North Carolina is one of the most straightforward states in terms of filing paperwork and setting up an LLC.
This is something to which we can testify from our experience.
After forming dozens of LLCs across North Carolina, we can list and discuss their advantages and disadvantages so you can make an informed decision about whether this is right for your needs.
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.
Quick Summary
- Establishing a North Carolina LLC requires a few steps: selecting a unique name, finding a registered agent, filing articles of organization, and acquiring licenses for a successful setup.
- To form an LLC in North Carolina you may expect to pay a state filing fee, plus an annual report with the Secretary of State.
- It's also strongly encouraged for an LLC with multiple members to establish a limited liability operating agreement among them.
How to Set Up an LLC in North Carolina?
To set up an LLC in North Carolina easily you will have to follow the state's regulations, deal with the paperwork, and follow-on official steps.
The state of North Carolina has several different forms for small business owners to choose from when filing the necessary paperwork.
Each form is completed online or by mail and then submitted along with a filing fee.
There are a few steps you need to perform before your LLC registration is complete.
1. Choose a Name for Your North Carolina LLC
The first step is to choose the business name of your new company. With LLCs, you mustn't use similar names as existing businesses to avoid confusion and potential lawsuits over intellectual property infringement.
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, 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.
2. Hire a North Carolina Registered Agent
An LLC registered agent or a registered agent service 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 lack of capacity, unavailability, etc.
Just like with any service you hire for your business (such as bookkeeping), 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 stay in good standing with the state [1].
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.
However, carefully review all contract details before signing.
Some registered agents may provide additional services, like registered office addresses, but be aware that these extras may come with additional costs.
3. Obtain North Carolina licenses and permits
Some LLCs in North Carolina are regulated by state laws and rules that require business owners to obtain certain business licenses or permits.
For example, an LLC operating as a public utility in North Carolina is required to hold a certificate of public convenience (CPCN) which authorizes the company to provide service within the state's boundaries.
Licensing requirements for LLCs in North Carolina are established by the state's Department of Commerce.
Check with your local city hall for information on licensing requirements in your area - you can also contact the Secretary of State Office before making any decisions about hiring vendors, so you are aware every step of the way.
The Certificate of Registration you need will depend on the business activity, where your business is located, and what kind of entity you have formed.
A general LLC license, vendor's license, professional business license, public utility business license, and a home occupation permit can all be acquired from the Secretary of State or its corresponding county or city agencies.
Federal LLC licenses are issued by the Secretary of State's office. Before applying for a license, check with the local city hall to determine if any additional requirements may apply to specific types of businesses within its jurisdiction - this will help avoid delays or errors when submitting required documentation later on.
If you have little to no experience, having your North Carolina limited liability company set up by professional service is always the safest option. They can deal with the North Carolina Secretary of State and other government agencies [2].
4. File Your North Carolina Articles of Organization
North Carolina LLC Articles of organization represent the formal establishment of your North Carolina limited liability company 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
- Type 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.
5. Make a North Carolina LLC Operating Agreement
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
- Allocation & 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.
Even though an operating agreement is not required by North Carolina law, we recommend that you create one.
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. Obtain an Employer Identification Number
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 legal ones as well, 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.
How Are LLCs Taxed?
In North Carolina, LLCs are treated as disregarded entities for tax purposes, with income and loss reported on the owner's tax returns.
They can choose to be classified as an S Corporation to save on self-employment taxes. Revenue from a North Carolina LLC is subject to federal income tax based on earnings and deductions.
State income tax is paid to the North Carolina Department of Revenue.
Federal taxes are filed annually using Schedule C or Partnership Return. LLC members pay LLC taxes in North Carolina on profits but not self-employment taxes.
Physical goods sales are subject to a 4.75% tax. LLC owners pay payroll tax on employee salaries, who then pay individual taxes.
Types of North Carolina LLCs
In North Carolina, there are various types of LLCs recognized by the state.
A single-member LLC has one business owner who receives all profits, while a multi-member LLC has two or more members, which can include individuals and other LLCs.
Personal income tax returns need to be filed separately for single-member LLCs.
Limited partnerships allow general partners to manage the business while limited partners invest without controlling management decisions.
Limited liability partnerships have some rights and abilities of partnerships but cannot enter into contracts like partners.
LLCs offer limited liability similar to corporations and enjoy LLC pass-through taxation.
Corporations, on the other hand, are separate legal entities created by filing articles of incorporation, distinct from LLCs formed through articles of organization.
Understanding these various types of LLCs is important for selecting the most suitable structure for your business in North Carolina.
Advantages of Forming a North Carolina LLC
A North Carolina LLC can serve as a vehicle to protect the personal assets of LLC owners from any liability that may arise over business operations.
