By Jake Lawson, LLC Formation Strategist
Here’s my honest take on North Dakota sole proprietorships: They’re easy to start, but that doesn’t mean you should. After helping over 1,200 entrepreneurs choose the right business structure—including several dozen in the Peace Garden State—I’ve learned that “simple” and “smart” aren’t always the same thing.
Yes, I’ll show you exactly how to start a sole proprietorship in North Dakota. But I’m also going to explain why a North Dakota LLC is probably worth the extra $135 investment for most entrepreneurs, even in a state where everything else is refreshingly straightforward.
What Is a North Dakota Sole Proprietorship?
A sole proprietorship is the simplest business structure possible—so simple it barely qualifies as a structure at all.
How It Works
- Formation: No paperwork required (you’re automatically a sole proprietor when you start doing business)
- Ownership: One person owns everything
- Liability: You’re personally responsible for all business debts and lawsuits
- Taxes: Business income goes on your personal tax return
When You Become a Sole Proprietor
The moment you start doing business activities with the intent to make money, you’re legally operating as a sole proprietor. Whether that’s:
- Building a website for your consulting business
- Buying equipment for your agricultural operation
- Taking your first client appointment
- Opening a business bank account
North Dakota reality: In a state where many businesses are agricultural, seasonal, or energy-related, sole proprietorships are common but potentially risky given the liability exposure in these industries.
The Brutal Truth About Sole Proprietorship “Benefits”
Most guides talk up the advantages, but let me give you the honest picture:
Advantage #1: Zero Formation Costs
What they say: “It’s free to start!” The reality: You’ll still need business licenses, insurance, a business bank account, and potentially a DBA. By the time you’re operating professionally, you’ve spent money anyway.
Advantage #2: Simple Taxation
What they say: “Just add Schedule C to your personal return!” The reality: Business taxes get complicated quickly. You’ll likely need professional tax help regardless of your business structure.
Advantage #3: Easy Setup
What they say: “No paperwork with the state!” The reality: You still need to handle licensing, insurance, banking, and compliance. The “easy” part is mostly an illusion.
Jake’s assessment: These advantages are real but overrated. The benefits are modest, while the risks are potentially devastating.
The Devastating Downside: Unlimited Personal Liability
Here’s what most sole proprietorship guides downplay—the liability risk is enormous, especially in North Dakota’s major industries:
Agricultural Liability Scenarios
Equipment accidents: Your farming equipment injures someone on your property
Product liability: Someone gets sick from produce you sell at farmers markets
Contract disputes: A grain elevator claims you delivered substandard crops
Environmental issues: Chemical runoff from your operation affects neighboring land
The risk: Your house, personal vehicles, and bank accounts are all at risk to satisfy business judgments.
Energy Sector Risks
Workplace injuries: Someone gets hurt while working on your oil service company project
Environmental damage: Your trucking company spills hazardous materials
Equipment failure: Your welding business causes property damage
Contract breaches: Failure to meet deadlines on energy projects
North Dakota context: The Bakken oil boom has created numerous service businesses, many starting as sole proprietorships. The liability exposure in energy work can be enormous.
Service Business Liability
Professional mistakes: Errors in accounting, legal, or consulting work
Property damage: Your cleaning business damages a client’s expensive equipment
Personal injury: Client slips and falls at your business location
Data breaches: Your digital services company loses client information
North Dakota LLC vs. Sole Proprietorship: The Real Comparison
Let me break down the honest differences for North Dakota entrepreneurs:
Formation Costs
Sole Proprietorship: $0 + licensing/DBA costs
North Dakota LLC: $135 state fee + $25 annual report
Cost difference: $135 upfront, $25 annually
Liability Protection
Sole Proprietorship: Zero protection—your house, farm, and personal assets are all at risk
North Dakota LLC: Strong protection for personal assets from business debts and lawsuits
Tax Treatment
Sole Proprietorship: Schedule C on personal return, full self-employment tax
Single-Member LLC: Identical tax treatment (disregarded entity)
Conclusion: Same taxes, same complexity, but LLC provides crucial liability protection.
