Forming an LLC in North Carolina
You make many choices when starting a new business, including the legal structure. One popular business entity type for a small startup is the limited liability company (LLC). Many small business owners choose the LLC structure because of its flexibility, tax treatment, and limited liability. If you would like to start an LLC yourself, follow along with the step-by-step process below.
Steps to Form an LLC in North Carolina
Name Your LLC
You should choose an LLC name that is memorable, distinctive, and makes your business stand out from the competition. Further, you must ensure that the company name is available in North Carolina and follows state naming rules.
Your North Carolina LLC name must:
- Be unique: Your name must differ from all other registered North Carolina business names.
- Contain an LLC designator: Your name must contain language to indicate that it's an LLC. You can use the full words "limited liability company" if you like. If you prefer, you can use the abbreviation "Ltd." And "Co." in place of "limited" and "company." For example, "limited liability co." Or you can abbreviate the entire string of words to "LLC" or L.L.C." Note that using "ltd. liability company" or "ltd. liability co." do not meet the requirements.
Name Search. To find out if your name is available, you should conduct a business entity name search on the Secretary of State's website. If the name is unavailable, you should choose a new one.
Internet Search. You should do a simple screening name search on the internet. Type your desired name into a search engine to see if any business outside of North Carolina is using your name. If there are matches, create another name.
Trademark Search. Continue your search at the United States Patent and Trademark Office (USPTO) trademark database. You should make sure that there are no matches for your name on this database. This will help you avoid getting into legal trouble for trademark infringement.
Protect the LLC Name. Once you have settled on a unique name, you should check for domain name availability. Although you might not launch your website immediately, you may want the domain name ready to make it easier to build your web presence when the time comes.
Additionally, you may want to register your name with the USPTO or apply for a trademark registration with the North Carolina Secretary of State.
Reserve the LLC Name. You can reserve the name for a few months while you prepare to file your LLC. To do so, you need to apply to reserve a business entity name with the North Carolina Secretary of State. This will reserve your LLC name for 120 days. The filing fee is $30. After completing the paperwork, you should submit the document to the address listed on the form. If you prefer, you can submit the document through the Secretary of State's online portal.
Get a Registered Agent
Under the North Carolina Limited Liability Company Act, all LLCs must have a registered agent. A registered agent is an entity or person who agrees to receive official legal papers on behalf of the business. This includes service of process if anyone sues your business.
The registered agent can be an individual who is a resident of the state of North Carolina or a business entity that's registered to do business in the state. The registered agent's address must match your registered office address. It must be a physical street address, not a P.O. Box. You should choose a person or entity available to receive legal papers during standard business hours.
Many LLCs choose one of their members to serve as their own registered agent. But if none of your LLC members are willing and able to take on this task, you can use a registered agent service. The registered office must be open during normal business hours on regular business days.
You will need to list your registered agent's name and address in your articles of organization in the next step.
File Your Articles of Organization
To officially form your LLC as a legal entity, you will submit North Carolina articles of organization to the state. Articles of organization form a legal document with basic identifying information about your LLC. Under North Carolina law, you will need to provide the following:
- Your LLC's name
- Your registered agent's name and address (registered office address)
- The address of your principal office
- Your LLC's mailing address if this is different from your registered office
- The names and addresses of all the people signing the articles of organization, and whether they are members or managers
- The effective date of your LLC
Further, if you are starting a professional LLC, you will need to state the services you will offer.
North Carolina has an online portal and a PDF form to file your articles of organization on the Secretary of State website. There is a $125 filing fee. You can also use an LLC formation service company to assist you in completing and filing the document.
Draft an Operating Agreement
Although North Carolina does not require you to have an LLC operating agreement, it is wise to have one. An operating agreement is an internal company document. You use it to establish rules and create key agreements among members. This includes:
- Member rights and responsibilities
- If the LLC is manager-managed or member-managed
- Voting rights
- Procedures for adding and removing members
- Ownership percentages
- Procedures for dissolving the LLC
- Anything else that's important to your business
Putting these agreements into writing can help to avoid future conflict among members and promotes more organized operations. Even a single-member LLC should have an operating agreement. Although you will not have to worry about member disputes with a single-member LLC, there are other reasons to have an operating agreement. You may need to show this document to professionals like lawyers and accountants to receive services. You will also likely need to provide it when seeking financing for your business.
Get an EIN
You will need an Employer Identification Number (EIN) if you have a multi-member LLC or plan on hiring employees. An EIN is a unique identifying number. The Internal Revenue Service (IRS) uses EINs to distinguish between companies for tax purposes. It's like a Social Security Number for businesses. You will need this number for employee payroll and to open a business bank account. An EIN is free and easy to get at the IRS website. You can apply by mail, fax, or online.
You should check the Internal Revenue Service (IRS) Business Taxes page for more information about your federal tax obligations.
Set Up Business and Tax Accounts
When you start a new business, you must register for tax and business accounts in the state. And if you have employees, you will need a federal EIN number. Your tax and licensing requirements depend on the location and nature of your business.
If you think your business may be subject to federal licensing requirements, you should check the Small Business Administration (SBA) website. There, you will find more information on the business activities that give rise to federal regulation.
Depending on the type of business you run, you may need to register for state taxes at the North Carolina Department of Revenue (DOR). For example, if you pay employees and sell goods, you must register with the DOR for withholding tax and sales tax.
State Business Tax
If your North Carolina LLC is a pass-through entity, the profits and losses of the LLC go on the members' individual tax returns. The LLC does not pay state income tax. However, if you elect to have your LLC taxed as a corporation, you will be required to pay the annual state business tax of 5 percent. And you may be subject to the franchise tax as well. Both taxes are payable to the Department of Revenue.
State Employer Tax
The first time you hire employees, you must have state employer accounts for withholding, unemployment insurance, and worker's compensation. When you set up your new business with the Department of Revenue, you will register for these accounts.
- Register to pay withholding taxes.
- Sign up for an unemployment insurance account with the North Carolina Department of Commerce Employment Security.
- Report new hires in a new hire directory.
- Provide worker's compensation if you have three or more employees.
Sales and Use Taxes
If you are a vendor in North Carolina, you must register for a sales and use tax account. You can do so when you set up a new business account with the Department of Revenue.
Business Licenses and Permits
You should contact your city clerk to check for local licensing requirements. State licensing requirements may apply too. Visit the North Carolina Secretary of State website to learn more. There, you will find North Carolina state licensing information and contact details for the office.
Registration in Other States
If you want your North Carolina LLC to do business in another state, you must register as a foreign LLC. Contact the state's secretary of state office in that state for registration requirements. You may need proof of your LLC's good standing in North Carolina. You can request a certificate of existence (North Carolina's version of a certificate of good standing) from the online portal.
You file the state's application for a foreign LLC, and if accepted, you must also follow that state's rules for setting business tax accounts and business licenses. And if you plan to hire employees in that state, you must comply with state tax laws and withholding.
To keep your business in good standing, you must file annual reports with the state. You can file online or by mail. You need to submit a $200 state filing fee along with your report. Note: If you file online, there is an additional $3 charge.
In your annual report, you will need to provide the following basic information:
- Your LLC's name and address
- The location where you organized your LLC (if a foreign LLC)
- Contact information for your company officials
- Your registered agent's contact details
- The nature of your business
- The address of your principal office
This information will mostly confirm the details you initially provided with your articles of organization. Your annual report is due by April 15th of every calendar year following the year you created your LLC.
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