How to Form an LLC in North Dakota!

Forming an LLC in New Hampshire can provide a number of legal benefits.

Freedom of Contract

The North Dakota LLC Act gives members contractual freedom to create voting and non-voting classes of membership and to customize their capital contributions and shares of profits and losses.  The ability to create voting and non-voting classes of membership facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.  The ability to specify a method for allocating profits and losses in a member control agreement that is greater or lesser than a member’s portion of capital contributions gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.

Perpetual Duration

The North Dakota LLC Act provides for an LLC’s unlimited life.  It states that if the articles of organization do not limit an LLC’s existence to a specific time period, the LLC’s existence is perpetual.  An LLC’s existence can therefore outlive its members’ lifetimes.

Benefits for Business Partners

The North Dakota LLC Act gives members contractual freedom to customize the duties each party to the member control agreement owes to the other parties.  It requires LLCs to have at least one “governor”—which is very similar to the “director” position of a corporation—president, secretary, and treasurer.  One natural person may fulfill all four roles, however, and a member control agreement may “[a]llocate to the members authority ordinarily exercised by the board.”

Sections 10-32-86 and 10-32-89 establish fiduciary duties for governors and officers by requiring them to act “in good faith, in a manner [they] reasonably believe[ ] to be in the best interests of the limited liability company, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.”

But sections 10-32-07 and 10-32-86 provide the articles of organization or a member control agreement may eliminate or limit monetary liability for breaches of fiduciary duties except for (1) breaches of the duty of loyalty to the LLC or its members; and (2) “acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law.”  In addition, section 10-32-87 provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its governors, or an entity in which they own an interest, if the contracts or transactions meet minimum disclosure, approval, or fairness requirements.  These rules give majority members, the LLC, and its governors certainty in business planning and the ability to take advantage of mutually beneficial opportunities.

Protections Against Unwanted Parties

The North Dakota LLC Act allows members to protect their control of an LLC.  It distinguishes between a member’s “governance rights” and “financial rights.”  Sections 10-32-31 and 10-32-32 provide that the articles of organization or a member control agreement may restrict a member from assigning either or both the member’s governance rights and financial rights.  If the written restriction “is not manifestly unreasonable under the circumstances and is noted conspicuously in the required records,” then it “may be enforced against the owner of the restricted financial rights or a successor or transferee of the owner.”

The Act provides that “a member may, without the consent of any other member, assign governance rights, in whole or in part, to another person already a member at the time of the assignment.”  But if the assignee is a non-member, the assignee cannot become a member or exercise the governance rights unless the non-assigning members give unanimous written approval.  Nevertheless, “a member may grant a security interest in a complete membership interest or governance rights” without obtaining unanimous written consent from the non-granting members.  If a secured party attempts to take ownership of the governance rights or assign them to a third party, then the unanimous written approval requirement applies.

The Act provides that if a member transfers his or her financial rights, the transferee receives “only the share of profits and losses and the distributions to which the assignor would otherwise be entitled.”  Section 10-32-31 states the transfer of financial rights does not “dissolve the limited liability company and does not entitle or empower the assignee to become a member, to exercise any governance rights, to receive any notices from the limited liability company, or to cause dissolution.”

Creditors Cannot Obtain Controlling Rights

If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee of a member’s financial rights.”  Furthermore, a charging order is a judgment creditor’s “sole and exclusive remedy.”

Here are the steps you will need to follow to form an LLC in North Dakota.

Step 1. Choose a Name

In North Dakota, an LLC must satisfy a few naming requirements. First, it cannot be the same or deceptively similar to any other business name on the Secretary of State’s records. It must also include “limited liability company,” “L.L.C.,” or “LLC.” Finally, the name cannot include any words that imply that the LLC is involved in banking.

Step 2. Appoint a Registered Agent in North Dakota

A North Dakota LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a North Dakota registered agent.

Step 3. File Articles of Organization

To form a North Dakota LLC, you must file Articles of Organization and pay a $135 filing fee to the Secretary of State. The articles must contain the LLC name, the principal executive office address, the name and address of the registered agent, the effective date of the LLC, a specified dissolution date (if there is one), the purpose of the business (if not “general business purposes”), the names and addresses of organizers, and any other provisions that the organizers elect to include.

Step 4. Prepare an Operating Agreement

Commonly referred to as operating agreements, North Dakota law provides for member-control agreements to regulate the business and affairs of an LLC. Statute requires that this agreement be in writing and signed by all members and people that are members to contribution agreements that have not been fully performed. We recommend an agreement that comports with North Dakota’s requirements.

There are some additional steps you will need to take after you form your New Hampshire to finish setting up and maintaining your business.

Get an EIN Number

Certain LLCs will require an Employer Identification Number for tax purposes. This is given by the I.R.S., either directly or through an incorporation service.

File Annual Reports

Every year, a North Dakota LLC must file an annual report with the Secretary of State on a provided form. This report must include the name of the LLC, the name and address of the registered agent, the address of the LLC principal executive office, a statement of the character of business of the LLC, and the names and addresses of the managers and governors or managing members or members. This filing requires payment of a $50 fee.

Foreign Qualifications

An unusual aspect of the North Dakota LLC Act is its penalties for failing to obtain a certificate of authority for a foreign LLC.  This is sometimes called “qualifying” a foreign LLC to do business in the state.  A foreign LLC is an LLC that is formed under the laws of a state other than North Dakota.

In most states, a foreign LLC may defend itself in state court if it has not qualified to do business in the jurisdiction, but it may not be a plaintiff in state court until it has qualified.  Many states also require a foreign LLC to pay the taxes and fees that it would have paid if it had qualified when it first started doing business in the jurisdiction.  

But in addition to these penalties, North Dakota charges a civil penalty of up to $5,000 against a foreign LLC and up to $1,000 against its members for doing business in North Dakota without being qualified.  The application fee for a certificate of authority is only $135.  Foreign LLCs should therefore qualify in North Dakota if there is any doubt about their status of “doing business” in North Dakota.