North Dakota LLC Operating Agreement | A Comprehensive Guide

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North Dakota Operating Agreement

When forming a Limited Liability Company (LLC) in North Dakota, one of the most critical steps is creating and executing an LLC Operating Agreement. This legally binding document outlines your LLC’s ownership, management, and operational procedures, ensuring that your business runs smoothly and is protected from potential disputes and legal issues. Although only sometimes required by state law, having a well-drafted operating agreement is essential for an LLC. This article will explore the content and importance of an Operating Agreement in North Dakota and discuss its key components.

Webinarcare Editorial Team will help you understand the process of having an operating agreement for your North Dakota business. You must be guided by all the factors gathered in this article.

North Dakota LLC Operating Agreement Content

What is an Operating Agreement?

An operating agreement is a legally binding document that outlines a limited liability company‘s ownership structure, management, and operational procedures (LLC). It governs the internal workings of the LLC and establishes the rights, responsibilities, and obligations of its members (owners) and managers.

This includes details such as rules, regulations, and provisions related to the operation of the LLC. The Operating Agreement serves as a guide for dealing with disagreements, bringing in new members, and managing various situations that may arise while doing business. It delivers clarity and ensures smooth functioning while providing legal protection to businesses.

Although not always required by state law, having a well-drafted operating agreement is essential for an LLC. It helps prevent potential disputes among members, ensures smoother business operations, and provides a clear framework for making decisions and resolving issues. It also helps to establish limited liability protection for the members by demonstrating that the LLC is a separate legal entity with its own rules and procedures.

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North Dakota LLC Operating Agreement Content

An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. It includes forming the LLC, members and ownership, distribution of profit and losses, management structure, meetings and voting procedure, limitation of liability and indemnification, dissolving North Dakota business, dispute resolution, and amendments and modification.

Article I: Formation of the LLC

The first step in creating an LLC Operating Agreement is to outline the basic information about your LLC, such as:

  • Name of the LLC: Your LLC’s name must include the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.” and comply with the North Dakota LLC naming requirements.
  • Principal Office Address: This is where your LLC’s primary business activities will be conducted.
  • Purpose of the LLC: This section should describe the primary purpose of your LLC and the types of business activities it will engage in.
  • Registered Agent Information: Your Registered Agent is a person or entity designated to receive legal documents on behalf of your LLC. The Registered Agent must have a physical street address in North Dakota. It’s essential to choose a reliable and responsible North Dakota Registered Agent, as failure to receive and respond to legal documents can have serious consequences for you to start a business in North Dakota. 

You can serve as your Registered Agent, appoint a friend or family member, or hire the Best North Dakota Registered Agent Services. We reviewed some of the services for you to check out if you still don’t have one.

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Article II: Members and Ownership

This section deals with identifying all the members of the LLC and their ownership percentages. It includes details like names, addresses, and contributions of each member. Details about how increases and decreases in membership are also covered in this section.

  • Initial Members: The names and addresses of each initial member should be listed, along with their respective ownership interests.
  • Ownership Interests: This section should detail each member’s ownership interest percentage.
  • Capital Contributions: Each member’s initial capital contribution to the LLC should be documented, along with any additional contributions that may be required.
  • Additional Members: The agreement should outline the process for admitting new members to the LLC and the rights and responsibilities of these new members.
  • Transfer of Membership Interests: The operating agreement should contain provisions governing the transfer of membership interests, including transfer restrictions and the right of first refusal for existing members.
  • Withdrawal of Members: The process and consequences for members who wish to withdraw from the LLC should be clearly defined. In North Dakota, there is a definite guideline on How to Remove a Member from your North Dakota LLC. 

Article III: Distribution of Profits and Losses

This article explains how the LLC profits and losses will be distributed among the members. It can be based on the ownership percentages or a different agreement stipulated by the members. It lays out the process for distribution and any restrictions on those distributions.

  • Allocation of Profits and Losses: The agreement should detail how profits and losses will be allocated among the members, typically based on their own interests.
  • Distributions to Members: The process for distributing profits to members should be outlined, including the timing and manner of distributions.

Article IV: Management Structure

Your LLC Operating Agreement should outline the management structure of your business. This includes

Member-Managed vs. Manager-Managed: You must decide whether your LLC will be managed by its members or appointed managers. This decision will impact the roles and responsibilities of each party.

