What Is an LLC?
An LLC is short for Limited Liability Company and LLC is a business entity that has the benefits of a sole proprietorship and partnership business and also the limited liabilities of a corporation. A Limited Liability Company is the best way for business owners to gain personal liability protection.
Liability protection is especially useful because if your LLC were to be involved in legal matters, your personal assets would not be involved. The personal liability protection feature is one of the reasons that makes North Carolina LLCs so common among business owners.
How To Create An LLC in North Carolina?
In order for you to form an LLC in North Carolina and to ensure that it is a legal entity, you will need to file an Articles of Organization with the Secretary of State. However, there are some steps that need to be taken before you file for the legal document.
Here is a step-by-step guide that you can follow to form an LLC in North Carolina.
Step 1: Naming Your North Carolina LLC
The first thing to do before starting an LLC in North Carolina is to choose a name for your LLC. However, there are some criteria that are required to be met in order for your company name to be approved by the Secretary of State of North Carolina.
According to the North Carolina law, the name of your North Carolina LLC must include “Limited Liability Company” or any of its abbreviations “LLC” or “L.L.C.”. Other combinations like “Limited Liability Co.” or “Ltd. Liability Co.” is accepted as well.
The name of your LLC should also be “distinguishable”, what it means is that the name of the LLC has to be unique and must be different from other companies in North Carolina. If you wish to check the availability of names, you can search from the business name database on the website of the North Carolina Secretary of State.
There are also several words that cannot be included in the name of your North Carolina LLC. You are not allowed to use words such as “Corporation”, “Incorporated” or the abbreviations like “Corp.” and “Inc.”. This is because it can create confusion between your North Carolina LLC from another type of business.
After choosing a name for your North Carolina LLC, you may request to reserve the name for 120 days with the Secretary of State in North Carolina. A fee of $30 will have to be paid and application can only be filed by mail.
Besides getting a name for your LLC in North Carolina, you should also consider checking if the name is available as a web domain name. You might not want to start a website for your business in NC now but it is still recommended to secure the name before other people get it. If you want to start a website for your business next time, you will have the name for it already.
Step 2: Appointing a Registered Agent in North Carolina
When you start an LLC in North Carolina, you will need to choose a Registered Agent in North Carolina. A Registered Agent is a person or a business that handles the legal paperwork of your LLC in case your business gets involved in any lawsuits. The Registered Agent of your LLC can be considered as the middle-man between your LLC and the state.
To start an LLC in North Carolina, the appointed Registered Agent must have an address in North Carolina. Another option that you can get a Registered Agent is appointing a corporation or a business that is known as a Registered Agent Service. You can also be a Registered Agent for your North Carolina LLC as long as you are a resident of North Carolina.
It is recommended for you to hire a Registered Agent Service company rather than being the Registered Agent for your own LLC because it can bring you peace of mind and allows you to focus on growing your business. The cost per year for a Registered Agent Service in North Carolina is usually between $100 and $300.
Step 3: File The North Carolina LLC Articles of Organization
In order to properly form an LLC in NC, you will need to file the Articles of Organization and it has to be made with the Secretary of State, Business Registration Division of North Carolina. The North Carolina Articles of Organization are legal documents that will legally register and form your North Carolina LLC. In some states, these documents may be referred to as Certificate of Formation or Certificate of Organization.
There are two ways that you can file the Articles of Organization with the North Carolina State, Business Registration Division. The first one is filing it online and the second one is by using mail. Both ways also cost a fee of $125 but approval time for online is usually 3-5 business days and it will take 4-6 business days for your LLC to be approved by mail.
Regardless of which method you choose to file the Articles of Organization for your LLC, you will have to download, sign the documents and file it to the Secretary of State of North Carolina. Do note that payment has to be made when you upload or file the Articles of Organization.
After downloading the documents, there are some details that you will need to fill in. You will need to fill in the name of the LLC, the name and address of the LLC’s Registered Agent, the effective date of the start of your LLC and other items such as the email of the LLC and signature of a representative.
When filing the Articles of Organization for your LLC, it is recommended for you to do it online instead of by mail since the processing time to file online is quick and can be done easily.
Step 4: Creating a North Carolina LLC Operating Agreement
An Operating Agreement is unlike the legal documents that are required by the State of North Carolina. The Operating Agreement does not need to be filed or mailed to the Secretary of State but only kept as a record for your business, think of it as an internal document.
