How to Start an S-Corporation in North Dakota (2024 Guide)

Start an S-Corporation in North Dakota

If you want to start an LLC in North Dakota, there are things that you should consider. North Dakota is the home to a thriving business community, making it an attractive location for entrepreneurs. One popular business structure is the S-Corporation, which offers several tax and operational advantages. This comprehensive guide will explore the process of starting an S-Corporation in North Dakota, including the costs, steps, advantages, and disadvantages associated with this business structure.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your S-corp, all the steps in this article must guide you.

What is an S-Corporation?

An S-Corporation is a type of corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. This tax treatment allows S-Corporations to enjoy pass-through taxation, meaning the corporation’s income, deductions, and credits flow through to the shareholders, who report this information on their individual tax returns. This structure helps to avoid the double taxation experienced by C-Corporations.

An S corporation (S corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other companies. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

Limitations and Requirements of S-Corp

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

You can apply for an S-Corp in North Dakota if qualified for the limitations and requirements.

Recommended: We recommend a professional service that can launch an S-Corp whether you have plans to crowdfund or go public. We recommend using –

LegalZoom Starts at $149 + filing fees

How to Form an S-Corporation in North Dakota?

To create S-Corp in North Dakota, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement, requesting an EIN, and filing a form 2553.

Step 1: Register a Business Name in North Dakota

After you have decided on the idea to start an S-Corp in North Dakota, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an S-Corp, there is a complete guide on North Dakota Business Name Search for a proper business name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in North Dakota.
  • Limit of restricted words that need a license in North Dakota
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hire a Registered Agent

The next step in starting an S-corp in North Dakota is hiring a Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence. Forming an LLC with an S-corp will be easier if you have Registered Agent in North Dakota.

However, if you would like to have an easier process in filing the necessary documents, you can get North Dakota Registered Agent Services.

We reviewed some of the Best Registered Agent Services and provided features as an add-on with their packages for you to check out.

LLC Service

Rating & Pricing

Top Features

Learn More

#1 Recommendation

$299 Per Year

  • Free LLC Formation

  • RA service in all states

  • Legal consultation

$125 Per Year

  • Flat price for RA service

  • LLC formation package

  • Fast service

Step 3: File For Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). North Dakota Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. For the Articles of Organization to be filed in OH Secretary of State, you need to pay a filing fee of $135. In North Dakota, the filing fee of forming an LLC is $135.

Recommended: Filing formation papers is easy and hassle-free if you hire a professional service. We recommend using –

LegalZoom ($0 + State Fee)

Step 4: Creating an Operating Agreement

After you have filed your Articles of Organization, the next step is to create an operating agreement in North Dakota. The operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following:

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure.

Step 5: Request for an EIN

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in North Dakota can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, LegalZoom can get your EIN for you. Their EIN service is quick and hassle-free. For more details about EIN for your business, check on how to apply for an EIN in North Dakota.

Recommended: With LegalZoom’s EIN service, obtaining your business’s crucial tax ID becomes a breeze, saving you time and effort by handling the complexities so you can quickly set sail on your entrepreneurial voyage. We recommend –

LegalZoom$79 (Standard Fee)

Step 6: File Form 2553 for your S-Corp Business

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or at most 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS.

In North Dakota, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

Costs of Forming an S-Corporation

There are several costs associated with forming an S-Corporation in North Dakota, including:

  1. Filing Fees: When forming a corporation in North Dakota, you must file Articles of Incorporation with the North Dakota Secretary of State and pay a filing fee of $100 for online and by mail filing.
  2. Statement of Information: After forming the corporation, you must file a Statement of Information (Form SI-550) within 90 days and pay a filing fee (currently $25). This statement must be filed annually after that.
  3. Franchise Tax: S-Corporations in North Dakota are subject to the annual franchise tax, which is the greater of a minimum tax (currently $800) or a calculated tax based on the corporation’s net income.
  4. Other Costs: Depending on the nature of your business, additional costs may include obtaining licenses and permits, registered agent services, and professional fees for legal and accounting services.