A Member-Managed LLC is a type of limited liability company (LLC) where the management and day-to-day operations of the business are handled by its members (owners) directly. In a Member-Managed LLC, each member has the authority to make decisions and take actions on behalf of the company, such as entering into contracts, hiring employees, and managing the finances.

This management structure contrasts with a Manager-Managed LLC, where the members appoint one or more managers to oversee the business operations. In a Manager-Managed LLC, the appointed managers have the authority to make decisions and act on behalf of the company. In contrast, the members typically have a more passive role, focusing on high-level decision-making and strategic planning.

Roles and Responsibilities of Members/Managers: The agreement should define the roles and responsibilities of each member or manager, including their duties, decision-making authority, and any limitations on their powers.

Article V: Meetings and Voting Procedures

This article outlines the rules for conducting meetings and voting procedures. It specifies the quorum required for decision-making, how votes are counted, and how members are notified about meetings. It also includes information about special meetings and emergency decisions.

  • Voting Rights and Decision-Making Process: The agreement should outline each member or manager’s voting rights and decision-making for various business matters.
  • Meetings and Notice Requirements: The operating agreement should specify the frequency of meetings, the process for calling special meetings, and the notice requirements for each type of meeting.

Article VI: Limitation of Liability and Indemnification

To protect the personal assets of your LLC’s members and managers, your operating agreement in North Dakota should address the following:

  • Liability of Members/Managers: The agreement should limit the liability of members and managers for the debts and obligations of the LLC, following North Dakota law.
  • Indemnification Provisions: The operating agreement should include provisions for indemnifying members and managers for actions taken on behalf of the LLC, as long as those actions are within the scope of their duties and do not involve gross negligence or willful misconduct.
  • Insurance Requirements: The agreement should specify any insurance requirements for your LLC, such as liability or property insurance. Small business insurance helps safeguard your business from financial losses, legal claims, and other unforeseen events. This protection allows entrepreneurs to focus on growing and sustaining their businesses within the North Dakota economy.

You may check out the Best Small Business Insurance in North Dakota to learn more about business insurance.

Article VII: Record Keeping and Financial Reporting

This article provides details about the record-keeping and financial auditing procedures. It outlines the importance of keeping accurate and comprehensive records of an LLC’s financial transactions. It also specifies the frequency of financial reporting and distribution to the members.

  • Accounting and Recordkeeping: The operating agreement should outline your North Dakota LLC’s accounting methods and recordkeeping requirements. Effective financial management is important for the success of your North Dakota LLC. Establish a reliable accounting system to track income, expenses, and tax obligations. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in North Dakota.
  • Fiscal Year: The agreement should specify the fiscal year for your LLC, which may be either a calendar year or any 12-month period.
  • Tax Treatment and Filing Requirements: The agreement should specify your LLC’s tax treatment and any required filings with the North Dakota tax authorities. You should include the filing of the North Dakota Articles of Organization, annual fees, and other associated fees that need to be filed.

For the initial and final cost for forming your North Dakota LLC, look up the LLC Cost in North Dakota for additional information. 

Article VIII: Dissolution and Winding Up

This section outlines the circumstances under which the LLC may be dissolved, such as a unanimous decision by members, legal issues, bankruptcy, or achieving its purpose. It also includes information about how the LLC’s assets will be liquidated and debts paid upon dissolution.

Events Triggering Dissolution: The agreement should list the events that will trigger the dissolution of your LLC, such as the death or withdrawal of a member, a unanimous vote of the members, or a court order. 

Some common events include:

  • A unanimous vote of the members to dissolve the business.
  • The death, resignation, or withdrawal of a member unless the remaining members agree to continue the business.
  • The expiration of a specified period or the completion of a specific purpose, as outlined in the operating agreement.
  • A court order mandating the dissolution of the LLC.

Winding Up Process: The operating agreement should outline the process for winding up the affairs of the LLC, which typically involves:

  • Settling the company’s outstanding debts and obligations.
  • Liquidating the company’s assets.
  • Resolving any pending legal disputes.
  • Preparing and filing final tax returns.

Distribution of Assets: The operating agreement should specify how the LLC’s remaining assets will be distributed among the members upon dissolution, typically in proportion to their ownership interests.

