How to Start an LLC in North Carolina? (A Complete Guide)

North Carolina stands out as a remarkable state for establishing limited liability companies. Utilizing our vast experience, we have effectively established numerous LLCs across the state and offer a thorough analysis of the LLC formation process.

This insight empowers you to make a well-informed decision on whether an LLC aligns with your business objectives.

After in-depth legal research, opening LLCs, and testing what you need to form a business in this state, you can be sure that the steps below are enough to form an LLC stress-free.

In addition, a North Carolina professional LLC service can assist in starting an LLC for you.

Quick Summary

How to Form an LLC in North Carolina?

To form an LLC in North Carolina easily, you will have to follow the state's regulations, deal with the paperwork, and follow official steps.

1. Choose the Type of Your North Carolina LLC (Mandatory)

Based on my first-hand experience guiding businesses through their formation stages, selecting the appropriate type of limited liability company in North Carolina is a crucial step that shapes the legal and financial framework of your enterprise.

In North Carolina, as per the U.S. Small Business Economic Profile, 1.0 million small businesses constitute 99.6 percent of all businesses, showcasing the vibrant ecosystem for entrepreneurship and the critical role of small enterprises in the state's economy [1].

There are various types of LLCs to consider, each tailored to different business structures and requirements.

Single-Member LLC:

• Advantages: Simplified management, personal liability protection, and easier tax filing as a sole proprietor.
• Disadvantages: Limited growth potential in terms of ownership, perceived as less credible by some investors and banks.

Multi-Member LLC:

• Advantages: Shared management responsibilities, potential for more investment, and skill diversity.
• Disadvantages: More complex operating agreement is needed, potential for conflicts among members.

Professional LLC (PLLC):

• Advantages: Specifically tailored for licensed professionals, personal liability protection.
• Disadvantages: Restricted to certain professions, all members must be licensed professionals.

Series LLC:

• Advantages: Ability to segregate assets and liabilities across series, flexibility in management, and ownership structure.
• Disadvantages: Not recognized in all states, it can be complex to manage multiple series.

Foreign LLC:

• Advantages: Enables business expansion into new states and maintains the continuity of the original LLC.
• Disadvantages: Additional registration and compliance requirements in the new state, possible double filing of reports; and fees.

2. Choose a Name for Your LLC (Mandatory)

From what I've seen, businesses often underestimate the importance of a unique and memorable name. A distinctive name helps establish a strong brand identity and can be a valuable asset for your marketing efforts.

Moreover, with 1.8 million small business employees making up 44.5 percent of North Carolina's workforce, according to Statistics of U.S. Businesses data, the significance of these enterprises in the employment sector is evident, reinforcing the state's commitment to supporting small business growth [2].

The challenge lies in finding a name that resonates with your brand while also adhering to the legal requirements.

If you already own an established brand or trademark, then this may be more difficult than if you're just beginning an LLC with something clean and fresh.

To find available names for your North Carolina LLC, check websites like the State Business Registration Division, the N.C. Trademark Database, and the U.S. Patent and Trademark Office.

Remember that certain words like "corporation" or another state's name require approval.

LLCs must use variations of "limited liability company" but not necessarily "Limited" in their name.

It's advisable to include "Limited" to avoid confusion with other entities.

Avoid terms like Bank, Savings and Loan Association, or government-related terms.

Once you choose a name, ensure it's not already in use by other active companies. Use the Secretary of State's website to check availability.

You can also make an LLC name reservation request, but this is only good for 120 days.

By filling out the Name Reservation Form at a $30 filing fee, your desired business name will be reserved for the next 120 days, and you'll have that much time to take other necessary formation steps.

Learn how long it takes to set up an LLC in North Carolina.

3. Select a Registered Agent (Mandatory)

An LLC registered agent is an individual or company that agrees to accept legal papers on behalf of the LLC if it's incapable of doing so itself due to a lack of capacity or unavailability.

Just like with any service you hire for your business, make sure you check references and do thorough research before committing yourself financially.

A crucial point to note is that fees for a registered agent can fluctuate depending on the agent's location and type.

These costs can start at around $40 per year and may increase with an additional filing fee for each document processed.

A registered agent service will guide you through the filing process if needed and other legal matters concerning your LLC so that it can remain in good standing with the state [3].

Requirements you need to keep in mind are that the North Carolina registered agent must have particular qualifications or experience, have a physical address in North Carolina, and be of legal age.

Ensure that the registered agent services are accessible to you and third parties during regular business hours.

It's crucial to have a reliable and trustworthy registered agent or service to handle business matters effectively.

4. File Articles of Organization (Mandatory)

LLC Articles of organization represent the formal establishment of your business and contain the information required by North Carolina law.

The articles of organization must include:

• The name of the business
• Principal office address where required state tax reports are sent
• Purpose & type of LLC
• Number of members in LLC
• Types of an LLC

Depending on your North Carolina limited liability company (domestic or foreign LLC) type, a domestic limited liability company will file Form L-01. In contrast, a foreign LLC files Form L-09 (the Certificate of Authority for Limited Liability Company) at a $250 filing fee.