An LLC in North Carolina is responsible for paying taxes, but it limits profits and losses on individual members' capital contributions.
In addition, North Carolina LLC offers a limited management structure which means decisions are made by majority vote unless otherwise specified in articles of organization filed at the time of formation.
This allows certain minority interests more flexibility than they would have if operating under a corporation where larger shares equate to greater control rights.
Disadvantages of Forming a North Carolina LLC
Setting up an LLC in North Carolina carries a lot of benefits, but there are also some disadvantages. LLCs in North Carolina must pay an annual tax on all LLC income over a year, even if the LLC had no activity during that period.
The annual filing fee is $202, amounting to the electronic filing fee ($2) and the state filing fee ($200). Filings by mail are sent to the North Carolina Secretary of State.
The other major disadvantage is that LLC members are responsible for paying self-employment tax on LLC distributions. In contrast, a shareholder in an S corporation or C corporation is exempt from this.
In addition to these disadvantages, there's the fact that LLCs cannot issue stock, and therefore it's harder to raise money when you have an LLC because you can't get investors who would like equity in your business.
Unlike some other states, North Carolina LLCs have to file an annual report at a $200 filing fee. Failure to file your annual report will lead to LLC dissolution.
Check our article for more information on how much an LLC costs in North Carolina.
What Is a North Carolina LLC, and How Does It Work?
A limited liability company (LLC) in North Carolina is a business structure that is established by filing Articles of Organization. These Articles are filed with the North Carolina Secretary of State.
LLC members are entitled to protection from personal liability for LLC debts or claims.
An LLC's creditors cannot come after your personal assets unless there isn't enough money in the LLC bank account to cover it.
This type of shield between you and your company can be very beneficial if something goes wrong down the line, so you won't have to worry about losing other assets like your house or car because they weren't used properly by someone else.
A North Carolina LLC is run much like any other business entity, with officers (members) who handle tasks such as signing contracts on behalf of the LLC, taking minutes at meetings, and so on.
Why Should I Form a North Carolina LLC?
You should form a North Carolina LLC if you want to run a business there, but you want to have a certain level of liability protection.
There are several reasons why entrepreneurs decide that LLC is the right business structure for them, even as a foreign LLC.
One of the most common is that it provides some personal liability protection.
A North Carolina LLC can also help streamline operations when dealing with suppliers because many businesses require proof from LLCs before entering into contracts.
In addition, an LLC gives owners the freedom to divide their interests in ways that may not always be possible under another type of business structure like a corporation.
For example, if a member wants out but doesn't want to sell their interest back to the business for fear of losing control, then they could instead transfer membership by selling all rights associated with being part of the LLC.
Related Articles:
North Carolina LLC FAQs
Who Can Be a Member of My North Carolina LLC?
Anyone can be a member of your LLC in North Carolina, including other business entities like other LLCs, corporations, a North Carolina resident, etc. However, the ownership requirements are slightly different. A minor can be a remember but can't be the owner, for example.
Is North Carolina a Good State for LLC?
North Carolina is a good state for LLCs because it's fairly cheap to set it up ($125) compared to other states, like Massachusetts or Nevada, where filing costs are three to four times that much.
How Fast Can I Get an LLC?
You can get an LLC in 5 to 7 business days. The North Carolina LLC filing is a one-week procedure, but if you pay to expedite it, it might be over in as little as one day.
The extra $100 for processing in two days, the additional $200 for processing in one day, and the extra $300 for processing in four hours are all available.
Do I Need a DBA for My LLC?
You need a DBA for your LLC, especially if you plan to expand your business, services, and products.
Can I Be My Own Registered Agent in North Carolina?
You can be your own registered agent for an LLC, provided that you are of legal age and you have a physical street address in the state.
However, paying state taxes to the North Carolina Revenue Department could be too much if you have no experience. It also applies when filing the operating agreement for your LLC.
How Do I Change My Sole Proprietorship to an LLC in North Carolina?
To change your sole proprietorship to an LLC in North Carolina, you must follow the same procedure you would otherwise follow if you were to start an LLC from scratch.
Starting an LLC in North Carolina
Setting up an LLC in North Carolina can be a daunting task.
You have to consider many factors before you make any decisions, including the type of business entity you are setting up and how to minimize your tax liability.
This is why we recommend ZenBusiness to help you navigate through legal and business procedures. You can choose the same company if you want them to create the company on your behalf.
Our #1 Recommendation
ZenBusiness
References:
- https://www.sosnc.gov/Guides/register_a_foreign_business/registered_agent
- https://www.sosnc.gov/divisions/business_registration/online_business_services
