In North Dakota, a Limited Liability Partnership (LLP) is a type of business arrangement that allows partners to have limited liability, meaning they’re not personally responsible for business debts. Here are the general requirements.
A partnership agreement is the foundational document for any LLP and serves as the cornerstone for the business’s operation. Before you take the step to establish an LLP, it’s important to draft this agreement with care and precision.
At its core, the partnership agreement provides clarity. It clearly outlines each partner’s roles in the business—whether one will handle operations while another manages finances or any other division of responsibilities. This division is important for clarity and ensuring that there’s no overlap, which could lead to internal disputes.
Also, it specifies ownership percentages, which can differ from one partner to another. This is especially important when it comes to distributing profits or absorbing losses. An explicitly defined percentage can prevent misunderstandings and conflicts down the road.
Lastly, the partnership agreement sets the stage for the overall running of the business. This document lays down rules and procedures from decision-making processes to dispute-resolution methods. Setting these terms early on can prevent potential legal disputes, saving time and money.
Obtain a Business License
Running a business without the appropriate license in North Dakota isn’t just a risk—it’s illegal. Regardless of size or industry, an LLP must obtain a business license to operate within the state’s confines.
This license serves a dual purpose. First, it’s a form of verification, attesting that the business adheres to the required state standards and regulations, ensuring consumer safety and trust. For instance, a restaurant must meet health and safety regulations, while a consultancy must prove certain qualifications.
Secondly, obtaining a license instills a sense of credibility and legitimacy in your LLP. Clients and customers often look for licensed businesses as a sign of professionalism and reliability.
Personal Income Tax Returns
One of the unique features of an LLP is how it handles taxation. Unlike corporations, where the business entity is taxed, LLPs follow a “pass-through” taxation model. The business’s profits or losses are passed directly to the partners.
As a partner in an LLP, you will report your share of the business’s profits or losses on your personal income tax returns. This model prevents the double taxation often seen with corporations, where the company and the individual shareholders are taxed.
This becomes even more relevant in North Dakota as every individual with earned income during the fiscal year must file a state income tax return. As such, partners in an LLP must be diligent about maintaining accurate financial records and understanding their tax obligations.
What Paperwork Do I Need to Form an LLP?
Here is more information about the paperwork you need to form an LLP in North Dakota.
Application to Register a Limited Liability Partnership
You need to file this document with the North Dakota Secretary of State to create your LLP. You can find the form here. The form requires you to provide the following information:
- The name of your LLP must include the words “Limited Liability Partnership” or the abbreviation “LLP” or “L.L.P.”
- The address of your LLP’s principal office, which must be located in North Dakota
- The name and address of your LLP’s registered agent, who must be a person or a business entity authorized to do business in North Dakota and consent to receive legal notices on behalf of your LLP
- The number of partners in your LLP and their names and addresses
- The purpose of your LLP, which can be any lawful business activity
- The duration of your LLP, which can be perpetual or for a specified period
- The signature of at least one partner authorized to execute the application
The filing fee for the application is $50 per partner, with a minimum of $100 and a maximum of $1,000.
Employer Identification Number (EIN)
An EIN is a unique identification number the Internal Revenue Service (IRS) assigns to your LLP for tax purposes. You can apply for an EIN online. You will need to provide the following information:
- The name and address of your LLP
- The name and SSN or ITIN of the responsible party, who is a partner or a person authorized to act on behalf of your LLP
- The number of partners in your LLP and their names and SSNs or ITINs
- The date your LLP was formed and the state where it is registered
- The principal business activity and NAICS code of your LLP
- The reasons for applying for an EIN include starting a new business, banking purposes, etc.
There is no filing fee for applying for an EIN.
An operating agreement is a written contract that governs the internal affairs of your LLP, such as the rights and responsibilities of the partners, the management and decision-making structure, the allocation of profits and losses, the admission and withdrawal of partners, the dissolution and winding up of the LLP, etc. An operating agreement is not required by law in North Dakota, but it is highly recommended to have one to avoid potential disputes and to protect the limited liability status of the partners. You can create your own operating agreement or use a template from a reputable source.
State Business Taxes
Depending on the nature and income of your LLP, you may need to register for and pay various state taxes, such as sales tax, use tax, income tax, withholding tax, etc.
Business Licenses and Permits
Depending on the type and location of your LLP, you may need to obtain various licenses and permits from the state, county, or city authorities to operate your business legally and safely. Some examples of licenses and permits are professional licenses, occupational licenses, health permits, zoning permits, etc.
What Benefits Does North Dakota Give to an LLP?
North Dakota offers several benefits for LLPs:
- Limited Liability: Partners are not personally liable for the business’s debts or liabilities.
- Tax Flexibility: Income is passed through the partnership and reported on individual tax returns, avoiding double taxation.
- Flexibility in Management: Partners have the freedom to structure the management of the business in a way that suits them.
What Disadvantages Does North Dakota Give to an LLP?
However, there are some potential downsides. LLPs must file annual reports with the state, which can be cumbersome.
Should I Hire a Lawyer?
Given the complexities involved in establishing and running an LLP, it might be wise to consult with a professional. A business lawyer can help you navigate the legal landscape, ensure your partnership agreement is solid, and keep your LLP compliant with state regulations. If you’re looking for a trusted corporate lawyer in North Dakota, consider contacting LegalMatch to find the right attorney.
Are you ready to take the next step in forming your LLP in North Dakota? Don’t wait. Let LegalMatch connect you with a skilled North Dakota corporate lawyer today.