LLC vs. S Corp in North Dakota 2024: A Comprehensive Comparison

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LLC vs. S Corp in North Dakota: Understanding the Differences

Embarking on the entrepreneurial journey in North Dakota, also known as The Peace Garden State, is an exciting and transformative experience. North Dakota LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in North Dakota and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in North Dakota.

Compare LLC and S-Corp

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In North Dakota, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in North Dakota are required to pay an annual fee of $50 to maintain their legal status and stay compliant with the state regulations.

An LLC in North Dakota offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in North Dakota  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In North Dakota, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in North Dakota. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in North Dakota

One of the main differences between LLCs and S-Corporations in North Dakota lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in North Dakota, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in North Dakota benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in North Dakota are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in North Dakota opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in North Dakota with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in North Dakota, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • North Dakota State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in North Dakota, it costs $50, which can be paid to the OH Secretary of State. Additionally, before forming the LLC, you must pay $135.

On the other hand, if you form an S-Corporation in North Dakota, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the OH Secretary of State to make these payments.

2. Liability Protection

LLCs and S-Corporations in North Dakota provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in North Dakota:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in North Dakota is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your North Dakota LLC or North Dakota S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in North Dakota have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in North Dakota: LLCs or S-Corporations

While filing an LLC or S-Corporation in North Dakota requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the North Dakota Registered Agent.

To start an LLC in North Dakota, you must submit the Articles of Organization to the North Dakota Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your North Dakota LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

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Filing Process for LLCs vs. S-Corporations in North Dakota

Forming an LLC in North Dakota involves several crucial steps. To start, you must file Articles of Organization with the North Dakota Secretary of State and pay the associated filing fee of $135. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In North Dakota, the S-Corporation filing fee is $100 for online and by mail filing.

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The LLC formation and S-Corporation election processes can be completed through two methods, online and by mail. Online incorporation is available at Create an account/Log in to the SOS site, get the online form, fill it, and submit online, while offline incorporation can be done at Send the form by mail to Secretary of State, State of North Dakota, 600 E Boulevard Avenue Dept 108, Bismarck ND 58505-0500. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in North Dakota varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in North Dakota.

