North Carolina is one of the best places in the country to start a small business. Steady population growth, proximity to top colleges and universities, an affordable cost of living, and a pleasant climate all contribute to making this a great state for would-be entrepreneurs. If you’d like to launch a business in North Carolina or expand your business operations there, you’ll need to begin by selecting a business entity structure.
Among your options? The limited liability company, or LLC. LLCs blend features of corporations and partnerships. Owners in an LLC enjoy personal asset protection from business creditors, and it’s relatively easy to set up an LLC. In this guide to starting an LLC in North Carolina, we’ll provide simple, step-by-step instructions to launch your North Carolina LLC and keep it in good standing.
Starting a North Carolina LLC: Step-by-Step Instructions
In order to start a North Carolina LLC, you’ll need to register your business with the North Carolina Secretary of State. The Secretary of State sets the rules for starting an LLC in North Carolina and expanding your out-of-state business to North Carolina. They also collect registration fees from new LLCs. Before you can register your LLC with the state, there are a few preliminary steps you’ll need to complete.
Here are the steps for starting a North Carolina LLC:
Step 1: Choose a Name for Your North Carolina LLC
Establishing your North Carolina LLC starts with identifying a business name. The Secretary of State will reject your business name if it’s too similar to the name of another business entity. For example, if a company called “A Delicious Restaurant, LLC” already operates in North Carolina, then you can’t call your LLC “The Delicious Restaurant, LLC.” Business names that are too similar can cause confusion among customers and members of the public.
Name Availability and Name Reservation
When you have a name in mind for your North Carolina LLC, check that it’s available by using the Secretary of State’s business name search. The name of your LLC must end with the phrase “limited liability company” or with the abbreviations “LLC” or “L.L.C.” There are restrictions on using any of the following words in your LLC’s name: corporation, incorporated, Inc., bank, trust, mutual, co-op, insurance, engineering, and architect.
In addition to the business name search, we also suggest searching local and online business directories to ensure that no other business is using your preferred name. It’s also a good idea to search through North Carolina’s trademark database and federal trademark database.
After finding an available name, you can reserve the name for up to 120 days by filing an Application to Reserve a Business Entity Name with the Secretary of State. The name reservation fee is $10, and you can file online, by mail, or in person (if you don’t mind traveling to Raleigh).
Professional LLCs in North Carolina
A professional limited liability company is a specific type of LLC that can be formed only by members of licensed occupations, such as doctors and attorneys. In North Carolina, at least one member of a PLLC must hold a license to practice the occupation.
The PLLC’s name should end with “professional limited liability company,” “PLLC,” or “P.L.L.C.” PLLCs will file a different formation document with the Secretary of State, but otherwise, the setup process for PLLCs is similar to that for regular LLCs.
North Carolina LLCs With Trade Names
In some instances, your business might want to operate under a trade name—also called an assumed name, fictitious business name, or “doing business as” (DBA) name—that’s different from the company’s legal name. For example, your business’s legal name might be “Jane Smith Gardening and Landscaping Services, LLC,” but you might want to operate informally as “Jane’s Gardens.” In this case, you’ll need to ensure that the trade name “Jane’s Gardens” is available on the Secretary of State’s assumed name database. You’ll also need to file an assumed business name certificate at the county register of deeds, along with a $26 fee.
Source: North Carolina Secretary of State
Step 2: Choose a Registered Agent for Your North Carolina LLC
Every North Carolina LLC must designate a registered agent. The duty of the registered agent is to accept official mail and government notices on your business’s behalf and forward them to you. The registered agent can be an individual who resides in North Carolina or a commercial entity. The agent must maintain a physical address in North Carolina (not just a P.O. box).
It’s possible for you, a business partner, or a friend or family member to serve as the registered agent for your LLC, but that person’s name will appear in public records. For more privacy and convenience, most small business owners opt to use a commercial provider as their resident agent. IncFile is an online legal service that is licensed to provide registered agent services in all 50 states. If you form your LLC on IncFile, they’ll serve as your registered agent for free for the first year, and you’ll have the ability to renew after that.
Step 3: Obtain North Carolina Business Licenses
North Carolina does not issue a single statewide business license, and most licensing is handled at the city or county level. However, businesses in certain industries might need a state license. The North Carolina Department of Commerce has a business license search which you can use to check the requirements for your business. You can also contact a business counselor for free who can advise you more about licensing requirements in North Carolina.
Businesses that sell taxable goods must register for a sales and use tax number from the North Carolina Department of Revenue. You’ll be required to collect sales tax from your customers, file tax returns, and remit the tax to the state on a monthly, quarterly, or annual basis. The filing frequency depends on the amount of tax you collect from customers.
