North Dakota LLC Operating Agreement: Drafting Checklist

Whether you plan on launching a large or small business in North Dakota, you must provide the state with certain information and file several legal documents before you begin. For a limited liability company (LLC), this includes:

• Filing Articles of Organization with a distinguishable business name and an appropriate LLC filing fee ($135 for domestic and foreign LLCs)[1]

• Obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)

• Appointing a registered agent

• Getting necessary business licenses and permits

• Drafting an operating agreement

If you’re a new small business owner, you can gradually obtain and file each document as you learn about them. However, an operating agreement is one document that’s best to draft in your business formation process as soon as possible.

According to North Dakota state law, businesses aren’t required to create an operating agreement to run their business. Still, this legal document can only benefit your North Dakota business in the long run. This article will walk you through the positives this document can bring your business and how to set it up correctly.

Key Takeaways

• An LLC operating agreement is a legal document that establishes the rules and regulations within your company.

• Although a North Dakota LLC operating agreement isn’t required by North Dakota state law, it’ll bring many advantages to your business.

• Forming an operating agreement for your LLC in North Dakota can be challenging for new businesses, so seeking help from an expert document filing service like Swyft Filings is strongly encouraged.

What Is an LLC Operating Agreement?

An operating agreement contains similar information to other documents necessary for your LLC formation, such as your Articles of Organization. While the Articles of Organization serve as a business contract between you and the state, an operating agreement is an internal legal document that determines the rules and regulations inside your limited liability company.

It contains basic information about your business, such as your LLC name, registered agent information, and EIN or Social Security number (SSN) if you’re a single-member LLC. In addition to that, there are sections regarding ownership structure, contributions, indemnification, membership changes, and dissolution of the company.

All that information helps everyone know their rights and responsibilities and ensures your business functions without misunderstandings and internal conflicts.

State Requirements

The North Dakota Secretary of State doesn’t require limited liability companies registered or doing transactions within the state to have an operating agreement. However, North Dakota limited liability companies that decide to draft an operating agreement must follow the guidelines provided by the North Dakota Uniform Limited Liability Company Act.[2]

LLC Operating Agreement Benefits

After learning that your LLC doesn’t require an operating agreement to do business, you might be tempted to skip it and move on to the required documents and actions. However, you might make a drastic mistake by forgoing your operating agreement.

An operating agreement comes with many advantages and benefits for all business entities, and drafting it could be the best legal advice you can get. Here are only some of them:

• An operating agreement confirms the status of your business as a limited liability company. Otherwise, it might start to represent other business entities like sole proprietorships and endanger your personal assets.

• Some financial institutions in North Dakota will be more open to doing business with you if you have an operating agreement in place. It’ll ensure smoother business bank account opening, more loans, and other benefits for your company.

• All internal disputes and conflicts will be subject to default state laws without an operating agreement. Naturally, these laws aim to cater to as many companies as possible and don’t always go into depth to suit every business. Drafting an operating agreement lets you tailor these rules to match your business needs and overwrite these default state laws.

Who Needs an Operating Agreement?

We’ve established that LLCs in North Dakota don’t need an operating agreement to function. What about other business entities? The answer is the same: North Dakota state law doesn’t obligate other types of businesses to form an operating agreement. However, like LLCs, they’ll also benefit from this internal document.

Whether you’re a sole business owner in a sole proprietorship or running a corporation (both S corp and C corp), you can customize your company rules and overwrite state default rules. You can also protect your personal assets from personal liability and debt and maintain control over your business’s daily operations and future decisions.

Drafting Your North Dakota LLC Operating Agreement

After learning what an operating agreement is and who exactly needs it, it’s time to start its drafting. As stated above, a written operating agreement must include specific information to become valid and compliant with North Dakota state law and Secretary of State provisions.

The internet offers various LLC operating agreement templates that you can use to fulfill these requirements. Still, it’s important to note that businesses have different structures and various needs, which usually calls for a custom operating agreement.

Of course, you can still use the templates as a starting point, but you can also start from scratch. If you choose the latter option, use the following sections to guide you through the entire drafting process.

Step 1: Provide Business Information

The first step in drafting an operating agreement is filling out the basic information about your business. That includes the following:

• Your official business name: The name of your LLC needs to be unique and comply with the regulations stated in the North Dakota Uniform Limited Liability Company Act. You can check name availability through the name search option on the firststop.sos.nd.gov website.[3]

• Primary place of business: Include the location of your business, i.e., the address where your LLC formation took place.

• Effective date: State the specific date your operating agreement will become valid.

• Type of business: The type of business section should include your business’s industry.

• Business purpose: State the purpose of your business. You must first obtain the required business licenses and permits if your business plans to do professional services.