Professional Credibility
Sole Proprietorship: Often viewed as informal, can hurt banking and client relationships
LLC: Professional structure that banks, vendors, and clients take seriously
Business Continuity
Sole Proprietorship: Automatically dissolves if you become incapacitated or die
LLC: Can continue operating, better for estate planning and family succession
When Sole Proprietorships Might Make Sense in North Dakota
In my 15 years of experience, here are the rare situations where I might consider recommending a sole proprietorship:
Ultra-Low Risk Businesses
Examples: Simple online content creation, basic bookkeeping for small clients
Requirements: Minimal client interaction, low liability exposure, comprehensive insurance
Absolute Bootstrapping Situations
Scenario: You literally cannot afford the $135 LLC filing fee
Strategy: Start as sole proprietor, convert to LLC as soon as you can afford it
Timeline: Usually within first few months of generating income
Testing Business Ideas
Example: Trying out a small craft business at farmers markets
Duration: Very short-term testing only
Exit strategy: Convert to LLC before scaling up
Important note: Even in these cases, I usually recommend finding the $135 for an LLC. It’s one of the best investments you’ll ever make.
How to Start a North Dakota Sole Proprietorship (If You Insist)
Despite my strong preference for LLCs, here’s the complete process:
Step 1: Business Planning
Key decisions:
- Business model and revenue strategy
- Target market and marketing approach
- Startup costs and funding needs
- Industry-specific requirements
- Business address and location
North Dakota considerations:
- Seasonal business cycles (agriculture, tourism)
- Energy sector opportunities and risks
- Rural vs. urban market dynamics
- Weather and geographic challenges
Step 2: Choose Your Business Name
Default name: Your legal first and last name Alternative: File a DBA (called “Fictitious Name” in North Dakota)
North Dakota DBA requirements:
- Required if using any name other than your legal name
- File through North Dakota FirstStop online system
- Filing fee: $25
- Must comply with North Dakota Code Section 45-11
Step 3: Obtain an EIN (Recommended)
Why get an EIN:
- Avoid giving out your Social Security Number to clients and vendors
- Required if you hire employees
- Some banks prefer EIN for business accounts
- Professional appearance on invoices and contracts
Process: Apply directly through IRS.gov (free and takes 10 minutes)
Step 4: Research License Requirements
State level: North Dakota doesn’t require a general business license
Industry specific: May need professional or industry licenses
Local level: Check city and county requirements
North Dakota resources:
- North Dakota Department of Commerce
- Local economic development offices
- Industry-specific licensing boards
Step 5: Set Up Business Banking and Records
Banking requirements:
- Business bank account (keep personal and business finances separate)
- EIN or Social Security Number
- Photo ID
- DBA certificate (if applicable)
Record keeping:
- Business income and expense records
- Tax returns (keep for at least 3 years)
- Business licenses and permits
- Banking and financial statements
The Insurance Component (Critical for Sole Proprietors)
Since sole proprietors have no liability protection, insurance becomes absolutely critical:
Essential Insurance Coverage
General liability: $1-2 million minimum for most businesses
Professional liability: If you provide services or advice
Product liability: If you manufacture or sell products
Commercial auto: If you use vehicles for business
Umbrella policy: Additional $1-5 million coverage
Industry-Specific Coverage
Agricultural operations: Farm liability, equipment coverage, crop insurance
Energy services: Workers compensation, environmental liability, equipment coverage
Professional services: Errors and omissions, cyber liability
Investment perspective: Comprehensive insurance might cost $2,000-5,000 annually—but it’s essential when you have no business entity protection.