Certificate of Cancellation: After the winding-up process is completed, the LLC may be required to file a certificate of cancellation or articles of dissolution with the North Dakota Secretary of State to dissolve the company and remove it from its records formally. 

Article IX: Dispute Resolution

This article provides the protocol for handling any disputes arising between LLC members. It can include stipulations for mediation or arbitration in case of any conflicts. The agreement should include a process for resolving member disputes, such as mediation or arbitration.

Article X: Amendments and Modifications

Your LLC Operating Agreement in North Dakota should include a process for making amendments and modifications, such as:

  • Process for Amending the Operating Agreement: The agreement should outline the process for proposing, considering, and approving amendments to the operating agreement.
  • Required Approval for Amendments: The agreement should specify the percentage of member approval required to amend the operating agreement.

Once your LLC Operating Agreement has been drafted, it should be executed by the initial members or managers and adopted by any additional members who join the LLC.

Role of Registered Agent in LLC Operating Agreement

A Registered Agent is a person or entity designated to receive legal documents and official correspondence on behalf of an LLC. While the primary role of a Registered Agent is to maintain a reliable point of contact for legal matters, some registered agent service providers also offer additional services, such as creating an operating agreement for your LLC. Below are some advantages of having a Registered Agent create an operating agreement for your business:

  • Expertise: A Registered Agent specializing in LLC Formation Services often has extensive knowledge and experience drafting operating agreements. They are familiar with the requirements and best practices for creating a comprehensive and legally compliant operating agreement, which can help protect your business interests and minimize potential disputes among members.
  • State-Specific Requirements: A Registered Agent offering operating agreement services is well-versed in state-specific laws and regulations governing LLCs. They can ensure that your operating agreement complies with the specific requirements of the state in which your LLC is formed, including mandatory provisions and filing requirements.
  • Time-Saving: Drafting an operating agreement in North Dakota can be complex and time-consuming, especially for business owners unfamiliar with legal terminology and procedures. By delegating this task to a Registered Agent, you can save time and focus on other crucial aspects of your business.
  • Customization: A Registered Agent with experience creating operating agreements can tailor the document to meet your business’s unique needs and circumstances. They can help you address specific management structures, financial arrangements, and other critical aspects of your LLC that may not be covered in a generic operating agreement template.
  • Ongoing Support: The Registered Agent services provide ongoing support and guidance in maintaining and updating your operating agreement as your business grows and evolves. This can help ensure that your operating agreement remains relevant and compliant with changing laws and regulations.

While there are advantages to having a Registered Agent create an operating agreement for your LLC, it is essential to carefully review and understand the terms of the agreement before signing. Additionally, it is a good idea to consult with legal and tax professionals to ensure that the operating agreement aligns with your business goals and complies with all applicable laws and regulations.