Advantages of Forming an S-Corporation

There are numerous advantages to incorporating an S-Corp, but you should be aware of certain problems. Consider the following benefits of an S corporation:

Pass-through Taxation

S-Corporations enjoy pass-through taxation, which helps to avoid the double taxation faced by C-Corporations. This can result in potential tax savings for shareholders. Pass-through taxation is a tax system where the income, deductions, and credits generated by a business entity, such as North Dakota General Partnership, limited liability company (LLC), or S-Corporation, are passed through to individual owners or shareholders instead of being taxed at the corporate level.

In this system, business profits and losses are reported on the owners’ or shareholders’ individual tax returns, and taxes are paid at their individual income tax rates. This avoids the issue of double taxation, which occurs in C-Corporations where income is taxed at both the corporate level and again when distributed to shareholders as dividends. Pass-through taxation is generally advantageous for small businesses and their owners, as it simplifies tax filings and often results in lower overall taxes.

Limited Liability Protection

Shareholders of an S-Corporation have limited liability protection, meaning their personal assets are protected from the corporation’s debts and obligations. Limited liability protection in an S-Corporation refers to the legal separation between the personal assets of the shareholders (owners) and the business assets, which protects shareholders from being personally responsible for the company’s debts and legal obligations.

In an S-Corporation, shareholders’ personal assets, such as their homes, cars, and personal savings, are not at risk if the business faces financial difficulties or lawsuits. The shareholders’ liability is limited to the amount they have invested in the company. This limited liability is a significant advantage of incorporating a business as an S-Corporation, as it provides a safeguard for the personal financial well-being of the business owners.

It is important to note that limited liability protection can only be supported if the shareholders maintain proper corporate formalities, such as keeping separate business and personal finances, holding regular shareholder meetings, and maintaining accurate business records. In such cases, courts may “pierce the corporate veil” and hold shareholders personally liable for the company’s debts and obligations.

Transferability of Shares

Shares in an S-Corporation are more easily transferable than those in an LLC, allowing for greater flexibility in ownership changes. Transferability of shares in an S-Corporation refers to the ability of shareholders to sell, gift, or otherwise transfer their ownership interest in the company to another person or entity. This is an important aspect of an S-Corporation’s structure, as it allows for flexibility in ownership and the potential for raising capital through the sale of shares.

However, there are certain restrictions on the transferability of shares in an S-Corporation, which are imposed by the Internal Revenue Service (IRS) to maintain the company’s eligibility for S-Corp status:

  • Shareholders: The number of shareholders in an S-Corporation is limited to a maximum of 100. Only individuals, certain trusts, and estates can be shareholders; other corporations and partnerships are generally not allowed.
  • Eligible Shareholders: Only U.S. citizens and resident aliens can be shareholders in an S-Corporation. Non-resident aliens are not allowed to hold shares.
  • One Class of Stock: S-Corporations can only have one class of stock. All shares must have the same rights and privileges, such as voting rights and distribution preferences. However, differences in voting rights are allowed if they are not tied to economic rights (e.g., distribution preferences).
  • Perpetual Existence: Perpetual existence refers to the concept that a business entity, such as an S-Corporation, can continue to exist indefinitely, regardless of changes in ownership or management. This means the corporation can outlive its original founders and shareholders and continue to operate even if individual shareholders pass away or decide to sell their shares.

This characteristic of an S-Corporation provides stability and continuity for the business, as it ensures that the corporation’s operations, contracts, and legal obligations remain unaffected by changes in ownership. It also makes it easier for the company to attract investors and raise capital. Potential investors can be confident that the business will continue to exist even if the original owners are no longer involved.

Disadvantages of Forming an S-Corporation

Despite these advantages, moving to an S corporation only sometimes makes sense – or at the very least, necessitates a thorough review of certain situations. The following issues may arise in particular:

Restrictions on Shareholders

S-Corporations are subject to specific restrictions, such as a maximum of 100 shareholders and limitations on the types of eligible shareholders (e.g., only individuals, certain trusts, and estates).

Single Class of Stock

S-Corporations are limited to issuing only one class of stock, which can limit flexibility in raising capital or creating different ownership structures. A single class of stock in an S-Corporation refers to the requirement that the corporation only issues one type of stock with equal rights and characteristics for all shareholders. This means that all shares of stock must have the same economic rights, such as dividend distribution preferences and liquidation rights, as well as voting rights. The single class of stock requirement is one of the key criteria the Internal Revenue Service (IRS) sets for a corporation to qualify for S-Corp status.