• Registered agent: Information regarding your registered agent should include the name of the person or institution that deals with your service of process, annual reports, and other legal documents and the address of the registered office.

Before you draft your operating agreement, you should file your Articles of Organization because it’ll round up the necessary information about your LLC formation.

Step 2: List LLC Members

All business owners must list all company members, regardless of whether it’s a single-member or multi-member LLC. In addition, you should record each member’s membership interest and ownership percentage, capital contributions, voting rights, profits, losses, distributions, rights, and responsibilities.

This section is the central aspect distinguishing an operating agreement from other legal documents necessary for your business formation. Therefore, it should be detailed and transparent enough to prevent confusion regarding the ownership structure and how each member contributes to the company’s growth.

Step 3: Decide Member-managed vs. Manager-managed

In terms of management structure, your LLC can be manager-managed and member-managed. The typical management style is member-managed. That means all members are managers involved in the company’s day-to-day decisions and operations. On the other hand, manager-managed businesses put the company’s affairs in the hands of only several members or non-members.

The member-managed structure is typical for single-member LLCs, while the manager-managed system is more common for large companies with many passive investors and owners who can’t meet frequently to make the necessary decisions.

Step 4: Lay Out Administrative Operations

If you decide to use a ready-made operating agreement template, make sure that you write and customize at least this section. The administrative operations are unique to your business and decide how you deal with various situations.

They describe everything from standard day-to-day processes like financing and member meetings to procedures specific to particular events like membership changes and liquidation of assets.

Step 5: Add and Remove LLC Members

As a single-member LLC, you might change your mind and want to broaden your company. If some of the members of your LLC have retired or passed away, you’ll need to introduce some new members to your company. In case of an agreement violation, you should take measures to extract the involved members and replace them.

All these circumstances call for an operating agreement clause that transparently lays out the procedures in the event of membership changes. Adding or removing members from your company modifies its whole structure, ownership percentages, membership interest, voting rights, contributions, allocation of profits and losses, responsibilities, etc.

Knowing what to do regarding membership changes puts you and the remaining members at ease, mainly if unwanted and unpleasant situations cause the change.

Create Your Operating Agreement Through a Filing Service

Turning your business idea into a reality is a rewarding experience, and knowing how to prepare all the legal documentation you need takes you a step closer. However, as a future business owner, many other tasks await your assistance. Devoting enough time to create a valid and compliant operating agreement doesn’t always fit into the time frame you’ve allocated to your business formation.

If you’re struggling to find time to draft your North Dakota LLC operating agreement, turn to Swyft Filings. You can avoid mistakes and ensure compliance when filing with us. As a professional filing service, Swyft Filings is there to assist you during every step of your LLC formation. With Swyft Filings, you can conduct a thorough business name search, find reliable registered agent services, file your LLC, or draft your operating agreement.

For operating agreement services, you need to provide some information about you and your business and trust us to do what we do best. 

FAQs

Is an LLC Operating Agreement required in North Dakota?

As per state law, business entities, including LLCs, aren’t required to draft an operating agreement in North Dakota. Nevertheless, you should still consider creating it for you and your business’s sake, as it can protect your personal assets, determine the rules and processes within your company, and bring many other benefits to your business.

How does an LLC Operating Agreement help protect my assets?

An operating agreement reaffirms your company’s limited liability status and separates it as a legal entity from you and your company members. This protects both your personal assets from company debt and your company’s assets from the personal liability of you and your members. In addition, if a member violates a rule stated in an operating agreement and it results in a financial loss, you’ll know exactly how to deal with this situation and protect your assets.

Who needs access to this document once it’s drafted?

Since your operating agreement primarily serves you and your company members, it isn’t part of your public business records. Still, certain situations like lawsuits demand that you give access to lawyers, the court, and other parties. In addition, accountants and financial institutions may need to see your operating agreement for bookkeeping, tax returns, etc.

How do I edit information on this document if membership changes?

Adding or removing a member from the company changes more than its membership structure. You’ll have to re-establish your ownership percentage, capital contributions, voting rights, profits, distributions, etc. You can’t edit all that into your existing operating agreement. You have to draft the document all over again. Of course, you can use the old one as a guide for the process.

What other legal documents do I need to draft for my North Dakota LLC?

Besides an operating agreement, your LLC can’t start operating without your Articles of Organization, EIN, registered agent, and necessary business licenses and permits if your LLC is organized to provide specific professional services.

Bibliography

1. North Dakota Secretary of State. “LLC Fees.” Accessed June 30, 2023.

2. North Dakota Legislative Branch. “Uniform Limited Liability Company Act.” Accessed June 30, 2023.

3. North Dakota Secretary of State. “Name Search.” Accessed June 30, 2023.