If you are on the lookout to start your business journey in North Caroline, the first step would be for you to decide on your business structure. A Limited Liability Company (LLC) can be an ideal choice for the business you are trying to form. It protects your personal assets from legal liability and, at the same time, gives you great operational flexibility. It also opens the door for tax savings.
Every State has its unique procedure for forming an LLC, including North Carolina. We would not want you to repeat the procedure or make repeat payments in non-refundable fees because you did not fully know the process.
Let us look at how to successfully establish one’s Limited Liability Company (LLC) in the State of North Carolina.
Name Your North Carolina LLC
Naming your LLC is the first step you will undertake. Your LLC’s name will help the State, along with potential clients and other business entities, identify your LLC. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition.
North Carolina requires specific mandates that you must meet when naming your LLC.
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
Remember that you want your company’s name to be unique. The law also mandates it. Your company’s name must not be identical to any other registered business.
Your company’s name should not be similar to another company’s. For example, if a company named “Burger King” already exists and if you name your business “Burger Kings,” your application will be rejected because the name is too similar, if not identical, to another company.
Additionally, your business name should not be confused with a State agency. For instance, you cannot name your business “State Health Department.” It should also not include terms such as doctor or lawyer unless such a professional is a part of your LLC.
Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.
Does Your Business Require a DBA?
Your LLC’s registered name is its legal name. However, you can obtain a “Doing Business As Certificate (DBA)” if your LLC wants to conduct its business under a different name.
In North Carolina, a DBA is known as an Assumed Name. An assumed name is best used for branding purposes. But remember that the assumed name alone does not protect your personal assets. To avail of the protection of limited liability, you need to form an LLC.
You may have registered your company as “Burgers and Sandwiches L.L.C.” However, you do not want to use the same name for commercial purposes and instead want to use “Burger Point” as the name of your business. You can do so by applying for an Assumed Name.
In North Carolina, the Secretary of State does not handle applications for a DBA. Instead, you will have to approach your respective county office to register your assumed name.
Option 1: Contact Your LLC’s County ClerkContact County Clerk
Fee: Contact County Clerk
Registering Your Business Domain
The internet is becoming increasingly popular every day. Most people read internet reviews and look for an online presence before purchasing a product or service. A well-designed website may aid in acquiring new customers.
As a result, you should think about getting a domain name for your business. It is preferred if your website’s name is the same as your LLC’s. You should check the availability and register a suitable web domain.
Choose a Registered Agent in North Carolina
Before your business can start operating, you must choose a registered agent. A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
They also handle other requirements, such as the North Carolina Annual Statement and Certificate of Good Standing. They liaise between the private entity (your business) and the government.
North Carolina law requires that your business have a registered agent.
Who Can be a Resident Agent?
The State of North Carolina provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual or another entity
- Over the age of 18 (in case of an individual) and must have obtained authorization to conduct business in the State (in case of an entity).
- Have a physical address in North Carolina
- Be available during regular business hours.
Individual v. Registered Agent Service
You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service which comes with a lot of advantages.
Using a registered agent service would not have to worry about deadlines or legal paperwork. A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
Additionally, because a registered agent must disclose their address and other information, engaging a registered agent service will protect your privacy.
Suppose you decide to expand your business to other States in the future. In that case, you can continue to use the same commercial registered agent (assuming they offer services in multiple States), ensuring a smooth transition.
Also, having a registered agent service allows you to focus your time and energy on growing your business rather than worrying about missing any communication from the State or a deadline.
File the Articles of Organization with North Carolina
The Articles of Organization is a document that you will file with North Carolina in order to form your LLC. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
The Articles of Organization contain the following information:
- The LLC’s name
- Name and address of members of the LLC
- Name of the registered agent.
- Street address of the registered office and the county in which the LLC is located.
- Mailing address, if different from the street address, of the initial registered agent office.
- If there are multiple offices, then information regarding the principal office.
As of now, the State provides two options for an expedited filing. If you want the State to process your request within 24 hours, you will have to pay an additional expedition fee of $100.00. Application and a cover letter should be submitted between 8:00 a.m. and 5:00 p.m.
If you want the application to be processed the same day, you have to apply along with a cover letter before Noon on the day same day. It will cost you $200.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create an Operating Agreement for your North Carolina LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
Although an LLC is not required by State law to have an operating agreement, it is highly recommended. An operating agreement eliminates the possibility of misunderstanding among members regarding profit/loss distribution and other matters of management of your LLC.
An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
There are no prescribed templates for an operating agreement in North Carolina, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing the Operating Agreement Yourself v. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement.
A professional, who creates such agreements regularly, may be aware of which elements of the agreement are problematic and could lead to a disagreement. As a result, the professional can draft a more air-tight operating agreement for your LLC.
Experts in the laws of North Carolina, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of an Operating Agreement
While an operating agreement can help reduce the likelihood of a disagreement, it cannot eliminate the risk of liability that every firm will face during its operations.
