How To Start A Business In North Dakota
North Dakota presents a compelling opportunity for entrepreneurs seeking to start a business in a state with a stable economy, a business-friendly environment, and a skilled workforce. Driven by industries such as agriculture, energy production, and advanced manufacturing, North Dakota’s economic foundation fosters growth and innovation. The state offers competitive tax rates, incentives for research and job creation, and a streamlined process for obtaining necessary permits and licenses.
North Dakota Small Business Stats
- There are 75,265 small businesses in North Dakota, which is 98.8% of all businesses in the state. (2022 SBA Small Business Profile)
- 55.7% of North Dakota employees work for small businesses, which is well above the national average. (Statistics of US Businesses)
- Exports by small North Dakota companies reached $2.4 billion. (2022 SBA Small Business Profile)
- North Dakota was ranked as the #13 best state for business by CNBC, with business friendliness ranking #1 and life, health & inclusion as #4.
- Forbes ranked North Dakota as the third best state to start a business due to low taxes, and small business owners receive the highest funding per business in the nation.
Embarking on a new business venture in North Dakota can be both exhilarating and daunting, but with our comprehensive step-by-step checklist, you will be guided through the process. Our roadmap tackles the common steps that most entrepreneurs will take starting from scratch so they can confidently navigate the complexities of establishing a thriving business presence.
Step 1: Choose a Business Idea
When starting a business in North Dakota, the first step is to assess your idea. You can use several methods to evaluate a venture’s feasibility. At the core, researching the market and potential customers to determine if there is enough demand for your product or service is essential. Additionally, it’s important to consider the competition and how you can differentiate yourself from them.
Want to learn more about a particular business idea and get industry information, trends, costs to start, tips, and more? Our library of over 300 business ideas will help you learn more and take your next steps.
Step 2: Write a Business Plan
Once a solid business idea is in place, it’s time to start putting the wheels in motion and start working on the business plan. A business plan is a document that outlines your company’s goals and objectives, as well as how you plan to achieve them. It should include detailed information about your market analysis, financial projections, management team, marketing strategies, operational plans, and more.
Many people only consider writing a business plan because the bank asks for one to get funding. While that’s a valid reason, writing a business plan gets the ideas out of the entrepreneur’s head and helps create a roadmap for where they want the business to go. Like most builders wouldn’t build a house without blueprints, an entrepreneur shouldn’t build a business without a business plan.
Related: How to write a business plan
Step 3: Select a Business Entity
The next step to starting a business in North Dakota is selecting a legal business entity. A business entity (also called a legal or business structure) is how a business is organized to conduct business. It’s important to choose the right type of business entity for your new business, as it will determine how you are taxed and the legal liabilities of the owners or shareholders.
In North Dakota, the most common forms of business entities are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
A sole proprietorship is a type of unincorporated business owned by one individual. This type of entity offers simplicity and flexibility in terms of management and taxation. However, the owner has unlimited personal liability for all debts and obligations incurred by the business.
A general partnership is similar to a sole proprietorship but involves two or more individuals who share ownership and management responsibilities. All partners have unlimited personal liability for all debts and obligations incurred by the business.
A corporation is a separate legal entity from its owners, meaning it can make a profit, be taxed, and be held legally liable for its own actions, which are legally separate from its owners. The owners have limited personal liability for any debts or obligations incurred by the corporation.
Finally, a Limited Liability Company (LLC) combines features from both a sole proprietorship/partnership and corporation by providing limited personal liability for its owners while allowing them to manage their own businesses without having to adhere to corporate formalities such as holding annual meetings or keeping minutes.
Related: How to form a North Dakota LLC
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
If you are planning to start a business in North Dakota, there are certain licenses and permits that you need to obtain to operate legally. Depending on the type of business and its location, the requirements may vary.
Business Licenses: The state of North Dakota doesn’t have a general business license; however, a city license may be needed to operate a business.
Employer Identification Number (EIN): An EIN is a unique identification number the Internal Revenue Service (IRS) assigns for tax purposes. You can apply for an EIN online through the IRS website. Most businesses, including corporations, multi-member LLCs, and partnerships, will need an EIN. Sole proprietorships with no employees are not required to get one, but they may consider doing so as they will use the owner’s social security number.
Sales & Use Tax Permit: If you plan to sell goods or services subject to sales tax, you’ll need to apply for a Sales & Use Tax Permit with the North Dakota Office of State Tax Commissioner.
