Two North Dakota Companies, Same Statute, Opposite Defaults
North Dakota adopted the modern uniform act as chapter 10-32.1 of the Century Code, then amended it in 2017 in a way that almost no summary of state LLC law captures. The amendment did not replace the old defaults. It layered a second set on top of them and made the formation date the switch.
Section 10-32.1-30(1) states the uniform rule: distributions made before dissolution and winding up must be in equal shares among members and dissociated members. Section 10-32.1-30(5) then says that notwithstanding subsection 1, and unless the articles of organization or an operating agreement provide otherwise, for a limited liability company created after July 31, 2017, distributions must be in proportion to the value of the contributions of the members. Voting works the same way. Section 10-32.1-39(2)(a) gives each member equal rights in a member-managed company; section 10-32.1-39(2)(b) provides that in a member-managed company created after July 31, 2017, each member's voting power is in proportion to that member's interest in distributions.
So two companies with identical facts, one organised in 2016 and one organised in 2018, are governed by opposite rules. The older company splits money and votes by head; the newer company splits both by capital. Neither company was asked which it wanted. The first thing to establish about a North Dakota operating agreement is therefore the date on the certificate of organization, and the second is that a written agreement overrides both regimes. General drafting patterns are in the operating agreement essentials guide, and the transactional page is North Dakota operating agreement.
The rest of chapter 10-32.1, and what it does when you are silent
Member management unless the agreement says otherwise. Section 10-32.1-39(1) makes a company member-managed unless the operating agreement expressly provides that it is manager-managed or board-managed, or uses words of similar import. North Dakota is unusual in offering a full board-managed framework as a third option, with meetings, notice, quorum and officers set out in the statute.
Anything unusual needs everyone. Under both the older and newer regimes, an act outside the ordinary course of the company's activities may be undertaken only with the consent of all members. So can an amendment to the operating agreement. In a five-member company that is five vetoes on any structural change.
Managers serve at the pleasure of a bare majority. In a manager-managed company, section 10-32.1-39(3)(e) lets a manager be chosen by the consent of a majority of the members and removed at any time by a majority, without notice and without cause.
Members can call a meeting on twenty days notice. Section 10-32.1-39(5) lets any member demand a meeting to take action requiring member consent, on not less than twenty days notice in a record, held at the principal executive office in the state or at the registered office.
Fiduciary duties are not fully waivable. Section 10-32.1-13(3) says an operating agreement may not eliminate the duty of loyalty, the duty of care or any other fiduciary duty except as the section allows, and may not eliminate the contractual obligation of good faith and fair dealing.
One member, and a charging order statute that names you
Most charging order statutes are silent about single-member companies, which is why courts in several states have allowed creditors to reach a sole member's interest outright. North Dakota is not silent. Section 10-32.1-45(7) provides that the section applies to single member limited liability companies and limited liability companies with more than one member. Subsection 6 makes the charging order the exclusive remedy and adds that no other remedy, including foreclosure of the transferable interest, is available to a judgment creditor seeking to satisfy a judgment out of the debtor's interest.
That is one of the strongest creditor provisions in the country and it applies to a company with one owner. It is worth having a document that proves the company is real and that the interest being charged is a limited liability company interest rather than a trade name. Section 10-32.1-02 expressly contemplates an operating agreement of a sole member, so there is nothing odd about a one-person company adopting one. The federal and banking side is covered in the single-member LLC guide, with state detail on the North Dakota single-member LLC page.
Ten Clauses, Written Against Chapter 10-32.1
Every clause below displaces something the statute already decides. Where the formation date matters, it is flagged.
North Dakota at a glance
| Question | What N.D.C.C. chapter 10-32.1 says |
|---|---|
| Governing act | North Dakota Uniform Limited Liability Company Act, N.D.C.C. chapter 10-32.1 |
| Required by statute? | No. The chapter nowhere directs members to adopt one |
| Form accepted | Oral, in a record, implied or a combination, including a sole member, section 10-32.1-02 |
| Filed with the state? | Never. No form, no submission, no fee |
| Default distributions, formed after 31 July 2017 | In proportion to the value of contributions, section 10-32.1-30(5) |
| Default distributions, formed on or before that date | Equal shares among members and dissociated members, section 10-32.1-30(1) |
| Default voting, formed after 31 July 2017 | Voting power proportional to the interest in distributions, section 10-32.1-39(2)(b) |
| Amending the agreement | Consent of all members, under either regime |
| Charging order | Exclusive remedy, no foreclosure, and it covers single-member companies, section 10-32.1-45 |
| State fees you do pay | $135 to form, $50 a year for the annual report |
1. Members, and the interest in distributions that carries the vote
List each member and state two figures: the ownership percentage and the interest in distributions. For a company formed after July 31, 2017 the second figure is the voting power under section 10-32.1-39(2)(b), so an agreement that records only units leaves the voting arithmetic undefined wherever units and distribution rights differ. A bank verifying beneficial ownership at account opening needs the same schedule.