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FAQs

What is an LLC operating agreement in North Dakota?
An LLC operating agreement is a legal document that outlines the ownership structure, management responsibilities, operating procedures, and financial arrangements of an LLC in North Dakota.
Is it mandatory to have an LLC operating agreement in North Dakota?
No, but having an LLC operating agreement is highly recommended since it can help LLC members avoid disputes and minimize their liability.
Who can create an LLC operating agreement in North Dakota?
The LLC members themselves are responsible for creating an LLC operating agreement in North Dakota.
Can an LLC operating agreement be changed or amended in North Dakota?
Yes, an LLC operating agreement can be amended or changed in North Dakota, however, the changes must be agreed to by all LLC members and be included in the amended agreement.
Can an LLC in North Dakota operate without an LLC operating agreement?
Yes, an LLC in North Dakota can operate without an LLC operating agreement, however, this is not recommended.
How can I obtain an LLC operating agreement in North Dakota?
The LLC members can obtain an LLC operating agreement through an attorney specialized in business law or from various online legal-document companies.
What should be included in an LLC operating agreement in North Dakota?
An LLC operating agreement in North Dakota should include details about ownership structure, management arrangements, and financial arrangements, among other things.
How does an LLC operating agreement protect its members in North Dakota?
An LLC operating agreement in North Dakota can protect its members by clearly defining their rights and responsibilities, particularly in the event of disputes, liabilities, or bankruptcy.
Are there any restrictions on LLC operating agreements in North Dakota?
LLC operating agreements in North Dakota are subject to state and federal laws, and must not violate any of these laws.
How long does an LLC operating agreement last in North Dakota?
An LLC operating agreement in North Dakota can last for the entire lifespan of the LLC or be changed at any time by agreement of all the members.
Can a single-member LLC in North Dakota have an LLC operating agreement?
Yes, a single-member LLC in North Dakota can have an LLC operating agreement.
What is a dissolution clause in an LLC operating agreement in North Dakota?
A dissolution clause in an LLC operating agreement in North Dakota details how the LLC will be dissolved if it closes down or ends.
What is an indemnity clause in an LLC operating agreement in North Dakota?
An indemnity clause in an LLC operating agreement in North Dakota is a provision that allocates responsibility and liability between the LLC members.
Is an LLC operating agreement signed in North Dakota enforceable in other states?
Yes, an LLC operating agreement signed in North Dakota can be enforceable in other states, but it may need to be interpreted differently according to the other state’s laws.
How can an LLC member terminate the LLC operating agreement in North Dakota?
An LLC member can terminate an LLC operating agreement in North Dakota by reaching an agreement with all other members or seeking legal assistance in the case of disputes.
Does North Dakota require registered agents for LLCs to have access to LLC operating agreements?
No, North Dakota laws do not require state-registered agents to have access to LLC operating agreements.
Can an LLC operating agreement in North Dakota be signed electronically?
Yes, an LLC operating agreement in North Dakota can be signed electronically under the Electronic Signatures in Global and National Commerce Act.
How often should an LLC operating agreement in North Dakota be reviewed?
An LLC operating agreement in North Dakota should be reviewed at least annually and updated as necessary.
How can an LLC operating agreement in North Dakota designate management responsibilities?
An LLC operating agreement in North Dakota can designate management responsibilities to members or allow for the appointment of non-member managers.
Is it required to notarize an LLC operating agreement in North Dakota?
No, there is no legal requirement to notarize an LLC operating agreement in North Dakota, but notarization can add credibility to the agreement.
Can a foreign LLC member sign an LLC operating agreement in North Dakota?
Yes, a foreign LLC member can sign an LLC operating agreement in North Dakota.
Does an LLC operating agreement in North Dakota have to be filed with the state?
No, an LLC operating agreement in North Dakota does not have to be filed with the state, but it must be kept with the LLC’s records.
Can an LLC operating agreement in North Dakota end on a specified date?
Yes, an LLC operating agreement in North Dakota can end on a specified date if all members agree to the termination or if it is included as a clause in the agreement.
Are there any special requirements for LLC operating agreements in North Dakota regarding taxation?
Not really, LLC operating agreements in North Dakota should comply with IRS tax regulations, but these regulations are not particular to North Dakota state.
Can an LLC have multiple operating agreements in North Dakota?
No, an LLC agreement should be a single legally binding document.
Can the owners of an LLC change terms of the operating agreement in North Dakota?
Yes, but those changes need the unanimous agreement of all members of the LLC and they have to be included in the updated operating agreement.
What is the difference between articles of organization of an LLC and operating agreement in North Dakota?
Articles of organization are a required legal document that establishes the existence of the LLC whereas an LLC operating agreement sets out the laws and governance procedures of NC LLCs.
What documents does an LLC need to have in North Dakota?
An LLC in North Dakota requires articles of organization and an operating agreement.
What happens if an LLC operating agreement in North Dakota is not followed?
If the LLC operating agreement in North Dakota is not followed, LLC members may be exposed to legal liability and disputes.
Is an operating agreement required for North Dakota LLCs?
North Dakota does not require LLCs to have an operating agreement, but it is highly recommended.
