For businesses seeking identification as separate legal entities, North Dakota law allows them to undergo the process of incorporation. As a separate entity from the owners, the business is then considered to be acting on its own when it buys and sells property, assents to contracts and exercises legal rights. The office of the Secretary of State is the agency that receives applications for incorporation in North Dakota, and they must be completed in conformity with specific guidelines.
Benefits of Incorporation in North Dakota
An incorporated business enjoys certain advantages, the most important being a limit of liability for the shareholders. The most shareholders can lose is the amount they invest in the business. If the business had remained a personal asset of the owners, they could run the risk of losing their personal property to pay for the company's financial liabilities in case of default. Also, creditors in the Fargo area generally prefer to deal with corporations, since a loan is an investment more easily evaluated when the credit-worthiness of various owners is not an issue. Finally, a corporations charter requires that ownership be divided into stakes or "shares" of stock, all of equal size. This makes the process of transferring control much more practical.
Costs of Incorporation
Incorporation comes at a price. First, North Dakota might charge a filing fee to process applications for incorporation. Also, the corporation will pay taxes as its own entity. The individual incomes of owners who are paid disbursements from the corporation's earnings are still taxed as well. This is called double taxation, but it may be avoided with proper planning and assistance from a local Fargo lawyer.