How to Start a Business in North Dakota
North Dakota is home to breathtaking prairies as well as a destination for budding entrepreneurs. According to the US Small Business Administration, the state currently boasts a thriving community of over 75,000 active small businesses, which is quickly growing. Between 2020 and 2022 alone, 22,515 new businesses took root in North Dakota. Starting a business in North Dakota also won’t break the bank. Forming a company here costs less than $150, including just $25 for a DBA, $100 for a corporation, and $135 for an LLC. With its affordable options and abundant resources, North Dakota presents an enticing opportunity for entrepreneurs seeking to establish their business. In this guide we’ll walk you through the steps you’ll need to get your business started in North Dakota.
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12 Steps to Starting a Business in North Dakota:
- Research and Plan your Business
- Choose a Business Structure
- Choose your Business Name
- Register your North Dakota Business
- Get an EIN
- Register for North Dakota Sales and Use Tax
- Apply for Business Licenses and Permits
- Open a Business Bank Account
- Set Up Credit Card Processing
- Establish an Accounting System
- Get Business Insurance
- Hire Employees and Set Up Payroll
When looking to start a business in North Dakota, a crucial first step is to thoroughly research your business idea and develop an initial plan. Conducting due diligence before taking any action is imperative and essential to the success of your venture. To understand what it takes for your North Dakota business to thrive, you’ll want to engage in preliminary market research and in-depth competitive analysis. Your research should provide insight into who constitutes the target customers for your products or services, identify your competitors, and offer measures for providing unique solutions.
Once you have relevant preliminary research, you can use it as a building block for creating your business plan. Writing a business plan is a pivotal step that will guide you through the initial stages of launching and growing your business. Even if you feel that you know your business idea inside and out, creating a formal business plan should not be undervalued as a study by the Harvard Business Review revealed that entrepreneurs who had a formal business plan were 16% more likely to succeed than those that did not create a plan.
Additional Information:Master the Art of Writing a Successful Business Plan
Now it’s time to select a legal structure for your business. Take into account the level of personal liability risk you are comfortable with, the desired tax status, and your source of capital. There are four common types of business structures to consider:
Limited Liability Companies (LLCs) are the most popular type of formal business entity. LLCs offer protection to their members’ personal assets in case of legal action or any outstanding business debts. For small business owners wanting tax advantages and flexibility, LLCs, by default, have pass-through taxation and offer the flexibility to choose C-Corporation or S-Corporation taxation.
Additional Information:What is a Limited Liability Company (LLC)?
Corporations offer a great option for business owners seeking legal separation from their businesses. Shareholders own a percentage and receive stock representing their ownership interest. While there are advantages like extra liability protection, there are also disadvantages such as higher tax rates. Consider tax implications and other factors before deciding to set up a corporation to protect your business and assets.
Additional Information:A Detailed Explanation of Corporations
If you’re beginning your entrepreneurial journey as a solo business owner in North Dakota, registering as a sole proprietorship is the best way to go. Its simplicity makes it a great option; you only need to obtain the necessary business licenses and permits essential to your business. Though keep in mind- with this ease and affordability, there’s a catch: sole proprietorships are deemed indistinguishable as a separate entity from their owner. If the business becomes liable for any debt or lawsuit, your personal assets are at risk to cover the expense. Having unlimited personal liability can be a concern for many, but considering the benefits of getting an affordable and quick start without rigid regulations, it’s a decent trade for the drawback.
Additional Information:Pros and Cons of starting as a Sole Proprietorship
If you start a business with two or more owners, a general partnership might be the easiest way to structure it. Like LLCs, general partnerships also get pass-through taxation, meaning you pay your taxes based on the profits or losses of the business. Since the company isn’t a separate entity in the eyes of the law, a general partnership is considered an informal structure, much like a sole proprietorship. However, remember that you and your partner(s) are personally responsible for anything that goes wrong with the business. To summarize, a general partnership may be the right choice to form a company with someone else with as little cost and complexity as possible. But just be aware of the unlimited liability that comes with it.
Additional Information:A Guide to Understanding Partnerships
Need More Info to Choose a Structure?
If you’re having difficulty determining which business structure best suits your needs, our How to Choose a Business Structure guide can provide more help. In the guide, we go over the 4 business structures and how they compare to each other in more detail.
Choosing a name for your North Dakota business is one of the most important parts of planning, and it can often be one of the most difficult too. Once you have named your business and started to grow it, it’s not easy to make a name change. The name that you choose can affect how you’re seen, so it’s worth taking your time.
