Why form a North Dakota LLC?
There are many advantages to forming a North Dakota limited liability company for your business. First and foremost is the liability protection of your personal assets. When you form a LLC, it helps separate your personal assets from that of your business. A North Dakota limited liability company is a legal entity that exists separately from its owners or shareholders. Typically, shareholders are not liable for the debts and obligations of the corporation or from any litigation where the company is the defendant. In a partnership or sole proprietorship, the creditors can go after the owners personal assets if the company’s assets are not enough to settle a claim.
Form a North Dakota Limited Liability Company to Control Risk
When you form a North Dakota LLC you form a separate entity from the owners of that company. Therefore, if your company is named in a lawsuit, there are legal provisions and UCC Code to protect the owners, directors, shareholders from personal liability. If you operate your business without the protection afforded by having LLCs status, you can find yourself personally liable for your any and all debts and obligations of your business.
Tips on naming your Limited Liability Company
North Dakota Limited Liability Companies must have the ending of LLC, L.L.C., and Limited Liability Company. The company name must be distinguishable in relation to another entity already on file with the Secretary of States office. In determining if a company is distinguishable, the Secretary of State will ignore words such as “and”, “the”, “or”, “a”, “an”. The Secretary of state will also ignore the use of punctuation, spaces and the use of capitals. Also, the Secretary of state will reject names that are deceptively similar to that of another entity.
Business Debts - Who is Liable?
A North Dakota LLC, if operated correctly, is a separate legal entity from its owners. If your company finds that it has a debt it can not pay or a claim from a lawsuit, the company, and the company alone will be held responsible for that debt and not the owners. This is not the case for a sole-proprietorship, a limited-partnership, or a general partnership, where the owners are directly responsible for the debts and obligations of the company. In North Dakota, if you plan on having a store, employees, or sell goods you need to be protected by rights afforded to either an LLC or a Corporation. If anybody is to become seriously injured as a result of being in your store, working in your store, or using the items your sell, your company could find itself in a serious lawsuit. You must keep in mind, that you will be held responsible for any debts or obligation that you personally guarantee.
What is required to aintain Corporate Status?
In most states an LLC only requires one person, who can hold all positions. You must be careful that your personal and corporate funds are not commingled. You should take extra care to avoid paying obligations of your North Dakota LLC with your personal assets, and personal debts with your LLC assets. If you fail to maintain a very clear distinction between your LLC and your personal assets, the courts can find you liable for LLC debts. A requirement for this separation is having a distinct federal tax id number and a distinct bank and checking account from your personal assets. You want to be certain not to use your social security number on your bank account, credit card, or on signed contracts. If you use your social security number when transaction or entering in signed agreements, than you can be held personally liable for those specific debts or obligations.
Different ways to classify an L.L.C.
A limited liability company is an entity formed under state law by filing articles of organization. Unlike a partnership, none of the members are personally liable for its debts. An L.L.C. may be classified for Federal income tax purposes as a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), partnership or a corporation. If the L.L.C. has only one owner, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation. If the L.L.C. has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If the LLC does not elect its classification, a default classification of partnership (multi-member) or sole proprietorship (single member) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832, a default classification will apply.
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