Steps to Take After Forming an LLC in North Carolina

After successfully forming an LLC in North Carolina, there are several important steps you should take to ensure the smooth operation and legal compliance of your new business.

5. Create an LLC Operating Agreement (Optional, but Recommended)

LLC operating agreements are written agreements that govern the internal affairs of an LLC.

LLCs are typically governed by the operating agreement unless they are bound by a standardized operating agreement adopted either through legislation or within their articles of formation.

Operating agreements can also spell out how business profits and losses will be shared and who has what percentage to vote on major decisions regarding business operations.

The LLC operating agreement should address these topics:

• Management structure
• Voting rights for members
• Allocations & distributions of income, deductions, credits & tax allocations among members
• Transferability/assignability of membership interests (or management positions)
• Buy-sell provisions dealing with member departures and new member admissions to the company

You are not required to file your operating agreement with the North Carolina Secretary of State.

The Operating Agreement is an essential part of North Carolina LLC's setup, and it can be used as a business plan if you want to expand your business or change something about the company structure.

It should cover all aspects of operating, such as how they will make decisions, who has voting power, etc.

It applies regardless of whether there are only two owners involved or more than 100, because the operating agreement protects everyone's interests and lays out rules for running a successful business together.

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

After making the operating agreement, LLCs that have employees or plan to hire employees will need to obtain an EIN.

A federal employer identification number is a nine-digit federal tax identification number that the Internal Revenue Service (IRS) assigns and uses for tax reporting purposes.

The EIN applies not just to financial transactions but also to legal ones, such as opening a business bank account or acquiring business insurance.

An LLC must have either an EIN or a social security number assigned before it can apply for any other type of business license in North Carolina, such as a state sales tax certificate, city business license, etc.

7. Open an LLC Bank Account (Optional, but Recommended)

In my experience, opening an LLC bank account in North Carolina is a step that offers numerous benefits. It solidifies the legal separation between your personal and business finances, enhancing liability protection.

Furthermore, having a dedicated business account elevates the professionalism of your transactions, which can positively impact your relationships with clients and suppliers.

Here are the steps to opening an LLC bank account in North Carolina:

• Gather Required Documents: You'll need your LLC’s Articles of Organization and EIN. Some banks may also request your Operating Agreement.
• Choose the Right Bank: In my experience, it’s beneficial to shop around. Look for banks offering services tailored to small businesses, like lower fees or additional support services.
• Complete Application Process: Visit your chosen bank with your documents and complete their application process. Some banks may offer the option to start this process online.

I've seen business owners benefit from the clarity and efficiency a separate LLC bank account brings. It’s not just about compliance, but also about setting a strong operational foundation for your business.

8. File Your North Carolina LLC Annual Report (Mandatory)

Once your LLC is up and running in North Carolina, an important compliance requirement is the submission of an annual report. This report is crucial for maintaining your LLC's good standing with the state.

Here's what you need to know about filing your North Carolina LLC Annual Report:

• Deadline: The annual report is due by April 15th each year. This deadline is consistent, so it's important to mark it on your calendar to avoid late fees or penalties.
• Information Required: The report should include up-to-date information about your LLC, such as the names and addresses of members and managers, your registered agent's information, and your principal office address.
• Filing Process: In North Carolina, you can file the annual report online through the North Carolina Secretary of State's website, which is the most convenient method. Alternatively, you can also file by mail, but online filing is faster and ensures immediate processing.
• Filing Fee: There is a fee associated with filing the annual report. The current fee can be found on the North Carolina Secretary of State's website. It's important to factor this fee into your annual budget.
• Consequences of Non-Compliance: Failure to file the annual report can result in penalties, and eventually, the state may dissolve your LLC.

Based on my first hand experience, many business owners find it beneficial to set annual reminders or engage the services of a professional for assistance with this filing.

Staying vigilant about this annual obligation not only keeps your LLC compliant but also ensures ongoing operational smoothness.

It’s a simple yet essential task that solidifies your business's legitimacy and allows you to focus on growth and development without regulatory concerns.

9. Obtain Business Licenses and Permits

In North Carolina, LLCs are subject to state laws and may need specific business licenses or permits. For instance, LLCs functioning as public utilities must have a Certificate of Public Convenience (CPCN).

Licensing for LLCs is overseen by the state’s Department of Commerce.

Your LLC’s Certificate of Registration depends on your business type, location, and entity form. Various licenses, including a general LLC license, vendor's, professional, public utility, and home occupation permits, are available through the Secretary of State or local county/city agencies [4].

Federal licenses for LLCs are also issued by the Secretary of State. Always check with city hall for any local-specific business requirements to avoid submission errors.

10. Choosing Your Tax Structure

In North Carolina, choosing the right tax structure for your LLC is pivotal for optimizing tax liability and financial efficiency.