If you’re finding it hard to think of a good name for your business, there are three key things to keep in mind:
- Choose a name that creates an identity for your business
- Pick something memorable
- Use a name that’s easy for people to search for online and find elsewhere
For more tips visit our guide: How to Create a Great Business Name.
After deciding which business structure is best for your North Dakota business, the next step is to officially register your business. The steps for registering a business name in North Dakota depend on which business structure you have chosen. Keep reading to find out how to register your preferred business type.
- Register a North Dakota LLC
- Register a North Dakota Corporation
- Register a North Dakota Sole Proprietorship
- Register a North Dakota Partnership
To register your LLC in North Dakota, you need to file Articles of Organization with the North Dakota Secretary of State (FirstStop), which has a state filing fee of 135. Check that the name you want is available before you register your business. You can do this by searching the Business Entity Database on the North Dakota Secretary of State (FirstStop) website. When you have done that, you can file the Articles of Organization. You will need to provide several details, including the business’s name, address, and owner contact information. You will also need to designate a North Dakota registered agent. At this stage, it’s also a good idea to create an operating agreement for your business.
Learn How to Start an LLC
If forming an LLC is something you’re interested in, take a look at our comprehensive guide on how to start an LLC in North Dakota. We provide a detailed outline of each essential step to help you navigate successfully.
To form a Corporation in North Dakota, you need to file Articles of Incorporation with the North Dakota Secretary of State (FirstStop). The fee for this filing is 100. Another necessary step is to appoint a registered agent for your Corporation. You should also consider creating a corporate bylaws document to outline how your business will operate.
If you plan to start your business as a sole proprietor in North Dakota, there’s no need to file any formal papers at the state level. However, sole proprietors are required to operate under their personal name or a name that at least includes their last name. If you plan to operate your business under a more unique and brandable name that doesn’t include your name, you’ll need to register a North Dakota DBA, officially referred to as a Trade Name or Fictitious Name, with the state. In addition you’ll also be required to obtain all required federal, state, and local permits and business licenses, which we cover in step 7 of this guide below.
As with a sole proprietorship, there’s no need to formally file anything to form a partnership in North Dakota. You may still need to complete a North Dakota DBA registration, also known as a Trade Name or Fictitious Name if you’re planning on a business name that doesn’t include the last names of the partners. A partnership agreement document is also useful to create at this stage, helping you and your business partner to agree on how the business will operate.
An EIN is an acronym that stands for Employer Identification Number. It is issued by the IRS for the purpose of filing taxes and employment. If you run a business that is organized in the form of a Corporation, Partnership, or LLC you must obtain an EIN. Even if your business is not required to do so, you should look into getting an EIN as it is useful for numerous business filings.
How to Apply for an EIN
The IRS has created an Online EIN Assistant where you can apply directly for an EIN free of charge, as long as you have an SSN. If you are having trouble or don’t have an SSN you can use Northwest Registered Agent’s EIN service to obtain your EIN.
In Dakota, the sales tax rate is 5%, but it can increase to 8.5% based on local taxes imposed by cities and counties. If your business has a sales tax nexus in North Dakota or sells taxable goods/services to residents, it is mandatory to collect and remit sales tax. Failing to meet this obligation may result in penalties and interest charges.
How to Know if you need to collect Sales Tax in North Dakota?
According to the North Dakota Department of Revenue, individuals and businesses selling taxable tangible personal property, admissions to recreational activities, or renting lodging accommodations are required to obtain a sales tax permit at least 30 days prior to commencing business operations. If your business engages in any of the following you’ll be responsible for collecting and remitting sales tax:
- Maintenance of business locations (such as offices) in North Dakota
- Real estate ownership in North Dakota
- The possession of merchandise stored in a public warehouse or held on consignment in North Dakota
- If goods are used by a distributor or non-employee representative in North Dakota to fulfill orders for the owner, ownership of the goods is established
- An employee or representative engaging in regular or frequent activities in North Dakota to solicit and accept orders
- An employee or representative who is actively engaged in purchasing or providing services (such as construction, installation, assembly, or equipment repair) in North Dakota on a regular or frequent basis
- Running mobile stores in North Dakota
- Providing services such as credit investigations, debt collection, and conducting training classes or seminars for customer personnel on product operation, repair, and maintenance
- Rent physical assets and granting permission to use intangible privileges in North Dakota
- The sale of intangible personal property, including real estate, services, and intangibles, within the state of North Dakota
- The execution of construction or service agreements in North Dakota
Remote sellers establish an economic nexus and must register with the Department of Revenue to obtain a North Dakota Sales Tax Permit if their sales of tangible personal property in North Dakota reach $100,000 or more during the preceding or current calendar year. Once the threshold is met, they are required to collect and remit North Dakota sales tax starting from the first calendar month after meeting the threshold.
