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LLCs offer tax, liability protections

The statutes of North Dakota allow for the creation of limited liability companies. An LLC is a specific type of business structure that may offer tax and liability advantages to its owners. The owners of an LLC are referred to as members. In most states, there are no restrictions on who may be an owner, so owners may include individuals, corporations, foreign entities and other LLCs. There is no limit on the number of members who can own parts of an LLC.

For tax purposes, the Internal Revenue Service will view an LLC as a partnership, as a corporation or as part of the owners’ economic activities. Domestic LLCs that have at least two owners are classified by default as partnerships. Those that have only a single owner are classified by default as disregarded entities with income to be reported on the owner’s tax returns. To change either of these default categorizations, the owner or owners must file IRS Form 8832 to select to be taxed as a corporation.

Elections made using Form 8832 cannot be drafted to take effect more than 75 days before the filing of the election form. Additionally, they must take effect within 12 months after the IRS LLC tax election form is filed. There are some business types, like banks and insurance companies, that cannot be organized as LLCs.

Entrepreneurs and business owners in North Dakota might want to speak with a lawyer when it comes time for business formation. A lawyer who has experience in business law might help by examining the client’s personal and business financial situation and suggesting a structure to encourage production and efficiency while also limiting taxation and liability. A lawyer may help the client review supplier contracts or draft and file the necessary documents to establish a legal entity.