How to Start an S Corp in North Dakota
While perhaps best known for its agriculture, North Dakota has a rapidly growing economy supported by many industries that make it a great place to start a business. With a low cost of living, low taxes, plenty of land, and business incentives, North Dakota continues to attract entrepreneurs and business owners alike to launch and grow their companies.
When starting a business, knowing where to begin and navigating all the decisions can seem overwhelming. Forming an S corporation (S corp) in North Dakota could prove beneficial by helping your business save money on its taxes. This guide provides all the information you need to form a North Dakota S corp as well as some great tips to help you keep it compliant year after year.
Not in North Dakota? Check out our other How to Start an S Corp guides to learn more.
We recommend using a professional formation service like Northwest to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in North Dakota
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from a North Dakota S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
How to Form a North Dakota S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in North Dakota
Starting a North Dakota LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Northwest to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Articles of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in North Dakota.
Be sure to choose a name that complies with North Dakota naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a North Dakota LLC:
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.). It cannot contain the words "limited" or "company" without association with the words "limited liability company."
- Your name cannot contain the words "corporation," "incorporated," "limited partnership," or "limited liability partnership” or abbreviations of these.
- Your name cannot imply that the LLC was organized for an unlawful purpose or one not outlined in its Articles of Organization.
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Certain restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.
- Your name may not be the same as or deceptively similar to any existing business in the state.
You can also read the North Dakota statute (10-32.1-11, page 9) about LLC naming guidelines for more information.
2. Is the name available in North Dakota? You can use the business search on the North Dakota Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Find a Domain Now
Step 2: Choose Your North Dakota Registered Agent
You must elect a registered agent for your North Dakota LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Step 3: File the North Dakota LLC Articles of Organization
The North Dakota Articles of Organization is used to officially register an LLC.
File Your North Dakota Articles of Organization
Online With the North Dakota Secretary of StateFile Online
State Filing Cost: $135
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our North Dakota LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Keep Your North Dakota S Corp Compliant
Maintaining your North Dakota S corp in good standing requires you to follow state and local laws and guidelines. The state also requires your business to file an annual report and remain current on its North Dakota taxes every year.
North Dakota S Corp Annual Report
Even when you elect S corp status for your business, the state will still treat — and tax — it like an LLC. That means, as a business owner, you’ll need to file an annual report with the North Dakota Secretary of State. This report is due every year on or before November 15.
The filing fee is $50, and late reports will incur a $100 late fee. The state of North Dakota could dissolve your S corp if you fail to file your annual report.
Visit our North Dakota Annual Report guide for a step-by-step overview of the filing process.
North Dakota S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and North Dakota S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
North Dakota Income Taxes
While North Dakota does have an income tax, it’s one of the lowest rates of all the states that levy state income taxes. Because your S corp operates under the same guidelines as an LLC, its business income tax will use North Dakota’s individual income tax rates from 1.10% to 2.90%.
Given its low state income tax, North Dakota consistently ranks as one of the best places to start a business in the nation.
North Dakota Sales and Use Tax
Your business may have to pay additional state-specific taxes in North Dakota. The Office of State Tax Commissioner provides details on these taxes, such as:
- Alcohol Tax
- Cigarette and Tobacco Products Tax
- Motor Fuel Tax
- Telecommunications Tax
Visit the North Dakota Office of State Tax Commissioner website for more information.
North Dakota Local Taxes
Depending on their location, North Dakota businesses also may need to pay local taxes. Check with your local city and county municipality to understand if your business has any local tax obligations.
Start a North Dakota S Corp FAQ
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
The North Dakota business landscape continues to grow exponentially — especially within the technology sector. Whether you plan to offer services in tech, agriculture, renewable energy, or anything else you can dream up, a wide range of businesses thrive in North Dakota.
The best place to form your S corp is where you plan to begin its operations. You can look toward expansion as your business grows, but, if you’re located in North Dakota, it’s a great place to start your business. The state’s low income tax, affordable cost of living, and growing business economy continue to attract entrepreneurs.