Planning on starting your journey to establish your own business in North Dakota? Great! An LLC can be an excellent choice for the business you are trying to form. It protects your personal assets from legal liability and, at the same time, gives you great operational flexibility.
North Dakota is an excellent place for you to start your business. It has a booming economy with a tax-friendly environment. However, the procedure for setting up an LLC in the State may seem confusing and complicated. We are here to break it down and guide you through each step involved in the process.
Naming Your North Dakota LLC
The first step in setting up your LLC is to name your business. You must select a name that is appropriate for your business. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition. Make sure that you have a unique name that captivates your customers.
While naming your LLC, you must follow all the naming guidelines the State of North Dakota has laid down.
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
The name of the LLC should be unique and must not resemble the name of any existing entity that has been permitted to conduct business in the State of North Dakota.
The name you select for your LLC should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.” Similarly, usage of certain words, like “Bank,” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.
Does Your Business Require a DBA?
A DBA (doing business as) enables you to operate your LLC under a different name. In the state of North Dakota, DBA is referred to as a “trade name” or “fictitious name.” A trade name is best used for branding purposes. But remember that the trade name alone does not protect your personal assets. To avail of the protection of limited liability, you need to form an LLC.
Over time, you may wish to diversify your business. For example, you may enter new market areas or decide to sell new products. Your name currently for your LLC may not suit this new product or business area. In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area. An assumed name allows you to run the business of your LLC under a different name.
Doing a Name Search and Name Reservation
Before finalizing a name for your LLC, you have to ensure that the name you selected is not similar to an existing business. You can use North Dakota LLC Search to see if the name you want for your LLC is available. It is recommended that you properly check the name selected for your LLC to avoid rejection later on.
If you are not ready to incorporate your LLC immediately, you can reserve the name you have chosen. In North Dakota, you can apply with the Secretary of the State for this purpose.
Once the Secretary of State has reviewed the application, the name shall be reserved, for one year, in the name of and for the applicant’s exclusive use. This can be renewed for a further period of one year.
Registering Your Business Domain
Your business’s website address needs to match your LLC’s name. The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Resident Agent in North Dakota
You must select a registered agent before your company can start functioning. A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
The registered agent shall also receive any process service concerning a lawsuit against your company. North Dakota law mandates that your company have a registered agent.
Who can be a registered agent?
The State of North Dakota provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident or
- A business entity that has obtained authorization to conduct business in the State.
A registered agent should be above the age of 18 years and have a physical street address in the state. The registered agent should be available during business hours on all working days. You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service.
Individual v. Registered Agent Service
While you can appoint yourself as the registered agent, it may not be advisable for all businesses. It is advisable that you hire a professional registered agent service as it has many advantages.
A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines. The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.
Professional help lets you focus your energy and time on core business areas. If you are your own agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients. Having a professional registered agent service helps you handle the situation discreetly. They receive such sensitive documents at their address and deliver them separately.
Filing the Articles of Organization with North Dakota
Articles of Organization is a legal document needed to form and legally incorporate your LLC officially. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
You can complete this procedure by following three simple steps. The first step is for you to acquire a copy of the document. You may do this by creating an account on the Secretary of State’s online service portal or manually obtaining the form.
The next step is for you to fill out the Articles of Organization form. You should duly complete the form by filling out details related to the following:
- Entity Name, Type, and Address
- Registered Agent Name and Registered Office Address
- Effective Date and Duration
- Business Purpose
- Organizer Names and Addresses
The final step is for you to file your Articles of Organization with the office of North Dakota’s Secretary of State. You can do the same either online or by submitting a copy of the duly filled form by mail.
As of now, the State does not have any provisions pertaining to expedient processing of your Certificate of Organization.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create the Operating Agreement for your North Dakota LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
Even though an operating agreement is not mandated by the laws in the State, you should have one. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it. Thus, it is recommended that even a single-member LLC have a well-drafted operating agreement.
There are no prescribed templates for an operating agreement in North Dakota, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing the Operating Agreement Yourself v. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement. Experts in the laws of North Dakota, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of Operating Agreement
There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. However, the terms are limited to the law. You cannot include something prohibited by the laws of North Dakota.
Obtaining an EIN for your North Dakota LLC
EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes.
It will also be necessary to open a bank account, file tax returns, and hire employees. The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports in North Dakota
An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. In North Dakota, you can file annual reports online with the office of the Secretary of State. The fee is $50.
The due date for filing your annual report is by the fifteenth of November every year. The first annual report is due in the year following the year of incorporation.
Failure to file the document may result in your LLC getting penalized. The State charges a penalty of $50 for the first default. Failure to file the annual report even six months after it becomes due can put your company at risk of being shut down by the authorities.
Tax liability for your North Dakota LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole-proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions in the nature of business expenses. You are also liable to pay Federal Income Tax. The income tax you have to pay will vary depending on your income, filing status, deductions, etc. However, if you treat your LLC as a corporation for tax purposes, federal corporate taxes must be paid.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity’. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in K-1 of each partner.
State Tax Liability
If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax in North Dakota. For this purpose, you must first obtain a seller’s permit from the State.
Permits and Licenses
An LLC operating in North Dakota must comply with State and Federal regulations. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit online using the North Dakota Taxpayer Access Point portal.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Bismarck, businesses carrying out food service are required to have a specific city license. To know more about local licensing requirements, get in touch with the office of your town or county government.
For more information regarding;
Business Bank Account & Phone Number
It is always prudent to open a separate Bank Account for your LLC and have an individual designated phone number. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.
Setting up your business in North Dakota has a lot of benefits. Depending on the type of business, LLCs in the State may be eligible for various sales and service tax exemptions. The State also offers various business incentives such as the New or Expanding Business Income Tax Exemption Program, Wage and Salary Credit Program, etc.
Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
On completing the above steps, your LLC is legally incorporated and ready to do business. We wish you and your new business the very best!