2. Contribution values, which drive both defaults in the newer regime
Record what each member contributed, in what form, on what date and at what agreed value. In a post-2017 company that value feeds the distribution formula in section 10-32.1-30(5) and, through the interest in distributions, the vote in section 10-32.1-39(2)(b). In a pre-2017 company it feeds neither, which is precisely why an older company needs the agreement to say what the members actually intended.
3. Choosing among member, manager and board management
Section 10-32.1-39(1) requires express language to move off member management, and it names the phrasing: manager-managed, board-managed, managed by managers, managed by a board, or management vested in managers or in a board. Use the statutory words. If a board is chosen, decide which of the statutory meeting, notice and quorum rules in subsection 4 you keep and which you replace, because that subsection is long and its defaults are detailed.
4. Voting weight and the unanimity that sits behind it
Decide whether votes follow heads, capital or distribution rights, and say so, because the statutory answer depends on when the company was formed. Then deal with the harder default: any act outside the ordinary course needs every member, and so does any amendment. Founders who want a workable company usually replace both with a supermajority, keeping unanimity for a short list such as admitting a member or changing the tax classification.
5. Allocation, distribution policy and the tax draw
Separate the allocation of taxable income from the payment of cash and add a tax distribution obligation. Section 10-32.1-30(2) gives a member a right to a distribution only if the company decides to make an interim distribution, and confirms that dissociation does not entitle a person to one. Section 10-32.1-30(3) also blocks a member from demanding a distribution in any form other than money, which matters where the company holds land or equipment.
6. Transfers, and the transferee who takes economics only
A transfer of a transferable interest gives the transferee distributions and nothing else. Build the rest yourself: consent requirements, a right of first refusal running to the company and then the members, permitted transfers for estate planning, and a mandatory purchase on death, divorce, bankruptcy or expulsion. Without those, the company can end up paying a former spouse or a creditor's assignee indefinitely.
7. Exit terms, since the statute supplies no buyout
Chapter 10-32.1 follows the modern uniform approach, which abolished the old right to dissociate and be cashed out. A person who dissociates keeps a transferable interest and waits for distributions that the remaining members control. Write the buyout: trigger events, valuation method, discount if any, payment period, interest rate and subordination to company debt. This clause is worth more attention than the rest of the document combined.
8. Dissolution triggers, and keeping the exit inside the contract
Name your own dissolution events, add a deadlock procedure and a buy-sell mechanism, because the alternatives are unanimous consent or a court. Section 10-32.1-13(3) also prevents the agreement from varying the power of a court to decree dissolution, so a well-drafted internal mechanism is what keeps the dispute out of a courtroom rather than a clause that tries to close the courthouse door. The filing itself is on the North Dakota dissolution page, and a company that lapsed first needs reinstatement.
9. Tax classification, and the allocations that have to match it
State the federal classification the members chose: partnership, disregarded entity, or a corporate election on Form 2553 or Form 8832. Then check the allocation clauses against it. An S corporation election cannot coexist with preferred returns and special allocations, and North Dakota's own pass-through treatment follows the federal characterisation, so the choice drives both the state return and the distribution policy the agreement has to fund.
10. Amendment mechanics, and the unanimity default
Both regimes provide that the operating agreement may be amended only with the consent of all members. That is a strong protection for a minority and a serious obstacle for a growing company, since a single unreachable member freezes the document. Set your own threshold, require signatures, keep a dated amendment log, and store it with the articles and any amendment to the North Dakota articles you file.
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Creditor Protection Under the North Dakota Charging Order
Section 10-32.1-45 works in stages. A judgment creditor of a member or transferee applies to the court after notice to the company, and the court may enter a charging order. The order is a lien on the transferable interest and requires the company to pay over to the creditor the distributions that would otherwise reach the debtor. The debtor may extinguish the order by satisfying the judgment and filing a certified copy of the satisfaction. Before that, the company or the other members may pay the creditor and take over the order themselves.
