Congratulations! If you’ve made it to this article then you’ve either made the decision to form a business in North Carolina, or you want to know more about LLC formation in the State of North Carolina. Starting a Limited Liability Company (LLC) is always an exciting time for any business owner.
I’ll provide you with a step-by-step guide with instructions on how to start an LLC in North Carolina, but first I’ll cover some basic topics, like what a Limited Liability Company (LLC) is and some of the benefits to owning an LLC that make small business owners choose to form an LLC. (None of this information counts as legitimate legal advice and is purely for information and educational purposes.)
(If you want to skip to the “How to Form an LLC” section, click here.)
What Is a North Carolina LLC?
A North Carolina LLC is a Limited Liability Company formed in the state of North Carolina, governed by the laws, regulations, and statutes of the state of North Carolina.
Why Choose an LLC?
There are many advantages to choosing the LLC business structure rather than a sole proprietorship or corporation. However, three common benefits sway business owners’ decisions to form an LLC. Here are the three main benefits of forming an LLC in North Carolina:
1. Limited Liability and Asset Protection
The first, and arguably the most important, benefit you receive when you form an LLC is the personal liability protection that LLC owners receive. You see, when you own a North Carolina LLC, it’s not legal for you to be held personally liable for the financial and legal obligations of your Limited Liability Company.
When Limited Liability Companies are sued or go bankrupt, LLC owners are protected against their LLC’s creditors attempting to repossess their personal assets. This means that they can’t list your home, car, or other personal assets in the lawsuit as a means to fulfil the financial obligations and debts of your business in North Carolina. The only things they can access are the finances and assets of your North Carolina LLC.
Because the economy in the United States is so unpredictable, no business is ever completely safe. Beyond that, all it takes is one unexpected event (such as a natural disaster) to financially cripple a business overnight. So the protection that comes from owning an LLC in North Carolina is priceless for business owners who value all of the work they’ve put into their business empire.
The next benefit of choosing to form an LLC rather than using another business structure (such as a sole proprietorship or corporation) is the privacy and protection of your personal information you can achieve when you start an LLC in North Carolina.
We have witnessed a drastic increase in the sophistication of the skills of hackers and online criminals during the past decade. They are capable of using trivial data (such as your name and address) to steal your identity and then rack up thousands of dollars worth of debt, credit card bills, and loans in your name. And it can happen so quickly that you won’t know what’s happened until it’s too late.
If you choose a business structure such as a sole proprietorship, your information will be listed on the public record by the North Carolina Secretary of State. Anything listed on public record can be accessed by anyone, regardless of their intent.
However, if you start an LLC in North Carolina, you have the option to protect your privacy and identity during the LLC formation process.
To do so, you need only hire an LLC formation service. LLC formation services will list their own information as your LLC’s business information and register it with the North Carolina Secretary of State. This means their information will be listed on the public record, rather than your own. It’s a win-win situation for LLC owners because their information isn’t listed on the public record, but they still maintain ownership of their Limited Liability Companies.
The third most beneficial advantage of forming an LLC is the tax benefits that you’ll enjoy when you form an LLC in North Carolina. These tax benefits are most evident when you compare a Limited Liability Company to a corporation.
If you had chosen the corporate business structure rather than a North Carolina LLC, you would be subject to what is known as “double taxation.”
Corporate income tax is initially levied on the corporation’s profits, then personal income tax is levied on those earnings after they are transferred to the corporate shareholders as dividends. The profits are taxed twice before corporate shareholders have access to them, hence double taxation.
But you avoid double taxation when you start an LLC in North Carolina.
The earnings generated by the North Carolina LLC are taxed at company rates, whilst any gains that are paid to LLC owners are classified as personal income and are claimed on their personal tax returns. This means you won’t have to pay taxes on your LLC’s profits more than once when you own a North Carolina LLC.
But wait, there’s more! Beyond avoiding double taxation, LLCs have several other tax advantages.
The Qualified Business Income Deduction (QBID) was added to the 2017 Tax Cuts and Jobs Act, which benefits LLCs in a major way. QBID enables most LLC owners to save up to 20% on their taxes, which they would have to pay if they had chosen a different company structure. This is an excellent reason to choose a North Carolina LLC.
How to Start an LLC in North Carolina
Now that you know what a North Carolina LLC is, as well as the advantages that business owners who form Limited Liability Companies enjoy, you’re better able to make an informed decision about whether an LLC is the best choice for you and your business. If you’re still comfortable with the idea of forming an LLC, here are the five steps you’ll need to form one in the state of North Carolina.
