Articles of Organization

Before you can start conducting business, your North Dakota LLC must file articles of organization (one original and an exact copy) with the Corporations Division of the North Dakota Secretary of State's office. The articles must be signed by at least two of the LLC's organizers, who must be individuals of at least 18 years of age.

• The LLC name
• The address of the LLC's registered office
• The name of the LLC's registered agent there
• The name and address of each organizer
• Whether the effective date of organization will be a later date than when submitted; however, the effective date may not be more than 90 days after the date when the certificate of organization was issued
• Any other provisions the members decide to specify consistent with state law

Your LLC is considered "organized" once the articles of organization and a copy are delivered to the secretary of state with the $135 fee ($125 for filing the articles, plus $10 for filing the Registered Agent Consent to Serve form) and found to be in order. The state will issue a certificate of organization along with the conformed copy to the LLC's representative. The original articles of organization will be filed with the Secretary of State along with the date of filing.

Registered Agent and Office

All North Dakota LLCs must continuously maintain a registered agent-the person or office designated to receive legal and administrative correspondence from the state. A North Dakota LLC's registered agent might be an individual state resident, or it may be a business entity that's authorized to conduct business in North Dakota.

An LLC's registered office in North Dakota may be any place of its business.

Operating Agreement

The operating agreement is another very important document for an LLC. It can be amended or repealed as allowed by the agreement itself or applicable law. Having an operating agreement isn't specifically required by the state, but it's a key internal document that officially records and explains how the LLC will conduct its operations.

The operating agreement normally lists the LLC's members, how much each has invested, how profits are to be divided, and how much weight each member has when voting. It may also lay out meeting requirements and similar considerations, but is not required to do so. The operating agreement may also include rules and concepts already laid out in state law, as well as containing restrictions or prohibitions on the power of members to adopt, amend, or repeal the agreement.

Unless otherwise stated in the articles of organization or the operating agreement, a unanimous vote of members is required to amend either the articles or the operating agreement.

Members and Managers

An LLC has to have at least one member; a member may be a natural person or a business entity. To become a member, an individual normally makes a contribution of some sort. Members' contributions can be in cash, property, promissory notes, services previously or to be rendered, or some other binding obligation to contribute.

A member may only withdraw from a North Dakota LLC in accordance with the rules and procedures in the operating agreement or articles of organization.

In North Dakota, the member-managers of an LLC are called the board of governors. The president and treasurer of the LLC-the two positions that North Dakota LLCs are required to fill, although one person can serve simultaneously as both)-are called "managers" in the Act.) The most significant difference is that all members of a member-managed LLC must unanimously approve major decisions.

Ongoing Requirements

Every North Dakota LLC is required to file an annual report with the North Dakota Secretary of State on or before the anniversary of its organization. The report must be signed by an authorized manager, member, or agent, and it must include:

• The LLC name and the state or country where it was organized
• The address of the LLC's registered office
• The name of the LLC's registered agent at that office
• The address of its principal executive office
• The character of the LLC's business
• The names and addresses of each governor

Additionally, your LLC must keep the following types of records open for inspection at its principal office:

• The name and address of the LLC's president and each member and governor
• The name and address of each assignee of financial rights other than a secured party, and a description of the rights assigned
• A copy of the articles of organization and any amendments
• A copy of any currently effective written bylaws
• Copies of the LLC's federal, state, and local income tax returns for the past three years
• Financial statements
• Records of all proceedings of members and the board of governors for the past three years
• General member reports made within the past three years
• Member-control agreements
• A statement detailing all member contributions

It's also advisable for your LLC to keep minutes of the members' or managers' proceedings and committee meetings.