Then come the two subsections that matter. Subsection 6 declares the section the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may satisfy that judgment from the transferable interest, and provides that no other remedy, including foreclosure of the transferable interest or a court order for directions, accounts and inquiries the debtor member might have made, is available. Subsection 7 states that the section applies to single member companies and companies with more than one member alike.
North Dakota therefore sits alongside Ohio and Oklahoma at the protective end of the spectrum, and well ahead of New Jersey and South Carolina, whose acts expressly permit foreclosure. The agreement's job is to make sure the protection is not wasted: keep distributions discretionary so a charging order collects nothing until the members act, bind any transferee to the transfer restrictions, and give the remaining members a redemption right at a defined price.
Five Mistakes North Dakota Owners Keep Making
Four of the five come from reading a single set of defaults into a statute that has two.
Mistake 1: Using a uniform-act template without checking the formation date
Templates built for the uniform act assume equal shares and equal management rights, which is right for a North Dakota company formed on or before July 31, 2017 and wrong for one formed after. The clause that hurts is the silent one: a template that says nothing about allocations leaves a post-2017 company splitting money by capital, and a pre-2017 company splitting it by head, whatever the founders believed.
Mistake 2: Assuming an older company was grandfathered into the new rules
It was not, and the reverse is also true. Section 10-32.1-30(5) and section 10-32.1-39(2)(b) apply only to companies created after July 31, 2017. A company organised in 2014 that has since taken on new capital still splits distributions equally by default, no matter how uneven the contributions became. Restating the agreement is the only way to move it.
Mistake 3: Leaving unanimity in place as the company grows
Consent of all members to amend, and consent of all members for any act outside the ordinary course, is workable with two founders and unworkable with eight. Companies that never revisit those thresholds discover them at the worst moment, when one member is unreachable, estranged or in a dispute. Reset them while everyone is still cooperative, and treat a change of registered agent as the annual prompt to review the document, using the North Dakota agent change as the trigger.
Mistake 4: Looking for the filing, or paying a fee for it
There is no operating agreement filing in North Dakota. No form, no portal step, no fee, because it is a private contract among the members. What the Secretary of State does want is the annual report at $50 a year for a limited liability company, plus $135 to form the company in the first place. Anyone quoting a state charge for an operating agreement is quoting a charge that does not exist. The recurring calendar is on the North Dakota annual report page.
Mistake 5: Confusing a series of interests with a series LLC
Chapter 10-32.1 uses the word series, and it does not mean what promoters mean by it. The definitions section describes a series as a category of membership interests within a class that differ in one or more rights and preferences. That is a capital structure concept, like preferred and common. North Dakota does not authorise a protected series with segregated assets and separate liability shields, so owners who need that separation form parallel companies with separate records instead.
Three North Dakota Companies, and What the Date Decided
Composite cases built from the pattern of disputes this two-regime statute produces.
Example 1: A Fargo software company that lost the split it thought it had
Two founders organised in 2015. One contributed $400,000, the other contributed $100,000 and full-time work, and both understood that distributions would follow capital. Nothing was written. Because the company was created before August 2017, section 10-32.1-30(1) applied and distributions went in equal shares. On $300,000 distributed in a good year, the funding founder received $150,000 rather than the $240,000 the parties had discussed. The gap was $90,000, and it repeated every year until the members signed an agreement.
Example 2: A Bismarck contractor blocked by one vote
Five members owned a commercial construction company. A regional builder offered $3.1 million for the business. A sale of substantially all the assets is an act outside the ordinary course, which under section 10-32.1-39(2) requires the consent of all members. One member holding eight percent refused, holding out for a side payment. There was no drag-along, no deadlock procedure and no buy-sell option, because there was no agreement. The buyer withdrew.
Example 3: A Williston oilfield services firm and a creditor who got nothing
A judgment creditor of one member, holding a $480,000 judgment, sought to reach that member's interest in a three-member services company. Section 10-32.1-45 gave the creditor a charging order and nothing else: no foreclosure, no sale of the interest, no court-ordered accounting. Because the operating agreement made distributions discretionary and required a majority of voting power to declare one, the charging order collected nothing for two years while the parties negotiated. The statute did the work, and the agreement made the statute effective.
The Financial Consequence of the Wrong Default
North Dakota imposes no penalty for having no agreement. These are the amounts the statutory rules move.
The equal-shares gap in an older company. The Fargo pattern is the clearest. Contributions of $400,000 and $100,000, distributions of $300,000 a year, and a company formed before August 2017: the equal-shares rule moves $90,000 a year away from the funding member. Across five years that is $450,000 decided by a formation date.