North Dakota-Specific Considerations
Agricultural Business Cycles
Many North Dakota businesses are seasonal or cyclical. Consider:
- Cash flow management during off-seasons
- Equipment and liability exposure during busy periods
- Weather-related business interruption risks
- Succession planning for family operations
Energy Sector Opportunities
The Bakken oil boom creates opportunities but also risks:
- High liability exposure in energy services
- Boom-and-bust economic cycles
- Environmental compliance requirements
- Multi-state operations considerations
Geographic and Weather Challenges
- Harsh winters affecting business operations
- Rural locations with limited professional services
- Long distances to major markets
- Weather-dependent industries
Converting from Sole Proprietorship to LLC
Planning to start as a sole proprietor and convert later? Here’s what’s involved:
Required Steps
- Form the LLC with North Dakota Secretary of State
- Obtain new EIN for the LLC (business EIN, not personal)
- Transfer business assets from personal name to LLC
- Update business licenses in LLC name
- Open new business bank accounts for the LLC
- Notify vendors and clients of business structure change
- Update contracts and agreements
- Revise marketing materials and website
Hidden Costs and Complications
- New business licenses and permits
- Updated insurance policies
- Contract renegotiations
- Marketing material updates
- Professional fees for proper asset transfer
Jake’s reality check: The conversion process typically costs $1,000-3,000 in fees and professional time. It’s usually cheaper and simpler to start with an LLC.
My Recommendation for North Dakota Entrepreneurs
After helping hundreds of entrepreneurs choose the right business structure, here’s my honest North Dakota assessment:
For 95% of North Dakota businesses: Form an LLC from day one. The $135 state fee is one of the best investments you’ll ever make.
The math is simple: North Dakota LLC formation costs $135. A single business lawsuit could cost you your house, farm, or life savings. That’s incredible insurance for $135.
Consider sole proprietorship only if:
- You absolutely cannot afford $135 (temporarily)
- You’re testing a very low-risk business idea
- You plan to convert to LLC within 3-6 months
Never consider sole proprietorship if:
- You work in agriculture, energy, or construction
- You have significant personal assets to protect
- You plan to hire employees
- You want to be taken seriously by banks and clients
North Dakota-Specific Recommendation
Given the state’s dominant industries (agriculture, energy, tourism), most North Dakota businesses have inherent liability risks that make LLC protection essential. Don’t let the low formation cost fool you into thinking sole proprietorship is adequate.
Common North Dakota Sole Proprietorship Questions
Do I need to register my sole proprietorship with the state?
No state registration required, but you’ll need a DBA if using any name other than your legal name.
Can I hire employees as a sole proprietor?
Yes, but you’ll need an EIN and workers’ compensation insurance. Consider converting to LLC if hiring employees.
How are sole proprietorships taxed in North Dakota?
Business income goes on Schedule C of your personal tax return. North Dakota has no state income tax, so you only pay federal taxes.
What happens if I want to sell my business later?
Sole proprietorships are harder to sell since they’re tied to the owner personally. LLCs have better transferability for eventual sale.
Can I get business credit as a sole proprietor?
It’s more difficult. Most lenders prefer established business entities with separate credit profiles.
What if I become disabled or die?
Sole proprietorships automatically dissolve. LLCs provide better continuity and estate planning options.
The Bottom Line on North Dakota Sole Proprietorships
Look, North Dakota makes it easy to start a sole proprietorship—no paperwork, no fees, just start doing business. But easy doesn’t mean smart.
The reality: In a state where agriculture, energy, and seasonal businesses dominate, the liability risks are real and substantial. Your farm, your house, your family’s financial security—all at risk to save $135.
My honest recommendation: Unless you’re in a truly desperate financial situation, invest the $135 in a North Dakota LLC. You’ll get the same tax treatment, the same operational simplicity, but with crucial legal protection for your personal assets.
North Dakota is a great place to do business—low taxes, reasonable regulations, and strong work ethic. Don’t undermine your success by choosing a business structure that puts everything you’ve worked for at risk.
The Peace Garden State deserves better business planning than hoping nothing goes wrong.
Ready to protect your North Dakota business the right way? I’ve helped dozens of Peace Garden State entrepreneurs choose the right structure for their unique situations. Check out my complete North Dakota LLC formation guide or learn about the best LLC formation services for 2025.
Questions about business structures for your specific North Dakota situation? Send me a message—I personally read and respond to every inquiry within 24 hours.