Dissolution

Unless otherwise stated in the articles of organization or the operating agreement, a North Dakota LLC is dissolved when any one of the following events occurs:

• Event(s) or a time specified in the articles of organization or operating agreement that require dissolution
• Expiration of the term of the LLC as set forth in the articles of organization
• A merger in which the LLC is not the surviving organization
• If the membership of the last or sole member terminates and the legal representative of that last or sole member does not cause the LLC to admit at least one member within 180 days after the termination
• A court order is handed down requiring dissolution
• The state secretary of state terminates the LLC under Section 10-32-149

Unless otherwise provided in the operating agreement, the written consent of a majority in interest of members is required to voluntarily dissolve the LLC.

Taxes

An LLC offers tax advantages over a corporation, mostly because an LLC is not required to be a separate tax entity like a corporation. Instead, it can be a "pass-through entity" for tax purposes, so LLC owners show business losses or profits on their personal tax returns, instead of the LLC being taxed as a separate entity and the members' incomes from the LLC being taxed a second time at their individual level.

The tax rate for the members of North Dakota LLCs varies based on taxable net income. North Dakota's personal income tax system consists of five brackets and a top rate of 5.54 percent that takes effect at an income level of $349,700.

Articles of Incorporation

North Dakota requires that new corporations file articles of incorporation with the Corporations Division of the state Secretary of State's office. The articles are delivered by one or more incorporators, whose primary duties are to sign the articles and deliver the original and an exact copy of the articles to the Corporations Division. The incorporator must be a natural person at least 18 years old, but does not need to be a director, officer, or shareholder of the corporation.

The articles must include the following information:

• The name and address of each incorporator
• At least a broad statement of the corporation's business purpose
• The aggregate number of shares the corporation is authorized to issue
• The address of the corporation's principal office
• The address of the corporation's registered office
• The name of the corporation's registered agent there
• The signature of the registered agent accepting appointment as such, or a separately signed consent document

Since North Dakota allows a corporation to be formed for any lawful business activity, a general statement in the articles granting broad powers is acceptable-for example, to state that your new corporation is being formed for "general business purposes" is enough for most situations.

However, providing a specific business purpose in your articles can help the Corporations Division determine whether you are entitled to use your proposed corporate name if it is similar to that of another business entity. Even if your name is similar to the name of another corporation, the state filing office may let you use the name if the specific purpose of your corporation is significantly different from the other corporation's purpose. If you provide a specific purpose, though, you should also include a general purpose-for example, "to sell retail repair parts and for any lawful purpose."

North Dakota statutes do not allow a business corporation to be formed for the purpose of conducting business in the banking, farming, ranching, or insurance businesses. A business corporation may be an insurance agency that sells or services insurance products, but it cannot be the insurer that actually backs the claims.

Also, North Dakota prohibits a corporation from including provisions in its articles of incorporation that limit the right of cumulative voting as guaranteed by the state constitution, or that authorize the issuance of stocks or bonds that are in violation of the state constitution.

It's also permissible to include other, optional provisions into the articles of incorporation for those who want to formalize additional criteria, such as:

• A specific corporate purpose
• The names and addresses of the initial directors
• The effective date of incorporation, if later than the date on the certificate of incorporation (may not be later than 90 days after the date when the certificate of incorporation was issued)
• A par value for authorized shares or classes of shares
• Changing the number of board votes which constitute a quorum
• Any time limitations on the corporation's existence
• Provisions regarding personal liability of directors and shareholders in certain situations

The filing fee for your articles of incorporation is $90 minimum-$30 for the articles themselves, $10 for filing the Registered Agent Consent to Serve form, plus a minimum $50 license fee. The fee depends on the authorized capital specified in your articles. The license fee is $10 for each $10,000 of capital or portion thereof. You will have to pay at least the minimum license fee of $50, so you should authorize at least $50,000 of capital. Within that range, for shares without par value, multiply the number of no-par shares authorized in the articles by $1. For shares that do have a stated par value, multiply the par value amount of each share by the number of par value shares authorized.