Here's a concise overview of the options:

• Disregarded Entity: Default for single-member LLCs. Treated like a sole proprietorship for tax purposes.
  • Pros: Simplified filing, no separate tax return for the LLC.
  • Cons: Owner's personal tax rate applies to business profits, potentially higher than corporate rates.
• Partnership: Default for multi-member LLCs. Profits pass through to members' personal tax returns.
  • Pros: No double taxation, business losses can offset other income on personal tax returns.
  • Cons: Each partner pays self-employment tax on their share of profits.
• S-Corporation: Requires IRS approval. Profits pass through to shareholders' personal tax returns.
  • Pros: Can offer savings on self-employment taxes.
  • Cons: Stricter operational requirements mean that salaries paid to owners are subject to payroll taxes.
• C-Corporation: Separate entity for tax purposes.
  • Pros: Potential for lower tax rates on retained earnings, wider range of deductible expenses.
  • Cons: Double taxation, as profits are taxed at the corporate level and again as dividends.

I often lean towards the S-Corp structure for small to medium-sized businesses due to its potential for self-employment tax savings and reasonable compliance requirements.

The timeline for changing your tax structure can vary. Generally, you must file IRS Form 2553 for S-Corp election by March 15th of the tax year for it to take effect.

Changing to a C-Corp requires different forms and may have varying deadlines. It's advisable to consult with a tax professional for precise timelines and guidance.

Benefits and Drawbacks of an LLC in North Carolina

Benefits:

• Limited Liability Protection: Like in other states, one of the primary advantages of forming an LLC in North Carolina is the personal liability protection it offers. Members' personal assets are generally shielded from business debts and liabilities.
• Pass-Through Taxation: North Carolina follows pass-through taxation for LLCs. This means that business profits and losses are reported on the members' personal tax returns, avoiding the double taxation that C-Corporations face.

"Registering a new company in North Carolina as either a C or S Corporation allows you to take advantage of the state's Article 3J Tax Credit Program. This program provides qualifying businesses with credits against franchise or corporate taxes, exemptions on business and real property taxes, and additional industry-specific tax credits, such as those for technology development."

-Jon Morgan, Co-Editor & Co-Founder of Venture Smarter

• Flexibility in Management: LLCs in North Carolina enjoy flexibility in how they're managed. They can opt for member-managed or manager-managed structures, adapting to the business's unique needs.
• Ease of Compliance: Compared to corporations, LLCs often have fewer compliance requirements. In North Carolina, the annual report is a straightforward requirement.

Drawbacks:

• Self-Employment Tax: While LLC members can avoid double taxation, they are subject to self-employment taxes on their share of business profits, unlike C-Corporation shareholders.
• Complex Operating Agreements: Although LLCs have flexibility, crafting a detailed operating agreement to outline member roles and responsibilities can be time-consuming.
• State Taxes: North Carolina imposes a state income tax on LLC profits, which can affect the overall tax burden of the business.
• Renewal Requirements: While the annual report is a relatively simple compliance requirement, missing deadlines or failing to submit the report can lead to penalties or the dissolution of the LLC.
• In-State Requirements: Operating in multiple states may introduce additional complexities, including the need to register as a foreign LLC in other states.

Check out our article for more information on how much an LLC costs in North Carolina.

DIY vs. Professional LLC Formation

DIY Formation:

Pros:

• Cost Savings: DIY formation is often more budget-friendly, as you only pay for state filing fees.
• Hands-On Experience: You gain firsthand knowledge of the LLC formation process.
• Control: You have full control over the process and decisions.

Cons:

• Time-Consuming: Researching and handling paperwork can be time-intensive.
• Legal Complexity: Legal requirements and compliance can be complex, risking errors.
• Limited Expertise: You may lack expertise in handling unique situations or complex structures.

Professional LLC Formation:

Pros:

• Expert Guidance: Professionals offer knowledge and experience to ensure compliance.
• Time-Efficient: They handle paperwork and filings, saving you time.
• Customization: Professionals can tailor the LLC structure to your specific needs.

Cons:

• Cost: Professional services come with fees beyond state filing costs.
• Less Control: You relinquish some control over the process.
• Dependence: You rely on others for accuracy and timeliness.

The choice between DIY and professional LLC formation in North Carolina depends on your budget, time, legal knowledge, and comfort with managing compliance. DIY formation is cost-effective but requires substantial time and effort, with potential risks. Seeking professional assistance saves time and provides expertise, but at an additional cost.

Related Articles:

• North Carolina LLC Business Search
• How to Cancel an LLC in North Carolina
• Top LLC Formation Services in North Carolina

FAQs

---

References:

1. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-NC.pdf
2. https://www.census.gov/programs-surveys/susb.html
3. https://www.sosnc.gov/Guides/register_a_foreign_business/registered_agent
4. https://www.sosnc.gov/divisions/business_registration/online_business_services