Forming a North Dakota LLC takes a lot of planning. Between the Certificate of Formation, business licenses, franchise taxes, and more, there’s a lot to consider. And paperwork and startup costs aren’t the only necessary tasks.
You’ll also want to set up your LLC to run smoothly and avoid legal troubles after it’s been registered with the state.
That’s where the LLC operating agreement comes in.
What is an LLC Operating Agreement?
An operating agreement gives your business structure and official procedures. It designates ownership, establishes operations, defines member responsibilities, and provides legal protection. Essentially, it lays out everything someone might need to know about your LLC. And it’s an internal document, so there’s no filing or fees involved.
Whether you’re starting a multi-member or single-member LLC, we strongly recommend completing an operating agreement. It’ll benefit and protect you for as long as you’re in business.
Am I Required to Have an Operating Agreement in North Dakota?
No, you aren’t. Operating agreements are optional for North Dakota LLCs. That said, they can be extremely beneficial, providing your company with stability and security, so we strongly recommend that you create one.
Without an operating agreement in place, you will have little control over the actions of your LLC; it will lack consistent procedures and your personal assets may not be protected. For these reasons (among many others) it’s best to put in the work and draft one right away.
Benefits of Creating an Operating Agreement
You want what’s best for your business. Months or years in the future, you want it to be a profitable and thriving endeavor. Having an operating agreement in place will set up your LLC for sustained success.
It requires some legwork, but it’s well worth it. Just look at some of the benefits:
- Officially designates how the ownership is split up (the percentage each member/manager owns), so there are no disputes.
- Standardizes office and company operations to improve efficiency
- Outlines the procedures for member additions and resignations, registered agent changes, dissolutions, and more, so there is no confusion.
- Avoids North Dakota’s “default rules,” which define baseline procedures for any LLC without an operating agreement and aren’t necessarily the best for your business.
- Grants you greater respect from North Dakota courts.
Free North Dakota LLC Operating Agreement
So you decided to draft an operating agreement and now you’re sitting in front of your computer, wondering where to start. The Secretary of State website may seem like a logical choice, but because operating agreements are optional, they don’t offer any official forms or instructions.
So, you’ll need to create your own, but don’t be intimidated! You don’t need to be an attorney or expert writer to draft an effective agreement. Plus, you can find plenty of free templates online to help you with the structure and legal terminology. While most of these templates are good options, a great starting point is one that you can get free through an affordable LLC service like ZenBusiness or Northwest Registered Agent.
Whether you’re using a template or starting from scratch, here’s a quick and easy guide for what to include:
Owner or Member Information: Names and mailing addresses.
Company Information: Your LLC’s name, registered office, and principal office.
Registered Agent Information: The name of your registered agent, their address, and contact information.
LLC Formation: The date you filed or will file your Articles of Organization with the Secretary of State.
Business Purpose: The type(s) of business your LLC will be doing in North Dakota.
Term: How long your LLC in North Dakota will be valid, typically until you file for termination.
Capital Contributions: The amount of money each member has invested in the LLC.
Profits, Losses, and Distributions: How income and debts are allocated among members and methods for distributing funds.
Ownership Percentage: How much of the company each member owns.
Management and Roles: The managerial structure and decision-making processes, naming who is in charge or certain operations.
Compensation: How members/managers are compensated and reimbursed.
Bookkeeping: Accounting procedures and member account policies.
Tax Treatment: Whether your LLC will be taxed as a Sole Proprietorship, Partnership, S-Corporation, or C-Corporation.
Member Additions: The procedure for bringing on new members – how they will be admitted, if they’re entitled to income, any expenses they will owe, their roles, etc.
Member Withdrawal: Procedures for the resignation, expulsion, retirement, or death of an existing member.
Amendment Procedures: How your LLC will approve changes to the operating agreement. Usually, it’s through a majority vote by the members.
Dissolution: What happens when you terminate your LLC. How your members will split up the remaining assets or debts.
You don’t always need to include all of the above. If any don’t apply to your LLC, feel free to leave them out. Still, it’s a good idea to cover as many bases as possible. Even if you’re a single-member LLC, you should consider including as many sections as possible to accommodate future changes. Otherwise, years into the life of your business, you may run into a dispute over something you didn’t include, and you won’t be able to fall back on the operating agreement.
All finished? Review your draft to ensure that you didn’t forget anything important. You’ll also need to get it approved by each LLC member before it can take effect. It’s strictly an internal document, so don’t worry about sending it to the Secretary of State. Just file it with your other business documents, as you’ll need to review and revise it later.
Making Changes to Your Operating Agreement
For better or worse, your business is going to change. As you begin doing business in North Dakota and, hopefully, raking in profits, the LLC will grow and evolve. It will develop different needs and more complicated processes. Keep everything running smoothly but updating your operating agreement as changes occur.
First, all LLC managers/members must approve the change. To seek approval, follow the guidelines you already outlined in your operating agreement for ratifying amendments.
Because it isn’t recorded with the state, modifying your agreement is as simple as making changes to the Word document or PDF you keep in your own files.
For example: your registered agent resigns and, following North Dakota law, you appoint a registered agent service to take their place. Simply pull up your electronic file, enter the new agent information, save it, and print a copy. Make sure you keep a draft of the previous document as well so you can track the changes you’ve made, just in case the state ever has any questions.
Hiring an Attorney
Worried that you might miss a critical detail? Uncomfortable with legal minutiae? If you want to ensure your operating agreement provides for all possible outcomes and disputes, you might consider hiring an attorney to review it or write it entirely.
Some attorneys have a flat rate for drafting an operating agreement; others bill by the hour. Either way, you’ll only need their assistance for a limited period of time. Use a site like Avvo to find the right fit for your business. Avvo’s database lets you sort by location, rate, and more – it even shows North Dakota lawyers that specialize in LLCs.
Hiring an LLC Formation Service
The LLC formation process, with its forms and fees, might make you want to throw up your hands and surrender. Don’t do that! Instead, consider hiring an online service like ZenBusiness or Northwest Registered Agent.
An online service like we mentioned earlier can quickly take care of all your necessary filings. Plus, they’ll create a customized operating agreement for you!
Given the amount of time you would spend drafting an agreement from scratch, a formation service is worth it. Not only will you receive a meticulously researched and crafted operating agreement, but you’ll also be able to spend more time growing your business, planning your next move, or just relaxing.
The operating agreement gives you a lot of flexibility as to how your LLC runs, allowing you to govern and define a wide array of procedures. But the state also draws boundaries around what an agreement can and cannot do.
North Dakota’s LLC Act, Section 10-32.1-13 states that an operating agreement can govern:
- Relations among members and between members and the LLC itself
- Member/manager rights and duties
- The company’s activities and conduct
- The means for amending the agreement
These four broad points cover most aspects of your business, so with an operating agreement, you can have wide-reaching control over your LLC’s activities.
This doesn’t mean, however, that it has complete authority. The LLC Act also outlines restrictions for an operating agreement’s powers. Most importantly, it cannot authorize any action that would break state or federal law. Additionally, it can’t make your LLC exempt from state-ordained business maintenance requirements. For example, if you fail to submit Annual Reports or maintain a valid registered agent, the agreement will not stop the state from administratively dissolving your LLC. There are several other, more specific restrictions in Section 10-32.1-13, so be sure to review them.
Stay within the state’s boundaries while being as detailed as possible and you’ll come away with an effective, sustainable operating agreement.