Choice of entity refers to choosing the legal form for operating your business. A business may be operated as (1) a corporation; (2) a general partnership or limited partnership; (3) a limited liability company (LLC); or (4) a sole proprietorship. Each state has its own laws for the formation, operation, and maintenance of these business entities.

The primary considerations in choosing the best form for operating your business are (1) protecting your personal assets from the liabilities of the company; (2) tax strategies designed to deduct early losses, avoid double taxation, and convert ordinary income into long term capital gain at a lower tax rate; (3) an entity that will be attractive to potential investors and lenders; (4) an entity that allows you to offer equity incentives to employees (stock options); and (5) the cost of forming the entity and properly maintaining it—including filing the required documents with state agencies.

In North Dakota, the choice of entity for operating a business is an important decision that affects liability, taxation, investment attractiveness, employee incentives, and administrative requirements. A corporation provides limited liability protection to its shareholders, but it may be subject to double taxation unless it elects S corporation status. General partnerships offer simplicity but do not protect personal assets from business liabilities, while limited partnerships provide limited liability for limited partners. A Limited Liability Company (LLC) combines the liability protection of a corporation with the tax benefits of a partnership, making it a popular choice for many businesses. Sole proprietorships are the simplest form, with no distinction between the business and the owner, meaning personal assets are not protected from business liabilities. North Dakota has specific statutes governing the formation and operation of these entities, including the North Dakota Century Code (NDCC), which outlines the requirements for filing organizational documents with the Secretary of State, annual reporting, and other compliance matters. Tax considerations, costs of formation and maintenance, and the ability to attract investors and offer equity incentives are key factors influencing the choice of entity in North Dakota.