An Operating Agreement of an LLC is a legally binding document that involves all the LLC members and states how the LLC should be operating. The purpose of Operating Agreements is to clearly indicate who are the members and what percentage of the LLC will they own. In any case, where an Operating Agreement is absent, the state LLC law will determine how your LLC operates.
Even though it is not required for LLCs in North Carolina to form Operating Agreements, it is still a good practice to have one for your LLC. A good Operating Agreement will indicate all the necessary information and keep the LLC owners on the same page, reducing the risk of conflict in the future.
For single-member LLCs, forming an LLC Operating Agreement will be fairly easy or maybe even not necessary. However, it can get slightly more complex for multi-member LLCs especially when the LLC involves a large number of members. In that case, it is recommended to get help from your attorney so that it saves you some time when preparing the Operating Agreement.
Since no filings have to be made, you do not need to pay any fee when forming an Operating Agreement. However, if you decide to hire someone else to prepare it for you, you will need to be prepared for the fee that the professional service provider charges.
Step 5: Obtain a North Carolina LLC EIN
Employer Identification Number (EIN), or some may call it FEIN (Federal Employer Identification Number) or FTIN (Federal Tax Identification Number), is a number assigned by the Internal Revenue Service to your North Carolina LLC. The Internal Revenue Service, also recognized as IRS, will then use this Employer Identification Number to identify your business for taxing and filing purposes.
You can also think of EIN as a Social Security number for your business and it is free to request an EIN from the IRS. An EIN may sound like it’s only for LLCs that have employees but that is not the case at all. The EIN is just a number that identifies your business that is paying tax.
When you get your business an EIN, it can enjoy several benefits that are associated with getting an EIN. Firstly, when you get an EIN from the IRS, you can open a bank account for your North Carolina LLC that is separated from your personal account. Getting an EIN will also allow your North Carolina LLC to begin hiring employees, get business loans, apply for business licenses and filing taxes as well.
However, you should note that before applying for an EIN for your business, you should wait for the approval of your North Carolina LLC first. The reason for that is because if the filing for your North Carolina LLC was rejected the EIN that you have applied for will be associated with a company that does not exist. You can apply for a new EIN but you would have to wait for the cancellation before you can apply for a new EIN.
For sole proprietorship businesses that are converting to an LLC in NC, it is required by the IRS that sole proprietorship businesses get an EIN.
Important Things To Keep In Mind After Filing an LLC in NC
If you have followed the guide, you would have formed your Limited Liability Company in North Carolina. After you form an LLC in North Carolina, there are several things that your LLC is required to do so that you can keep your business running.
File an Annual Report For Your North Carolina LLC
In the state of North Carolina, all LLCs are required to file an Annual Report annually. The state requires your North Carolina LLC to update its contact information by filing an LLC Annual Report.
Filings of the Annual Report and paying the annual filing fee is due on April 15th each year. If the year of your LLC formation was in 2014, you will have to file it before the due date in 2015. The fee that has to be paid is $200 and the state will send a reminder a few months before you need to file the report.
If you failed to file the report by the deadline, there won’t be any late fees. However, North Carolina will issue a notice and dissolve your company within 60 days so make sure that you set a reminder for yourself to file the report and make payments for the fees before the deadline.
You can file this report online or by mail to the state through their website or to the state’s office. The fees can also be paid online using a credit or a debit card. It is recommended to do the filings online as it is easy to do and won’t take you too long either.
Separate Your Personal Assets From Your Business
Business accounts and the one for personal uses should always be separated because if it is not separated and in any case, your North Carolina is involved in any lawsuits, your personal assets will also be at risk. This is also called piercing the corporate veil.
You can achieve asset protection and protect your business in North Carolina starting by opening a bank account for your North Carolina LLC. When you open a business checking account, it separates your own assets from the business’ and also makes it easier for accountancy and taxation.
Another thing to do is to get a credit card for your business in the state. This helps you to separate your personal expenses from the expenses of your business. It can also build a good credit history for your North Carolina LLC and can be of great use when you want to raise capital by applying for business loans in the near future.
Get Business Licenses and Permits For Your North Carolina LLC
After the approval of your North Carolina LLC, you are required to comply with the business license and permit requirements of the state. The requirements can vary depending on the state that you operate your business in and it also depends on the industry that your business is involved in.