Who can create an operating agreement for an LLC in North Dakota?
The members or owners of the LLC can create the operating agreement for their company in North Dakota.
Can changes be made to an operating agreement for an LLC in North Dakota?
Yes, changes can be made to an operating agreement for an LLC in North Dakota with the agreement of all members.
What are the benefits of having an operating agreement for an LLC in North Dakota?
An operating agreement can provide clarity and guidance on how the LLC will operate, reduce misunderstandings between members, and protect the company’s limited liability status.
Can an operating agreement prevent legal disputes between members of an LLC in North Dakota?
While an operating agreement can help prevent disputes, it cannot guarantee that there will never be disagreements between members of an LLC in North Dakota.
Is it necessary to file an LLC operating agreement with the state of North Dakota?
No, it is not necessary to file an LLC operating agreement with the state of North Dakota.
Can an LLC operating agreement in North Dakota be enforced in court?
Yes, an LLC operating agreement can be enforced through legal action in North Dakota.
Can an LLC operating agreement be changed after it has been signed in North Dakota?
Yes, an LLC operating agreement can be changed after it has been signed in North Dakota with the agreement of all members.
What happens if an LLC does not have an operating agreement in North Dakota?
If an LLC does not have an operating agreement in North Dakota, the state’s default LLC laws will govern the company’s operations.
How does an LLC choose a North Dakota registered agent in its operating agreement?
An LLC can name a registered agent in its operating agreement simply by listing their name and contact information.
What roles do members of an LLC have in North Dakota according to an operating agreement?
An operating agreement can define the roles and responsibilities of LLC members in North Dakota, such as management duties and profit sharing.
Can North Dakota LLCs without operating agreements still enjoy limited liability protection?
Yes, North Dakota LLCs without operating agreements still enjoy limited liability protection.
Can a single-member LLC have an operating agreement in North Dakota?
Yes, a single-member LLC can still have an operating agreement in North Dakota.
How detailed does an operating agreement for an LLC in North Dakota need to be?
The detail of an operating agreement for an LLC in North Dakota will depend on the complexity of the company’s operations and the preferences of the members, but it should cover the fundamental issues.
Can an operating agreement limit a member’s ownership rights in North Dakota?
Yes, an operating agreement can limit a member’s ownership rights in North Dakota if agreed upon by all members.
What happens if an LLC operating agreement conflicts with North Dakota law?
If an LLC operating agreement conflicts with North Dakota law, the law will take precedence.
What should be included in the management section of an operating agreement for an LLC in North Dakota?
The management section of an operating agreement for an LLC in North Dakota should outline how the LLC will be managed, who will be responsible for decision-making, and how disputes will be handled.
Can an LLC in North Dakota have more than one manager in its operating agreement?
Yes, an LLC in North Dakota can have more than one manager named in its operating agreement.
What should be included in the financial section of an operating agreement for an LLC in North Dakota?
The financial section of an operating agreement for an LLC in North Dakota should cover how profits and losses will be allocated among members, how taxes will be handled, and how capital contributions will be made.
Can an LLC in North Dakota specify the method of dispute resolution in its operating agreement?
Yes, an LLC in North Dakota can specify the method of dispute resolution in its operating agreement, whether through mediation, arbitration, or litigation.
Should an operating agreement for an LLC in North Dakota include a confidentiality agreement?
An operating agreement for an LLC in North Dakota can include a confidentiality agreement to protect sensitive information, but it is not necessary for many LLCs.
How does an LLC choose a member-management or manager-management structure in its operating agreement in North Dakota?
An LLC can choose whether members or appointed managers will run the company in its operating agreement in North Dakota according to their preference.
Can a member of an LLC in North Dakota serve as a registered agent for the company in the operating agreement?
Yes, a member of an LLC in North Dakota can serve as a registered agent for the company as specified in the operating agreement unless they are using a registered agent service.
How do financial decisions get made in an LLC according to its operating agreement in North Dakota?
An operating agreement for an LLC in North Dakota should indicate how financial decisions will be made by the members or managers.
Does an LLC operating agreement in North Dakota have to be notarized?
No, an LLC operating agreement in North Dakota does not have to be notarized or recorded with the state.
Can an LLC in North Dakota specify how profit distributions will be made in its operating agreement?
Yes, an LLC in North Dakota can specify how profit distributions will be made in its operating agreement.
Does an operating agreement for an LLC in North Dakota need to be written or oral?
The operating agreement for an LLC in North Dakota can be either written or oral, but it is recommended to have a written agreement for easier interpretation in case of any disputes.

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Conclusion

Having a well-drafted LLC Operating Agreement in place is crucial for the success and protection of your North Dakota LLC. It provides a clear framework for the ownership, management, and operation of your business, helping to prevent disputes and ensure compliance with state law. It is highly recommended to consult with legal and tax professionals when drafting and executing your operating agreement to ensure it meets your specific needs and complies with all applicable laws and regulations.

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