*IMPORTANT* If you’ve never formed an LLC before or you want some guidance through the process, there’s good news. There’s a type of professional service designed for this situation.
It’s called an LLC formation service and they’ll help you through every step of the formation process to help establish your LLC with the North Carolina Secretary of State.
LLC formation services can cost as little as $0 plus the state filing fees. However, my favorite LLC formation service is Northwest Registered Agent, and they charge $39 plus the state filing fees.
If you’d like to learn more about what an LLC formation service can do for you and your business, check out my guide on the best LLC service.
1. Obtain Articles of Organization Form
To start an LLC in North Carolina, you must first get a copy of the state's Articles of Organization form from the Secretary of State's office.
This is the most important document to file with the North Carolina Secretary of State when forming an LLC. You have the option of filing electronically via the North Carolina Secretary of State's website, or by postal mail. Either option has a $125 filing charge.
The following procedures correspond to the sections on the North Carolina Articles of Organization form.
2. Choose Your Business Name
After obtaining your North Carolina LLC's Articles of Organization, the next step is to choose a business name.
Unfortunately, you cannot just register the first business name that comes to you.
North Carolina law requires that your LLC name include the phrases “Limited Liability Company” or “Limited Company,” or the acronyms “LLC,” “LC,” L.L.C.,” or L.C.” The terms “Limited” and “Company” may be abbreviated as “Ltd.” and “Co.” respectively. Additionally, you may use the abbreviation “Ltd Liability Co.” for your business.
Additionally, your LLC name must be distinct from the names of any other business entities registered with the North Carolina Secretary of State. If you are unclear if a given name is available, you may consult the North Carolina Secretary of State's business name database.
You may reserve an LLC name for 120 days by filing an Application to Reserve a Business Entity Name with the North Carolina Secretary of State. Applications may be filed by mail or online. Both of these options entail a $30 filing fee.
When registering your North Carolina LLC, you may use a trade name, DBA (“Doing Company As”) name, or fictitious name on signs, advertising, and websites if you are dissatisfied with the business name you had to register. You may register a trade name with the county registrar of deeds by submitting an Assumed Business Name Articles. If your LLC does business in many counties, a single application may cover all of them. You must file the registration through mail. A filing fee of $26 is required.
3. Choose a North Carolina Registered Agent
Appointing a registered agent is the next step in forming a North Carolina LLC.
All foreign and domestic LLCs are required by North Carolina law to designate an agent for service of process.
A registered agent is an individual or business entity that act as the point of contact for your LLC, receive mail and legal documents, accept service of process during business hours, and safeguard your information by registering their name and address with the North Carolina Secretary of State instead of yours.
You have two options when it comes to appointing a registered agent in North Carolina for your LLC. You may act as registered agent for your business individually or via a commercial registered agent provider.
If you choose to function as registered agent for your LLC, it is vital to understand that you will be legally required to receive mail, legal papers, and service of process on business days during regular business hours. This may complicate your company operations, since the majority of North Carolina LLCs function during standard business hours on business days, and overextending oneself as a registered agent is not a smart idea.
If your North Carolina LLC fails to comply with a service of process, a default judgment may be entered against you. Additionally, failure to timely reply to a service of process may result in your LLC losing its “good standing” status with the North Carolina Secretary of State, thereby barring you from doing business in the state.
Rather than functioning as your own registered agent in North Carolina, using a commercial registered agent service dramatically reduces your energy output and secures your information. Appointing a company registered agent provider ensures that you receive and are aware of all mail and service of process accepted on your behalf by the registered agent provider. The sole disadvantage of using a registered agent service is that their company services range in price from $99 to $299 each year.
Given the risks that come with operating as your own registered agent in North Carolina, the expense of hiring a registered agent service is warranted. I recommend that newly formed LLCs use a registered agent service rather than attempting to perform the registered agent function on their own.
If you're interested in knowing more about registered agent services, you can read my post about the best registered agent in North Carolina.
4. Choose Your LLC Address
A North Carolina LLC's business address is crucial and must be included in the North Carolina LLC Articles of Organization. All LLCs and businesses must register with the North Carolina Secretary of State for a primary business address, which is subsequently made public.
If you do not use a registered agent or an LLC formation service, you must record your LLC's real street address. If your company does not have a physical site or office, you must register your home street address as your LLC's business address.
If you have retained the services of a registered agent, you are not required to give an address on the North Carolina Secretary of State's website. When you engage a registered agent, they will provide their own address on the form, guaranteeing that no one else will have access to your sensitive information.