FAQs

What is the difference between an LLC and S Corp in North Dakota?
An LLC is a business structure where there is no separation of the owner’s personal and business assets. S Corp is a tax designation, where the business acts as a separate entity.
What are the registration fees for LLC and S Corp in North Dakota?
For LLCs, the registration fee is $135. For S Corps, the registration fee is $150.
What is the personal liability protection for an LLC in North Dakota?
LLCs provide limited liability protection, meaning that the owners are only liable for the debts and obligations of the business to the extent of their investment.
What is the personal liability protection for an S Corp in North Dakota?
S Corps also provide limited liability protection, meaning the owners are only liable for the debts and obligations of the business to the extent of their investment.
Can an LLC in North Dakota have only one member?
Yes, North Dakota law allows for both single and multi-member LLCs.
Can an S Corp in North Dakota have only one shareholder?
Yes, an S Corp is allowed to have one shareholder, however, it cannot exceed 100 shareholders.
What is the tax structure for an LLC in North Dakota?
LLCs are treated as pass-through entities. This means that business income is reported on individual owners’ tax returns.
What is the tax structure for an S Corp in North Dakota?
S corps are also treated as pass-through entities, but there are additional tax requirements and restrictions for S corps in North Dakota.
Can LLCs elect to be taxed as S corps in North Dakota?
Yes, LLCs can elect to be taxed as S corps by filing Form 2553 with the IRS.
Do LLCs and S Corps have different reporting requirements in North Dakota?
LLCs and S Corps have similar reporting requirements, but there are some differences in the type of paperwork that must be filed.
Can an LLC or S Corp in North Dakota operate in other states?
Yes, both LLCs and S Corps can operate in other states, but they must register in each state where they conduct business.
What is the maximum allowable number of owners or shareholders for an LLC in North Dakota?
There is no limit to the number of owners in an LLC.
What is the maximum allowable number of shareholders for an S Corp in North Dakota?
S Corps are allowed to have up to 100 shareholders.
How is ownership in an LLC documented in North Dakota?
Ownership in an LLC is documented using an Operating Agreement, which sets out the structure and responsibilities of the owners.
How is ownership in an S Corp documented in North Dakota?
Ownership in an S Corp is documented using Shareholder Agreements and Articles of Incorporation, which set out the structure and responsibilities of the shareholders.
What is the management structure for an LLC in North Dakota?
The owner(s) of an LLC manage the business, unless they choose to delegate management to a designated manager.
What is the management structure for an S Corp in North Dakota?
S Corps have a board of directors and officers who are in charge of managing the business.
Can non-US citizens own an LLC or S Corp in North Dakota?
Yes, non-US citizens can own LLCs and S Corps in North Dakota as long as they meet the necessary requirements.
Can LLCs and S Corps in North Dakota offer investor stock options or equity grants?
Only S Corps can offer equity grants and stock options to their employees.
Can LLCs and S Corps merge or convert in North Dakota?
Yes, LLCs and S Corps can merge, convert, or dissolve in North Dakota.
Are there any residency requirements for LLCs or S Corps in North Dakota?
There are no voting or residency requirements for LLC or S Corp owners in North Dakota.
Can LLCs and S Corps in North Dakota give charitable donations or set up charitable foundations?
Yes, both LLCs and S Corps can give charitable donations and set up charitable foundations.
How is dissolution handled for LLCs and S Corps in North Dakota?
LLCs can dissolve by mutual agreement of the owners, while S Corps must adhere to specific procedures for dissolution, including shareholder approval and notifying the Secretary of State.
What happens to liabilities if an LLC or S Corp is dissolved in North Dakota?
The liabilities of a dissolved LLC or S Corp remain with the business and do not become the personal liabilities of the owners or shareholders.
Are annual meetings required for LLCs and S Corps in North Dakota?
Meetings are not technically required, but LLCs and S Corps should document certain decisions or actions taken by the owners or shareholders on an ongoing basis.
What are the name requirements for LLCs and S Corps in North Dakota?
The names of LLCs must include the words “Limited Liability Company” or the abbreviation “LLC”. The names of S Corps must include the words “Corporation” or “Incorporated” or the abbreviation “Corp.” or “Inc.”.
What are the annual report requirements for LLCs and S Corps in North Dakota?
All LLCs and S Corps are required to file annual reports with the Secretary of State that include basic information about the business and its owners. These reports are due on the first day of the business’s anniversary month.
Does North Dakota have a preference for LLCs or S Corps?
North Dakota does not have an explicit preference for either LLCs or S Corps, but each business should choose the structure that best suits their individual needs.
What is an LLC, and how does it differ from an S Corp in North Dakota?
A Limited Liability Company (LLC) is a type of business structure that provides the owners with limited liability, and it is different from an S Corporation (S Corp) in the sense that it provides pass-through taxation rather than double taxation.
Is there a limit on the number of LLC members in North Dakota?
No, there is no limit on the number of members an LLC can have in North Dakota.
Can an LLC in North Dakota choose to be treated as an S Corp for tax purposes?
Yes, an LLC in North Dakota can choose to be treated as an S Corporation for tax purposes, provided it meets the specific requirements laid out by the IRS.
How does an S Corp differ from a regular corporation in North Dakota?
In North Dakota, an S Corporation is a regular corporation that meets specific criteria of the Internal Revenue Service (IRS) to be taxed like a partnership or sole proprietorship.
Can a nonresident be a member of an LLC in North Dakota?
Yes, a nonresident individual or entity can be a member of an LLC in North Dakota.
Are LLCs in North Dakota required to have an operating agreement?
While an operating agreement is not required by North Dakota law, it is highly recommended that LLCs have one.
How much does it cost to form an LLC or S Corp in North Dakota?
The filing fee for an LLC or S Corporation in North Dakota is $135.
What are the ongoing requirements for an LLC in North Dakota?
In North Dakota, an LLC is required to file an annual report, and it’s also recommended that the LLC holds regular meetings and maintains accurate records.
Are there any residency requirements for LLC or S Corp officers or members in North Dakota?
No, there are no residency requirements for LLC or S Corporation officers or members in North Dakota.
What is the liability protection offered by an S Corp in North Dakota?
Like an LLC, an S Corporation in North Dakota provides the owners with limited liability protection.
Can an LLC have different distribution allocation than ownership percentages in North Dakota?
Yes, an LLC in North Dakota can have different distribution allocation than ownership percentages.
Can LLCs in North Dakota be owned by other LLCs?
Yes, an LLC in North Dakota can be owned by another LLC.
What is the maximum number of employees an LLC or S Corp can have in North Dakota?
There is no maximum limit on the number of employees an LLC or S Corporation can have in North Dakota.
Are Pass-through losses allowed in North Dakota for both LLCs and S Corporations?
Yes, pass-through losses are allowed for both types of entities in North Dakota.
What kind of liability protection does an S Corp offer in North Dakota?
Like an LLC, an S Corporation in North Dakota offers the qualifying owners limited liability protection.
Are there any restrictions on foreign ownership of LLC or S Corp in North Dakota?
No, there are no such restrictions on foreign ownership of LLC or S Corporation in North Dakota.
What is the difference in annual report requirements for LLC and S Corp in North Dakota?
The annual report requirements are the same for both LLCs and S Corporations; they must be filed annually with the North Dakota Secretary of State.
Can you convert an LLC to an S Corp in North Dakota?
Yes, an LLC in North Dakota can convert to an S Corporation if it meets certain requirements.
Can you convert an S Corp to an LLC in North Dakota?
Yes, an S Corporation in North Dakota can be converted to an LLC.
What is the tax rate for an S Corporation in North Dakota?
S Corporations in North Dakota pay no federal income tax on their taxable income. Instead, the shareholders report business income or losses on their individual income tax returns.
Do both LLC and S Corp in North Dakota offer “corporate veil” protection?
Yes, both LLC and S Corporation offer corporate veil protection in North Dakota.
Is it necessary to elect officers for an LLC in North Dakota?
There is no legal requirement to elect officers for an LLC in North Dakota, but it is recommended for organized management.
Is there an age limit to forming a North Dakota LLC or S Corp?
No, there is no age limit to forming an LLC or S Corporation in North Dakota.
Is it allowed to form a Professional LLC or S Corp in North Dakota?
Yes, Professional LLCs and S Corporations are permitted in North Dakota for service professionals in authorized licensed professions.
Who prepares and files an LLC or S Corp Articles of Organization in North Dakota?
The person(s) starting the company typically prepare the Articles of Organization, and they are then filed with the North Dakota Secretary of State.
Can you have an LLC or S Corporation with no business activity in North Dakota?
It is legal to form and maintain an LLC or S Corporation in North Dakota with no business activity as long as other requirements for state registrations, taxation, reports, and renewals, are maintained.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in North Dakota.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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