Increased Complexity

Forming and maintaining an S-Corporation requires more paperwork, record-keeping, and compliance with state and federal regulations than simpler structures like LLCs.

Franchise Tax

S-Corporations in North Dakota are subject to the annual franchise tax, which can financially burden some businesses.

In an North Dakota S-Corporation context, the franchise tax is usually based on the company’s income, net worth, or a combination of both. Since S-Corporations are pass-through entities for federal income tax purposes, meaning that their income is not taxed at the corporate level but rather passed through to individual shareholders, they may be exempt from or subject to lower franchise tax rates in some states than traditional C-Corporations.

However, S-Corporations must still comply with North Dakota franchise tax requirements, which may include annual filings and tax payments. It is crucial for S-Corporation owners to understand the specific rules and regulations in their state of operation and to consult with a tax professional to ensure compliance and minimize their tax.

FAQs

What is an S-corporation in North Dakota?
An S-corporation in North Dakota is a type of business entity that offers the liability protection of a corporation and the tax benefits of a partnership.
How do I start an S-corporation in North Dakota?
To start an S-corporation in North Dakota, you must file Articles of Incorporation with the North Dakota Secretary of State and meet certain other requirements.
What are the benefits of an S-corporation in North Dakota?
The main benefits of an S-corporation in North Dakota are the reduced tax burden and the limited liability protection it offers to its owners.
What are the drawbacks of an S-corporation in North Dakota?
Some of the drawbacks of an S-corporation in North Dakota include complexity, increased paperwork, and limited growth potential.
Is North Dakota a business-friendly state for S-corporations?
Yes, North Dakota is generally considered to be a business-friendly state for S-corporations, with low taxes and supportive regulations.
What is the corporate tax rate in North Dakota?
North Dakota has a flat corporate tax rate of 4.31%.
Are there any additional taxes or fees for S-corporations in North Dakota?
Yes, S-corporations in North Dakota may also be subject to payroll taxes and other state fees.
Can I start an S-corporation in North Dakota as a sole proprietor?
No, S-corporations in North Dakota must have at least two shareholders, and can have no more than 100.
How many directors are required for an S-corporation in North Dakota?
S-corporations in North Dakota must have at least one director, but may have more.
What happens if there is a disagreement among shareholders in an S-corporation in North Dakota?
Typically, disputes among shareholders in an S-corporation in North Dakota are resolved through arbitration or mediation in the state court system.
Can an S-corporation in North Dakota be formed for any type of business?
Yes, S-corporations in North Dakota can be formed for any type of business, as long as they meet the eligibility requirements.
How do I select a name for my S-corporation in North Dakota?
To select a name for your S-corporation in North Dakota, you must ensure that it is available and not already in use by another business.
Can I reserve a name for my S-corporation in North Dakota?
Yes, you can reserve a name for your S-corporation in North Dakota for up to 120 days by filing an application with the Secretary of State.
What is the filing fee for starting an S-corporation in North Dakota?
The filing fee for starting an S-corporation in North Dakota is $135.
How long does it take to start an S-corporation in North Dakota?
It typically takes 7-10 business days to start an S-corporation in North Dakota, assuming all necessary paperwork is submitted correctly.
How often do I need to file taxes for my S-corporation in North Dakota?
S-corporations in North Dakota are required to file an annual state tax return by April 15th.
What documents do I need to start an S-corporation in North Dakota?
The main documents needed to start an S-corporation in North Dakota are Articles of Incorporation, bylaws, and shareholder agreements.
Can I change my S-corporation to a different business entity type in North Dakota?
Yes, it is possible to convert an S-corporation in North Dakota to another business entity type by filing appropriate paperwork with the Secretary of State.
Do I need a lawyer to start an S-corporation in North Dakota?
While it is not legally required, it is often recommended to work with a lawyer when starting an S-corporation in North Dakota, especially if you have limited legal experience.
Can I operate my S-corporation in North Dakota from another state?
Yes, you can operate your S-corporation in North Dakota from another state, as long as it is legally registered to do business in North Dakota.
What is an operating agreement for an S-corporation in North Dakota?
An operating agreement for an S-corporation in North Dakota is a written description of how the business will be run in terms of procedures and finances.
Do I need to hold annual shareholder meetings for my S-corporation in North Dakota?
While it is not required by law, holding annual shareholder meetings is often recommended for S-corporations in North Dakota to maintain orderly operations.
What is the liability protection for an S-corporation in North Dakota?
An S-corporation in North Dakota provides limited liability protection to its owners, meaning that they are not personally liable for business debts or lawsuits.
How are profits allocated in an S-corporation in North Dakota?
Profits in an S-corporation in North Dakota are allocated based on stock ownership percentage.
How are taxes paid for an S-corporation in North Dakota?
S-corporations in North Dakota do not pay federal income tax, but instead pass through profits and losses to shareholders who report them on their personal tax returns.
What is the federal tax rate for S-corporations in North Dakota?
