How to Form a PLLC in North Dakota

Here are the basic rules for forming professional limited liability companies (PLLC) in North Dakota.

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As a licensed professional in North Dakota you can structure your business as a North Dakota professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

What is a North Dakota PLLC?

A North Dakota PLLC is a limited liability company (LLC) formed specifically by people who will provide North Dakota licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

What is a Professional Service in North Dakota?

Under North Dakota's Professional Organizations Act, professional service is defined only generally, as a service that requires a license before the service can be performed, and also requires an undergraduate or advanced college degree in the specific professional field as a condition of licensure. Other states' laws often provide itemized lists of professional services. These lists typically include, at a minimum, physicians, surgeons, dentists, lawyers, certified public accountants, professional engineers, architects, and veterinarians, but often include other professions, as well. If you're unsure whether your North Dakota-licensed profession is considered a professional service for the purpose of forming a PLLC, check with a local business attorney.

How Do I Form a North Dakota PLLC?

To form your North Dakota PLLC you'll need to:

  • have the state license for each professional who will be a member of the company
  • obtain a certificate from your profession's regulating board stating that each PLLC member is licensed to practice the profession in North Dakota, and
  • file articles of organization that include a statement of the profession to be practiced through the PLLC, along with the certificate from the regulating board, with the North Dakota Secretary of State.

Additional requirements may apply if your PLLC will have minority owners.

The Secretary of State has a blank articles of organization form (Form SFN 58701) available on its website. The form includes helpful instructions. You can also file the articles of organization online. The current filing fee for the articles of organization is $135.

Naming Restrictions

North Dakota requires that your PLLC's name contain the words "professional limited liability company" or "limited liability company," or the abbreviations "P.L.C.," "PLC," "P.L.L.C.," "PLLC," "L.L.C.," or "LLC." For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

A North Dakota PLLC can provide more than one kind of professional service if allowed by the licensing laws for each of the professional services to be provided. Generally speaking, all members of a North Dakota PLLC must be licensed to provide the professional services offered by the PLLC. A person cannot simultaneously be an owner of more than one PLLC providing the same professional service. North Dakota PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that all members of the PLLC, as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

  • creditors seeking to collect unpaid debts owed solely by the PLLC
  • liability for the malpractice of other PLLC members (technically known as "vicarious liability"), and
  • people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

  • you personally guarantee repayment of a business loan
  • you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
  • you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

  • a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
  • following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
  • a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states (including North Dakota) only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. For example, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

North Dakota allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in North Dakota, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.

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