While you are at liberty to include the terms of the agreement you feel are necessary for your LLC, an operating agreement cannot be unconscionable. It cannot include, through its provisions, something prohibited by the laws of North Carolina.
Obtaining an EIN for your North Carolina LLC
An EIN (Employment Identification Number) is a nine-digit number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes.
Any LLC that has more than one member and hires others must obtain an EIN. It will also be necessary to open a bank account, file tax returns, and hire employees.
The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports in North Carolina
An annual report is an annual statement that discloses relevant information regarding the LLC. It is used by the State authorities to get the latest and updated information about all the business entities operating in the State.
In North Carolina, an LLC must file this report with the State annually. You can make the filing online.
Alternatively, you may download a copy of the document and mail it to the Secretary of State, P.O. Box 29525, Raleigh, NC 27626. The filing cost is $200.
The due date for filing your Annual Report is by the fiftieth of April every year. The first report is, however, due on the year immediately after the year in which your LLC was incorporated.
In case you miss the deadline, no additional fine will be charged. However, if the LLC fails to submit the annual statement within 60 days from the due date, then you risk your LLC getting shut down by the authorities.
Tax Liability for Your North Carolina LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
An L.L.C. will be treated differently for tax purposes depending on the members’ chosen taxation structure.
If you’re a single-member L.L.C., your default taxation type will be that of a sole proprietor or ‘disregarded entity.’ The L.L.C. has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
A multi-member L.L.C. is treated as a partnership by default for tax purposes. In such a case, the partnership rules will apply for tax purposes, which means that partners will not be personally liable for taxes. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
Corporate tax rules apply if the company is a corporation, and the company must file Form 1120. Unlike a partnership, the income of an L.L.C. is taxed. If the company is an S-corporation, the L.L.C.’s income is not taxed, but individual members are taxed on their allocated share of income. For tax purposes, an S-corporation must file Form 1120-s.
All the forms will ask you to provide information regarding the assets, liabilities, total profits, and net revenue of the L.L.C. One must keep the financial records of the corporation handy.
If you want to change the manner in which your L.L.C. is taxed, you can do so by filing Form 8832.
State Tax Liability
Depending on your LLC’s business, you may accrue State taxes. If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax. You have first to obtain a seller’s permit for this purpose. The North Carolina Department of Revenue issues seller’s permits.
If your sales tax collection is more than $100 per month, you would have to file returns monthly. If the amount is less than $100 per month, you would have to file returns quarterly.
Usually, the deadline for filing tax returns is on the 30th of every month, unless it is a holiday, in which case the deadline becomes the next working day. A penalty amounting to 5% is levied in case of late filing. You can file your tax returns online by visiting the Department of Revenue.
To understand the taxes that may apply to your LLC, you may visit the North Carolina Department of Revenue website, which will provide a quick overview of all the taxable goods and services. Usually, medicines, groceries, gasoline and digital goods are exempt from taxes.
Miscellaneous Tax Liability
You may acquire additional taxes if you employ other people. In such cases, you need to file for Unemployment Insurance Tax.
Depending on the municipality you are located in, you may be required to file additional taxes, so check your local regulations for that.
Permits and Licenses
Obtaining licenses and permits is just one more step in ensuring that your business can operate without getting into legal trouble. Depending on the nature of your LLC’s business, you may need permits and licenses to operate in North Carolina.
Assume your company is in the food processing industry. This may necessitate a food permit from the state’s health department. So, to avoid problems, ensure your LLC has all the necessary licenses and permits.
Usually, your business will be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
At the State level, your LLC will be required to get a seller’s permit if your LLC is engaged in selling some product or service that is subject to sales tax.
Some of the businesses that need to obtain a seller’s permit include: selling tangible personal property or taxable services, selling certain specified digital products, laundry business, accommodation rentals, marketplace-facilitated sales, etc. You can visit the Department of Revenue website to obtain your seller’s permit.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Charlotte, certain new businesses are required to submit a New Business Registration Form. To know more about local licensing requirements, get in touch with your municipal or county government office.
For more information regarding;
Business Bank Account & Phone Number
The LLC must have a separate bank account. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits. Specific information on your LLC, including its EIN, would be required by any bank to open a business bank account for it.
Privacy has become increasingly important in today’s world. As a result, it’s a good idea to have a separate phone number for your business. Furthermore, a business phone number may provide customer support, increasing customer satisfaction and benefitting your business.
You can obtain a phone number using any network carrier’s services (such as AT&T). Typically, some documents are required to prove the existence of a business entity. Depending on the service provider, the documents required may differ.
North Carolina has a booming economy and is home to some of the biggest companies in the world, including Bank of America, Quintiles Transnational Corp, and Compass Group.
The State offers several incentive programs aimed at small and medium enterprises. The Infrastructure financing programs and the North Carolina Opportunity Zones are two such schemes.
Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
In North Carolina, failure to file annual reports could result in you getting shut down. Make sure you, and your registered agent, are aware of due dates and meet filing deadlines in a timely fashion. Best of luck to you and your ever-growing business!