The capital-weighted gap in a newer company. The same arithmetic runs the other way after July 31, 2017. Two members who each believe they are equal partners, where one contributed $250,000 and the other $50,000, split a $180,000 distribution $150,000 to $30,000 under section 10-32.1-30(5). The member who put in labour rather than cash receives one sixth of the payout.
The blocked transaction. Unanimity for acts outside the ordinary course means a single member can stop a sale. On the $3.1 million offer above, the whole enterprise value was the exposure, and a supermajority clause with a drag-along would have removed it.
The recurring costs, for scale. Forming the company costs $135 and the annual report costs $50 a year, with reinstatement required after a lapse. Those are small numbers next to the ones above, and a company that needs proof of standing for a lender will also want a North Dakota certificate of good standing and, if it operates elsewhere, registration in the other state.
How File.Business Drafts a North Dakota Operating Agreement
The intake begins with the certificate of organization, because the date on it determines which set of defaults the agreement is displacing. From there it works through contribution values, the choice among member, manager and board management, the voting threshold for ordinary and extraordinary acts, the amendment threshold that would otherwise be unanimous, and the buyout the statute does not provide.
Delivery includes a member and contribution schedule formatted for a bank's beneficial ownership file, signature pages for every member, and a written consent adopting the agreement. Because the statute recognises an agreement of a sole member, single-owner companies get the same treatment. The flat fee is $99 and no state fee attaches, because there is no filing. Adjacent North Dakota work runs with it: registered agent coverage and trade name registration.
Template or drafted document
A single-member company with no outside capital can run on a careful template, provided it is written to chapter 10-32.1 rather than to the generic uniform act. Anything with two or more members earns a drafted document, and there is a two-minute test. Find the formation date on the certificate. Then find the allocation clause in the template. If the clause is silent, the company is being governed by whichever of the two statutory regimes the date happens to select, which is a coin toss nobody agreed to.
North Dakota Operating Agreement FAQ
Does North Dakota require an LLC operating agreement?
No. Chapter 10-32.1 of the Century Code contains no direction to adopt one. It supplies default rules instead, and section 10-32.1-02 defines an operating agreement as the agreement of all the members, including a sole member, whether oral, in a record, implied or in any combination.
Why does my North Dakota LLC formation date matter?
Because the statute has two sets of defaults. Section 10-32.1-30(5) and section 10-32.1-39(2)(b) apply only to a company created after July 31, 2017, and give it contribution-weighted distributions and voting. A company created on or before that date is governed by equal shares and equal management rights under section 10-32.1-30(1) and section 10-32.1-39(2)(a).
Do I file the operating agreement with the North Dakota Secretary of State?
No. There is no form for it, no filing channel and no fee, because it is a private contract among the members. The state fees you do pay are $135 to form the company and $50 a year for the annual report.
How are profits divided in a North Dakota LLC with no agreement?
It depends on the formation date. A company created after July 31, 2017 distributes in proportion to the value of the members' contributions under section 10-32.1-30(5). A company created on or before that date distributes in equal shares among members and dissociated members under section 10-32.1-30(1).
Can a creditor foreclose on a North Dakota membership interest?
No. Section 10-32.1-45(6) makes the charging order the exclusive remedy and states that no other remedy, including foreclosure of the transferable interest, is available to a judgment creditor. Subsection 7 confirms the section applies to single member companies as well as to companies with more than one member.
What vote does it take to amend a North Dakota operating agreement?
The consent of all members, unless the agreement itself sets a different threshold. Section 10-32.1-39(2) applies that unanimity rule under both the older and the newer regime, and it also requires the consent of all members for any act outside the ordinary course of the company's activities.
Can a North Dakota LLC create a series with separate liability?
No. Chapter 10-32.1 uses the word series only to describe a category of membership interests within a class that differ in rights and preferences, which is a capital structure concept. North Dakota does not authorise a protected series with segregated assets, so owners needing that separation form parallel companies.
Need a custom North Dakota Operating Agreement?
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Doing this in North Dakota specifically: North Dakota operating agreement covers the detail for this state, including the current fee and the exact form the agency expects.
Each statutory statement above was read in the sources below. Confirm current requirements with the agency before acting on them.
Disclosure. File.Business is a private filing service, not a government agency and not a law firm. We prepare and submit filings at your direction, and nothing on this page is legal or tax advice. Filing fees, deadlines, and statutory references are current as of the last-updated date shown above and can change. Confirm current requirements with the relevant state agency before you file.
