order to first form your North Dakota LLC you would have to spend $135 for the formation fee of your LLC. Furthermore, $50 would have to go into the annual renewal of your LLC. These are the compulsory payments demanded. The rest depends on your needs and wants.
Nevertheless, it should be kept in mind that you missed out on the annual deadline, you would have to pay an additional fee of $50.
Can a foreign LLC conduct its business in North Dakota?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the Secretary of State prior to doing so. This could be done through mail or through their website, simply submit a Certificate of Authority Foreign Limited Liability Company Application.
Do keep in mind that you would also need a Registered Agent present within the state of North Dakota itself. The filing fee would be $135 for either route.
Can a professional LLC be formed in North Dakota?
Yes, a professional LLC may. However, professional LLCs in North Dakota were required to go through a more thorough and stringent application process before they could ever come into existence. To illustrate, some of the additional requirements include professional state licenses for the LLC itself and a professional licensed status for the owners themselves.
Multiple professional services cannot be offered by a singular firm, only one specific type of professional service may be provided.
What is the minimum wage for workers in a business in North Dakota and are there any regulations on how often I would have to pay them?
The minimum wage for a business in North Dakota is $7.25 per hour. North Dakota mandates that employees are to be paid at least once a month.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.