If you do not comply with what the business licenses and permits require from your business, it can be subjected to penalties and fines. Worst case scenario is that you will be restricted from conducting business in North Carolina. So make sure to check for the kind of licenses and permits that your business might need.
To find out what business licenses and permits your business requires, you can hire a professional service to get it for you or you can do it on your own too. Fees will also vary depending on the kind of licenses and permits that you are getting for your North Carolina business.
Find a Business Accountant
After you form your LLC, you should look for an accountant to help with your small business accounting. The business structure has many benefits and one of them is the ability to write off business expenses and enjoy the pass-through taxation. With an accountant, you can take advantage of the benefits and can save your business a significant amount of money each year.
The accountant that helps with your small business accounting can also assist you to track your business expenses, identify profit and loss in your business, submit tax filings and other financial hassles that you are likely to face running a business.
Meeting the North Carolina LLC Tax Filing Requirements
The kind of tax and the amount to be paid can vary based on the nature of your business and you may need to pay for more than one category of tax in North Carolina.
North Carolina Sales Tax
If your business sells physical products in the state, one of the permits that you will need to register for is the seller’s permit. You will need to register through the North Carolina Department of Revenue website. The permit is like a certificate that allows your business to collect sales tax.
Sales tax or some may know it as Sales and Use Tax, is usually a tax on business transactions that involve the exchange of goods or services that taxes can be imposed on.
North Carolina Employer Taxes
If your company consists of employees in the state, you will need to register for Unemployment Insurance Tax through the North Carolina Division of Employment security and also the Employee Withholding Tax through the North Carolina Department of Revenue.
Federal taxes are unlike state taxes, it is like income taxes for LLCs and the IRS will require most LLCs to report their income. LLCs with one member and LLCs with multiple members use two distinct forms to report to the IRS.
Avoid Automatic Dissolution
After you form your LLC in the state, the state can dissolve your company if you do not comply with the requirements that were set out by the state. What it means to dissolve a business is to shut it down and if the state does dissolve your business, you will lose the privileges that were associated with the business.
Get a Business Insurance
If you get business insurance, it can help to manage your risks and allows you to focus on growing your business. There are also several types of business insurance that you can get:
- General Liability Insurance
- Professional Liability Insurance
- Workers’ Compensation Insurance
Get a Certificate of Good Standing in North Carolina
This certificate is also referred to as a Certificate of Existence in the state. It proves that your LLC formation was legal and is properly maintained. Here are a few reasons that you might need to get this certificate for your LLC:
- Getting funds from banks or other lenders
- When you form your business as a foreign LLC in other states
- Securing or renewing licenses or permits
Dissolving an LLC in North Carolina
This section is not about LLC formation in the state but instead, will guide you to shut down your business if you no longer want to continue it. You should shut down the business if it is not active anymore because it can lead to liabilities or other issues with the law.
There are detailed guides available about dissolving your business but the two basic steps to take is to close your LLC tax accounts and file the North Carolina Articles of Dissolution.
By following the steps from 1 to 3, you would have formed your LLC in the state. The steps and guides after the first 3 steps are extra information that will be important for you to keep your business compliant in North Carolina.
Frequently Asked Questions (FAQs)
How do I get an EIN if I don’t have a Social Security Number?
You do not need an SSN to obtain an EIN. You may fill out the necessary documents and call the IRS to complete your application.
What is the difference between a domestic and foreign LLC?
A domestic LLC is a company that does business in the state that it was formed. For example, a Delaware LLC conducting business in Delaware. A foreign LLC must be formed if an existing LLC wants to conduct business in another state.
For example, a Delaware LLC must create a foreign LLC in North Carolina if it wishes to conduct business in North Carolina.
Do I need to get a DBA or Trade Name for my LLC?
Not necessarily. LLCs do not need to register a DBA because the name can serve as a brand name but you can register a DBA if you want to conduct business with a different name.
Can I form a professional LLC in North Carolina?
Yes, you can form a professional limited liability company in North Carolina. If you are required to obtain a state license before you can practice, the services you provide can be considered as professional.
How long does it take to start an LLC in North Carolina?
It takes roughly about 2 weeks online or by mail to file Certificate of Organization for your limited liability company formation. Regardless, if you’re looking to expedite the process then additional fees will be imposed.
How much does it cost to start a North Carolina LLC?
It’d cost about $125 to start a North Carolina limited liability company.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.