S-corporations in North Dakota do not pay federal income tax, but are still subject to other federal taxes like payroll tax.
What is the personal liability for an S-corporation in North Dakota?
The personal liability for owners of an S-corporation in North Dakota is limited to the amount of money invested in the business.
Can I dissolve an S-corporation in North Dakota?
Yes, it is possible to dissolve an S-corporation in North Dakota by filing appropriate paperwork with the Secretary of State and settling any outstanding debts or tax liabilities.
How long does an S-corporation in North Dakota last?
An S-corporation in North Dakota can last indefinitely, unless it is voluntarily dissolved or legally terminated.
What is an s-corporation in North Dakota?
An S-Corporation in North Dakota is a type of corporation that provides limited liability to its owners while still allowing them to be taxed like a partnership or sole proprietorship.
How do I form an S-Corporation in North Dakota?
To form an S-Corporation in North Dakota, you must first file articles of incorporation with the Secretary of State and then hold an organizational meeting to elect officers and adopt bylaws.
Can a single person start an S-Corporation in North Dakota?
Yes, in North Dakota, a single person can start an S-Corporation.
What is the advantage of an S-Corporation in North Dakota?
One advantage of an S-Corporation in North Dakota is that the income is only taxed once, at the personal income tax level of the owners, rather than being taxed twice, at the corporate and personal levels.
Are there any restrictions on who can start an S-Corporation in North Dakota?
Anyone who is eligible to start a corporation in North Dakota is also eligible to start an S-Corporation.
How many people can own an S-Corporation in North Dakota?
In North Dakota, an S-Corporation can have up to 100 shareholders.
Are there any residency requirements for owning an S-Corporation in North Dakota?
No, there are no residency requirements for owning an S-Corporation in North Dakota.
Do I need a lawyer to start an S-Corporation in North Dakota?
While you don’t need a lawyer to start an S-Corporation in North Dakota, it can be helpful to have one in order to ensure that all of the legal requirements are met.
How much does it cost to start an S-Corporation in North Dakota?
The cost of starting an S-Corporation in North Dakota will vary based on factors such as location, legal fees, and whether you file yourself or through a filing service.
How much does it cost to maintain an S-Corporation in North Dakota?
Operating an S-Corporation in North Dakota may require annual fees, franchise taxes, and other regulatory fees, and these costs will vary depending on the location and size of your business.
Can an S-Corporation in North Dakota pay its shareholders a salary?
Yes, an S-Corporation in North Dakota can pay its owners a salary, but the salary must be reasonable based upon the services provided.
What is a reasonable salary for an owner of an S-Corporation in North Dakota?
The reasonable salary for an owner of an S-Corporation in North Dakota will depend on the employee’s qualifications, job duties, hours worked, and any other relevant factors.
Do S-Corporations in North Dakota need to file taxes?
Yes, S-Corporations in North Dakota must file an annual tax return, even if they do not owe any taxes.
How do S-Corporations in North Dakota avoid double taxation?
S-Corporations in North Dakota avoid double taxation by passing their income, deductions, and credits through to their owners rather than being taxed at the corporate level.
What responsibilities do officers and directors of an S-Corporation in North Dakota have?
The officers and directors of an S-Corporation in North Dakota are responsible for managing the company and making strategic decisions.
Can a non-resident alien own shares in a North Dakota S-Corporation?
Yes, a non-resident alien can own shares in a North Dakota S-Corporation.
Do North Dakota S-Corporations have annual meetings?
Yes, North Dakota S-Corporations are required to hold annual meetings of their shareholders.
What is the shareholder limit for an S-Corporation in North Dakota?
The shareholder limit for an S-Corporation in North Dakota is set at 100.
Are non-profit organizations eligible to become S-Corporations in North Dakota?
No, non-profit organizations are not eligible to become S-Corporations in North Dakota.
Who can be a shareholder in a North Dakota S-Corporation?
Anyone aged 18 or above can be a shareholder in a North Dakota S-Corporation.
How long on average does it take to register an S-Corporation in North Dakota?
The time it takes to register an S-Corporation in North Dakota depends on the state’s processing time; 4-6 weeks is typical.
Can North Dakota S-Corporations have different types of stocks?
Yes, North Dakota S-Corporations can have different types of stocks with different voting rights.
Is there a difference between a C-Corporation and an S-Corporation in North Dakota?
Yes, there are differences between a C-Corporation and an S-Corporation in North Dakota. The major difference is the way that they are taxed.
How can S-Corporations in North Dakota obtain financing?
S-Corporations in North Dakota can obtain financing through debt, equity funding, or venture capital.
Are North Dakota S-Corporations obligated to issue dividends to shareholders?
No, North Dakota S-Corporations are not obligated to issue dividends to shareholders.
What happens if you do not register an S-Corporation in North Dakota?
If you do not register an S-Corporation in North Dakota, you can be subject to fines and other legal penalties.
Can S-Corporations in North Dakota get assistance from the State Government?
Yes. S-Corporations in North Dakota can also seek assistance from state-funded small business resources that provide help with everything from regulatory compliance to accessing financing.
Can a foreign corporation become an S-Corporation in North Dakota?
Yes, a foreign corporation can become an S-Corporation in North Dakota provided it meets all legal requirements and follows North Dakota state regulation.