5. Sign and File Your Articles of Organization
After assembling your LLC formation documents and completing your North Carolina Articles of Organization, it's time to file them with the North Carolina Secretary of State to form your North Carolina LLC. The Articles of Organization for your LLC must include the following information:
- LLC name
- Name and address of the LLC’s registered agent
- Name of each LLC Organizer
- LLC effective date
- LLC address and phone number of principal office (or check box for no principal office)
- Signature of LLC Organizers
Once these documents have been filled out and double-checked for accuracy, you can file the Articles for your LLC online or by mail. The fee for either method is $125. If you choose to file by mail, send your completed Articles to the following address:
North Carolina Secretary of State
Business Registration Division
PO Box 29622
Regardless of whether you file online or by mail, expect a processing time of 10–12 business days, or 1–3 business days if you opt for expedited processing.
Other LLC Activities
After completing your North Carolina LLC formation paperwork, there are a few further steps you must complete to ensure the success of your business in North Carolina.
North Carolina law requires all domestic and foreign LLCs to submit an annual report with the Secretary of State. Each year, your LLC must file an annual report by April 15th. You have the option to file your annual report online or via postal mail. The filing fee is $202 if filed online, or $200 if filed by mail.
Depending on where your business operates and the type of business activities you want to conduct, you may need specific business licenses. Contact the municipal or county clerk, or other relevant government entity in the area where your LLC will operate to see if any local business licenses are necessary.
If your North Carolina LLC is going to provide professional services, such as legal or accounting, you must comply with the standards for incorporating a Professional Limited Liability Company (PLLC). PLLCs are confined to providing a single licensed professional service, and all members must have the necessary business licenses and permits, or be registered with the state, in order to conduct the licensed professional service for which the LLC was formed. As part of the LLC creation procedure, you may need to provide a copy of each LLC member's current business license or state registration.
You must register with the North Carolina Department of Revenue (DOR) if you want to sell goods, collect sales tax, hire employees for your LLC, or if your LLC has more than one member. Even if your LLC has no intention of collecting sales taxes or employing people, you must register with the Department of Revenue for tax purposes. Single-member LLCs that choose to be taxed as a corporation must also register with the DOR. The DOR's website allows for online registration. Additional North Carolina state taxes may apply, depending on the tax structure you select.
If your LLC is based outside of North Carolina and you want to expand into the state, or if you are not a North Carolina resident, you must complete the foreign LLC registration process. This is similar to the procedure for forming a domestic Limited Liability Company. The key distinction is that a foreign LLC must file an Application for Certificate of Authority. This must be accompanied by a Certificate of Good Standing from the LLC's home state that is no more than six months old. Additionally, you must choose a registered agent with a physical street address in the state of North Carolina. You may file online or by mail for a fee of $250 in either instance.
If this is your first year submitting an annual report or applying for a company license, you might benefit from the assistance of an expert. In North Carolina, a professional employer organization (PEO) may be able to help you with filing annual reports and other documents, and online legal services may also be available to aid with further paperwork.
North Carolina LLC Fee Summary
One of the most common questions people ask in regards to LLC formation is, “How much does it cost to form an LLC in North Carolina?” Here is a list of each filing fee and tax you can expect to pay when you start your LLC.
Articles of Organization filing fee: $125
Name Reservation filing fee: $30
Registered Agent Fee: $99–$299/year
Annual Report filing fee: $202/file online $200/file by mail
State Personal Income Tax: 5.25%
State Corporate Income Tax: 2.5%
After Starting Your North Carolina LLC
Congratulations! You've filed the Articles of Organization for your LLC in North Carolina! This is a huge achievement; celebrate with a bottle of champagne, a weekend vacation, or supper with friends or family. However, avoid complacency, because there’s more work for you to do before your LLC may begin operations.
Before you can consider the LLC creation process complete, three further steps must be completed to secure the LLC's continued good standing.
Step 1. Create an Operating Agreement
While North Carolina LLCs are not required by state law to draft or adopt an LLC Operating Agreement, doing so is in your company's best interest.
Without an Operating Agreement, your North Carolina LLC will be governed entirely by North Carolina business law and LLC regulations, which may or may not be adequate for the operations of your business. By drafting an Operating Agreement, you may establish ownership and operating procedures that exceed the requirements of state law, which sometimes only cover the bare minimum.
