How to Start an S Corp in North Dakota

Is an S Corporation the Best Strategy for Your Business?

For help with choosing the right structure for your business, visit ourChoosing a Business Structureguide.

S Corporation Restrictions

S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read ourWhat Is an S Corporationguide 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 areasonable 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 largedistributionsin addition to their salary.

To learn more about the tax advantages of an S corp, read ourLLC vs. S corpguide and take a look at ourS Corp tax calculator.

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 likeNorthwestto 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 namemustinclude the phrase “limited liability company” or one of its abbreviations (LLCorL.L.C.). It cannot contain the words "limited" or "company" without association with the words "limited liability company."
• Your namecannotcontain the words "corporation," "incorporated," "limited partnership," or "limited liability partnership” or abbreviations of these.
• Your namecannotimply that the LLC was organized for an unlawful purpose or one not outlined in its Articles of Organization.
• Your namecannotinclude words that could confuse your LLC with agovernment agency(FBI, Treasury, State Department, etc.).
• Certainrestricted words(e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.
• Your namemay notbe the same as or deceptively similar to any existing business in the state.

You can also read theNorth Dakota statute(10 - 32.1 - 11、9页)对LLC命名指南for more information.

2. Is the name available in North Dakota?You can use the business search on theNorth Dakota Secretary of Statewebsite 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 aweb 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.

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 tofile an annual reportwith 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 ourNorth Dakota Annual Reportguide 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 theirreasonable salaryanddistributions, 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 DakotaOffice of State Tax Commissionerwebsite 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.