Registered Agent and Office

The articles of incorporation should also include the name and address of your corporation's initial registered agent-the person appointed to receive official legal and administrative correspondence from the state on behalf of your corporation. The registered agent must be either an individual who lives in North Dakota, or a corporation authorized to conduct business in the state. In either case, the agent's business office must be the same as the corporation's registered office.

Bylaws

Corporations should keep a copy of their bylaws at their principal executive office, but they are not required to file those bylaws with the state. At the new corporation's initial meeting, the incorporators or board of directors must adopt bylaws for the corporation and then keep them updated as time goes on. Bylaws are a critically important document describing the corporation's basic managerial and legal operating principles regarding such issues as:

• Shareholders' and directors' meetings
• The authority, number, and tenure of directors in the board of directors
• Voting procedures
• The duties, responsibilities, and tenure of directors and officers
• How stock is issued
• How and when annual financial information is provided to shareholders

The right to adopt, amend, or repeal bylaws is vested in the board (subject to provisions in the articles of incorporation) and the stockholders. Unless the articles or bylaws provide otherwise, shareholders who hold five percent or more of the voting power of shares entitled to vote may propose a resolution for action by the shareholders to adopt, amend, or repeal bylaws which have been adopted, amended, or repealed by the board.

Directors and Officers

The corporation's business is managed by its board of directors. There must be at least one director; the articles of incorporation or the bylaws may specify the number. The state does not mandate any eligibility requirements for directors, but the articles of incorporation or bylaws may list director qualifications. Directors are usually elected at each annual shareholder meeting to hold office until the next annual meeting.

Corporate officers can either be listed in the bylaws or elected by the board in compliance with those bylaws. Officers must be individuals at least 18 years old. There must be at least a president, secretary, and treasurer. There may also be one or more vice presidents, as well as any other officers specified by the bylaws. Officers may appoint other officers as needed for the operation of the corporation, in accordance with the bylaws. Unless a different officer is designated by the bylaws or the board, the secretary or assistant secretary is responsible for preparing minutes of the directors' and shareholders' meetings and for maintaining and authenticating corporate records.

Multiple offices may be held by the same person unless the articles or bylaws state otherwise, but no individual is allowed to act in more than one officer capacity where the action of two or more officers is required.

Required Reports

North Dakota corporations must file an annual report with the state Secretary of State each year before August 2 (or before May 16 for foreign corporations), starting with the calendar year after the year of incorporation. The annual report must include:

• The corporation's name and its state or country of incorporation
• The addresses of its principal and registered offices
• The name of the corporation's registered agent
• The names and addresses of all officers and directors
• A statement of the aggregate number of authorized and issued shares, itemized by classes, par value, shares without par value, and series (if any) within a class
• A statement of the value of all corporation-owned property
• The gross amount of corporate income for the preceding calendar year
• The gross amount of corporate income received at or from its places of business inside North Dakota
• A brief description of the character of the business

When a shareholder requests it in writing, North Dakota corporations are required to prepare an annual financial statement within 180 days of the close of the fiscal year. The corporation must furnish the report-which must include an annual income statement and a year-end balance sheet-to the shareholder within 10 business days of receiving the request.

Taxes

North Dakota's corporate tax structure consists of five brackets. The top rate of 6.5 percent takes effect at $30,000 corporate income. Among states that levy corporate income taxes, North Dakota's top rate ranks 30th nationally.

However, North Dakota does recognize "S corp" status. A "subchapter S" corporation-frequently referred to as an "S corp"-is treated as a pass-through entity for tax purposes. The S corp does not file a tax return on its own behalf; instead, all tax-related data for the S corp is filed as part of the owner's individual income tax. Therefore, the tax rate for an S corp will depend on the owner's filing status and situation, as well as the level of income received.

S Corporations

A "subchapter S" corporation or "S corp" is one that chooses to be treated as a pass-through entity for tax purposes in the same way as a sole proprietorship or partnership; tax-related information for the S corp is filed as part of the owner's individual income tax.