Professional Licensing: Some services, such as auctioneers, electricians, door-to-door home repair sellers, cosmetologists, and others, require state licensing in North Dakota. While this isn’t a license on the business, licensing is required to operate.
Business Name Registration: Sole Proprietorships & General Partnerships operating under a fictitious business name, a Trade Name Registration, sometimes known as a DBA or Doing Business As, will need to be filed with the North Dakota Secretary of State.
Zoning: Before starting to operate a business (even if it’s home-based), be sure to check local zoning ordinances before starting to operate out of a location.
Step 5: Open a Business Bank Account
Separating business and personal funds is an important step for anyone not only in North Dakota but for any small business owner in general. Maintaining separate accounts for personal and business finances is crucial for several reasons:
Legal protection: If you operate your business as a North Dakota LLC or corporation, keeping your business and personal finances separate is crucial to preserve the limited liability protection. Mixing personal and business funds can lead to “comingling funds” and “piercing the corporate veil,” which means your personal assets could be at risk in the event of a lawsuit or business debt.
Tax compliance: Separating business and personal expenses makes it easier to file accurate tax returns, as it simplifies tracking and categorizing deductible business expenses. It also helps avoid potential issues with the Internal Revenue Service (IRS) during audits, as financial transactions can be easily located.
Financial management: Separating your business and personal finances enables you to have a clearer understanding of your business’s financial health. It helps in tracking cash flow, managing budgets, and making more informed financial decisions for the company.
Credit-building: Establishing a separate business credit profile by using a business bank account and credit card can help you build a strong credit history for your company. This is important when seeking business loans or lines of credit in the future.
Step 6: Find Financing
Obtaining the funds to start a small business can be a complex and challenging exercise.
Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs.
From conventional bank loans, Small Business Administration (SBA) loan guarantees, investors, small business grants, and many others, it can be difficult to understand what is available and best for your business. Each funding option has its advantages and drawbacks, so assessing your business’s specific needs and goals is crucial before making a decision.
Step 7: Hire Employees
Hiring employees is our next step, and it’s important to be aware of the regulations and requirements for hiring your first employee. There are federal and state laws and regulations to understand, such as minimum wage, overtime pay, workers’ compensation insurance, unemployment insurance taxes, and labor laws, among other things.
Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., withholding state and federal income tax, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
Many small business owners overlook the importance of having adequate insurance coverage and without the right insurance policies, businesses can be exposed to financial risks that can put their future success (and owners) in jeopardy.
Business insurance is designed to protect businesses from potential losses due to accidents, property damage, and other unforeseen events. It can also provide protection against legal liabilities that may arise from injuries or damages caused by employees or customers on the premises.
Every business will have unique needs, but before opening the doors to your business, there will likely be several types of insurance policies that should be considered.
Step 9: Track Income and Expenses
It’s easy to underestimate the critical role that bookkeeping plays in the success of a small business. Bookkeeping is the process of recording, organizing, and maintaining the financial transactions of a business. It not only keeps the business compliant with state and IRS tax requirements, but can also be used to track and monitor trends to maximize profits.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in North Dakota
Is North Dakota a good state to start a business?
North Dakota is a great state to start a small business. With its low taxes, regulations, and cost of living, it’s an ideal place for entrepreneurs to get their businesses off the ground. The state has a strong economy with diverse industries, including agriculture, energy production, manufacturing, finance and insurance, and health care. This provides plenty of opportunities for businesses to take advantage of the local resources and services available.
The state also offers a favorable environment for businesses due to its supportive government policies. North Dakota has several incentives and resources to encourage businesses to set up shop in the state. These include tax credits for job creation, grants for research and development projects, and loan programs, in addition to business guidance from the Small Business Development Center network. Additionally, the state’s regulatory environment is relatively lax compared to other states, which makes it easier for businesses to operate without too much red tape or bureaucracy.
The workforce in North Dakota is also highly skilled and educated, which can benefit businesses looking to hire employees with specific skill sets or qualifications. The population is also quite diverse, which can be beneficial when launching products or services aimed at different demographics or consumer groups.
What are the steps to starting an LLC in North Dakota?
There are three main steps to completing a North Dakota LLC formation. These include:
1. Making sure the LLC name is available
2. Appointing a North Dakota Registered Agent
3. Filing the Articles of Organization
There are a few more details to learn, so be sure to check out how to start an LLC in North Dakota.
How much does it cost to start an LLC in North Dakota?
The North Dakota Secretary of State filing fee to start an LLC in North Dakota is $135.
What licenses do I need to start a business in North Dakota?
There isn’t a general North Dakota business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.