Also Read

Why You Should Start North Dakota S Corp

An S corporation is a type of corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. This means that the corporation is not taxed at the corporate level, but instead, the income is only taxed at the individual level when it is distributed to the shareholders. This can be a significant benefit for many small businesses, as it can help to avoid the double taxation that occurs with a traditional C corporation.

One of the main reasons to consider starting an S Corp in North Dakota is the potential tax benefits. North Dakota has a relatively business-friendly tax environment, with no state-level corporate income tax. This means that S Corporations in North Dakota will not be subject to the state corporate income tax, which can be a significant advantage for small businesses looking to minimize their tax liability.

Additionally, North Dakota has relatively low individual income tax rates, which can benefit shareholders of an S Corporation. By passing income through to the shareholders, S Corporations can help individuals take advantage of lower tax rates on their personal income tax returns.

Another reason to consider starting an S Corp in North Dakota is the flexibility that this business structure provides. S Corporations can have up to 100 shareholders, which can make it easier to bring on investors or partners as your business grows. Additionally, S Corporations can offer different classes of stock, allowing for more flexibility in structuring ownership and control of the business.

S Corporations in North Dakota also have limited liability protection for their shareholders, which can be an important consideration for business owners looking to protect their personal assets. By forming an S Corp, shareholders are generally not personally liable for the debts and obligations of the corporation, which can provide added peace of mind when starting a business.

Finally, forming an S Corp in North Dakota can help to give your business a professional and credible image. By establishing a formal business entity, you can demonstrate to customers, clients, and partners that you are serious about your business and committed to its success. This can help to build trust and credibility in the marketplace, which can be crucial for attracting customers and growing your business.

Overall, starting an S Corp in North Dakota can offer many benefits for small business owners. From potential tax benefits and flexibility to limited liability protection and credibility, forming an S Corp can be a smart choice for entrepreneurs looking to start a successful business in the Peace Garden State.

Conclusion

Forming an S-Corporation in North Dakota can be a beneficial decision for small business owners seeking liability protection, pass-through taxation, and easier transfer of ownership. By meeting the requirements set by the IRS and following the necessary steps, business owners can take advantage of an S-Corp’s unique structure and benefits. However, it is essential to consider the potential drawbacks, such as increased paperwork and limitations on ownership, before making a final decision. Consulting with a legal or financial professional can help business owners determine if an S-Corporation is right for their needs and goals.

Leave a Comment