*IMPORTANT* Before you begin writing your LLC's Operating Agreement, you must first define your LLC's management structure. By default, a multimember LLC operates under a member-managed voting system, while single-member LLCs sometimes vest all authority in the owner. If you or any of your LLC members lack managerial skills, a manager-managed structure is the best option. Through this structure, your LLC delegates the authority to make high-level decisions to managers rather than making them yourself. If this management style is used, it is critical to ensure the ability and trustworthiness of each manager.
Operating Agreements provide the rules and processes that regulate interactions between members, managers, and departments inside your LLC, as well as their individual jobs and obligations. Without an Operating Agreement, an LLC's ability to operate is severely constrained.
Additionally, an Operating Agreement is a legal document that serves as a contract between members, detailing each member's role and responsibilities precisely. Poorly worded Operating Agreements may include ambiguous or deceptive language, resulting in conflicts between LLC members and departments. A badly written Operating Agreement may also exclude procedures for onboarding new members and transferring shares and duties in the event of a member's departure, hindering your business's development.
To prevent these situations, make certain that your LLC Operating Agreement has as many comprehensive and explicit terms as feasible. Well-written LLC Operating Agreements should clearly define each LLC member, their profit and loss share, their responsibilities and authority level, and how they should interact with the LLC's various divisions. If your LLC includes managers, the Operating Agreement should include guidelines and procedures outlining the managers' powers and obligations. A well-written Operating Agreement with detailed guidelines and procedures may help ease your organization's everyday operations, allowing you to relax as your firm expands.
If you are unfamiliar with the technique for establishing a North Carolina LLC Operating Agreement, some LLC formation firms provide guidance throughout the process as part of their service. Consider subscribing to an online legal consulting service if you need help with the language. Additionally, Northwest Registered Agent provides a template for an Operating Agreement on their website, which may be accessed by clicking here.
Step 2. Apply for an Employer Identification Number
Your North Carolina LLC may be required to get a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS) in order to conduct certain business operations. If your LLC plans to collect sales tax or hire employees, or has more than one member, you will need an EIN. However, you do not need to recruit workers or collect sales tax to get an Employer Identification Number. If you want to apply for further licenses and permits for your business, you will need an EIN. Additionally, the EIN acts as the Federal Tax Identification Number for your North Carolina LLC.
Additionally, using an EIN rather than your Social Security Number may help you prevent future identity theft. The Internal Revenue Service (IRS) may provide you an EIN, and the procedure is easier than it seems.
If you hire a service to incorporate an LLC on your behalf, they will file for an EIN on your behalf. If you are starting a business on your own, you may apply for an EIN online between the hours of 10 a.m. and 7 p.m.
Step 3. Open a Business Bank Account
To effectively form your North Carolina LLC, you must first open a designated LLC bank account.
Many business owners in North Carolina ignore this step due to inexperience, but it is critical and you will be glad you did.
Many new business owners mistakenly believe having a single bank account for personal and business transactions simplifies the process and saves time. There are several reasons why creating a business bank account for your firm may help secure its success.
To begin with, it streamlines federal and state tax filing. A frequent misunderstanding among small business owners who use their personal accounts for both personal and business finances is that they are going to be able to distinguish between personal and business transactions when paying their state and federal income taxes. Federal tax returns are sometimes filed months after these transactions occur, making it harder to differentiate business expenses from personal ones. It is far easier to create a separate business bank account than it is to maintain a complete log of all financial transactions.
If you fail to keep your personal and business finances separate, you face the danger of your personal information and bank account funds being used against you in court. When you use your personal bank account to conduct business transactions for your LLC, you effectively nullify the personal liability protection afforded by an LLC by blurring the boundary between personal and business assets.
To recap, establishing a bank account for your LLC may simplify tax preparation while also safeguarding your assets and personal information.
To create a bank account in North Carolina for your LLC, you'll need a “bank kit.” A bank kit is a collection of documentation that should contain, but is not limited to, the Articles of Organization, Operating Agreement, and EIN for your North Carolina LLC. Numerous LLC formation providers give bank kits as part of their offerings, eliminating the need for you to obtain this information independently.
Congratulations on having the guts to take charge of your new business by forming a North Carolina LLC!
Without using an LLC formation service (which can cost as little as $0 plus filing fee), you must follow these five steps to create a North Carolina LLC on your own. Here are the five steps to forming your North Carolina LLC:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It may be difficult to get through the red tape and legalese when you form an LLC, and it can take a lot of time if you choose to do it on your own. However, nothing beats the sense of accomplishment you feel when you complete a monumental task on your own. Achieving this initial step is the beginning of many more milestones you’ll complete along your journey to develop your business enterprise.
So, once again, congratulations on forming your North Carolina LLC today and best wishes on your adventure!