Important Note: Amazon.com has established a customer service center in North Dakota, which leads to a sales tax obligation for Amazon and numerous sellers involved in Amazon’s Seller Central and Fulfillment By Amazon (FBA) programs.
For more detailed information visit the North Dakota Department of Revenue: Sales and Use Tax page or contact a qualified North Dakota tax professional.
Get Help Registering for North Dakota Sales and Use Tax
If you’d like assistance registering for North Dakota Sales and Use Tax you can use Swyftfilings Seller’s Permit service to complete your registration.
To ensure legal compliance with federal, state, and local laws, it is important for your business to obtain one or more business licenses and/or permits. The specific licenses and permits required will vary depending on various factors, such as the nature of your business, the products and services you offer, the data you collect, and your location. It is crucial to understand and adhere to these requirements to operate your business smoothly and within the bounds of the law.
Federal Licenses and Permits
Your business may need a license or permit to operate legally if your business is involved in an activity that is regulated at the federal level, such as:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
For more detailed information on federal business licenses and permits visit the Small Business Administration: Federal Licenses and Permits page.
State and Local Licenses and Permits
A general business license is not required in North Dakota, however most businesses will require a local business license.For more detailed information visit the State of North Dakota Business License page.
North Dakota Business License Research
Figuring out what business licenses you’ll need can be pretty complicated. You can use MyCorporation’s Business License Compliance service for expert help to determine which licenses you’ll need.
You should try to create a separation between your personal finances and your business finances. If your personal financial activity is routinely mixed up in your business activity, it could place your personal assets in jeopardy. Since banking activity is monitored and recorded, any such events will not be hard to find. This activity is known as “co-mingling funds” and can result in serious consequences for your business.
Co-mingling funds could result in the loss of your company’s limited liability status. This can result in creditors being able to go after both your business and personal assets. Furthermore, it even makes accounting for yourself, and your business that much more challenging since a significant portion of resources will be dedicated to determining which transaction is in a personal capacity and which one is for the business.
Opening a bank account specifically for your business can protect you from such consequences down the road. To gain more insight on the issue, read through our detailed how-to guide on opening a business bank account. It covers, among other things, matters such as which bank to choose and what documents will be required.
It is now expected for most businesses to recognize and accept payments through credit and debit cards. Around 60% of all transactions over $10 are through a credit or debit card. As a result, your business must accept card payments to if you want to maximize your businesses revenue.
For more information, visit our guide on the topic:How to Accept Credit Card Payments
One of the biggest mistakes new businesses make is improper or non-existent accounting. Having an accounting system setup from day one of your business is the sensible thing to do. It can offer you incredible returns on top of recording financial information. Managers and owners need good data to make prudent financial decisions. A good accounting system does just that. It streamlines that business’s finances and offers incredible insight into business performance.
A modern and efficient accounting system allows you to draft budgets with great ease, control cash flow, and produce the required financial reports to have maximum control over your business’ financial operations. For more detailed instructions on the subject, you can consult our Small Business Accounting 101 guide. It walks you through the steps required to do small business accounting, plus much more.
Recommended Accounting Software
We recommend using Freshbooks for your accounting needs. Freshbooks allows you send professional invoices, take online payments, timetrack and more.
Business insurance, much like regular insurance, is something that many people treat as a burden until the day that they end up needing it. It is only logical that you safeguard the thing you’ve worked so hard to build. Proper insurance mitigates risk on the off chance that an accident, natural disaster, or lawsuit strikes your business.
Go over the variety of insurance you might need for your business in our Small Business Insurance Guide,and make certain that you’re protected.
As the business grows, you may need extra help to run it smoothly. As such, you’ll have to hire employees and set up a payroll. It is your responsibility as an employer to report freshly hired employees and verify your employment status.
There are two items that employers must complete to be federally compliant when hiring new employees. You must verify that any employee is eligible for employment in the US and obtain a signed IRS Form W-4 to ensure you are withholding the correct amount for federal taxes. For more detailed information, visit the IRS page for Businesses with Employees.
Since North Dakota has a state level income tax, you’ll need to withhold taxes from your employees and remit them to the state. In addition to this you’ll also need to register for unemployment insurance. Luckily in North Dakota both of these registrations are done with the North Dakota Office of State Tax Commissioner. For more specific information about your requirements as an employer in North Dakota visit the ND.gov: New Hire Guide page for more info.
Recommended Hiring Software
If you’re hiring employees we recommend using Gusto. Gusto can not only automate your payroll but also help with hiring & onboarding, file employment taxes, aid with compliance and even identify hidden tax credits for your business.