Step 4: File LLC Articles of Organization
The next step is to file your LLC articles of organization (Form L-01) with the Secretary of State. Once approved by the state, the articles of organization officially grant your LLC the authority to operate in North Carolina. For the fastest processing, choose online filing, but you also can file your articles by mail or in person. The filing fee is $125.
If you’re in a professional occupation and are forming a PLLC, then you’ll need to file a different document. You’ll file PLLC articles of organization (Form PLLC-02).
The following information will be needed to complete the North Carolina articles of organization:
- Business name and address
- Name, address, and signature of all LLC members
- Name and street address of the registered agent (no P.O. boxes)
- Desired effective date of the LLC’s formation, if not the date of filing
The Secretary of State will look over your articles of organization to make sure all the required information is provided. Assuming everything is accurate, they will file a copy of your articles in the state records and return the original to your registered agent’s address. It takes about five to seven business days for the Secretary of State to receive, process, and return your documents.
Source: North Carolina Secretary of State
Foreign LLCs Operating in North Carolina
The process is slightly different if you’ve already formed your business under the laws of another state and now want to operate in or expand to North Carolina. You’re considered a foreign LLC in this case, and must file a certificate of authority (form L-09) with the Secretary of State. The filing fee is $250. You’ll have to attach a certificate of good standing from your home state to this form.
Step 5: Write an LLC Operating Agreement
An LLC operating agreement describes the daily operations of an LLC, as well as the rights and responsibilities of each member. North Carolina business owners are not obligated to create an operating agreement, but having one creates a “playbook” for your LLC in good times and bad.
At a minimum, here’s what you should include in the operating agreement for your North Carolina LLC:
- Description of your LLC’s products or services
- Whether your LLC is member-managed or manager-managed
- Each member’s name and address
- The manager’s name and address if the LLC is manager-managed
- Each member’s asset contributions to the LLC, voting rights, and profit share
- The LLC’s meeting schedule and voting procedures
- The procedure for admitting new members to the LLC
- The procedure for electing a manager if applicable
- Terms and procedures for dissolving the LLC
Every member of the LLC should have an opportunity to review and sign the operating agreement, ideally after consulting with a lawyer. After every member signs, you can store your operating agreement with other business records. IncFile will create a custom operating agreement for you when you use them to form your LLC.
Step 6: Comply With North Carolina Employer Obligations
If your business has employees, there are additional laws you’ll have to comply with to start your North Carolina LLC, including the following:
- Employee reporting: Under state and federal law, employers must report new employees to the government within 20 days of their hire date. Register for online reporting at the North Carolina Directory of New Hires.
- Employer withholding: North Carolina employers must register for a withholding tax identification number with the state Department of Revenue. Employers must withhold federal, state, and local income taxes from their employees’ wages and remit the taxes to the state.
- Paying unemployment taxes: If you paid wages of $1,500 or more in any quarter of the year, you’ll have to pay unemployment insurance taxes as well. Sign up for a North Carolina unemployment insurance tax account with the North Carolina Division of Employment Security. The tax rate is based on a business’s age and history of unemployment claims.
- Purchasing workers compensation insurance: In general, most employers in North Carolina must purchase workers compensation insurance once they have three or more employees. This insurance pays for work-related injuries and can be purchased through many business insurance carriers.
A business attorney who specializes in North Carolina law can help you learn more about local employer requirements and help you stay in compliance.
Step 7: Pay North Carolina LLC Taxes
An LLC itself does not pay income taxes because it is a pass-through entity. Rather, each owner of the LLC reports their share of the business’s income on their personal tax return, and pays state income taxes on that portion.
Along with state income taxes, North Carolina requires you to file an annual report for your LLC, which is an opportunity to update any business information that’s on file with the Secretary of State. The report is due on April 15 of each year, though you only have to start filing these reports in the first year after you create your LLC. The filing fee is $200.
Members of an LLC can choose between pass-through taxation (the default tax treatment) and corporate taxation. If the members of an LLC vote for corporate taxation in accordance with the procedures outlined in the operating agreement, the company will be subject to North Carolina’s corporate and franchise income taxes.
Remember that in addition to income taxes, there are other tax responsibilities for small business owners. Depending on what type of business you have and whether you employ anyone, you’ll have to collect sales taxes and pay unemployment insurance taxes. You might also have to withhold employee income taxes and payroll taxes and remit these to the government.
Step 8: Comply With Federal Requirements
North Carolina LLCs must comply with local, state, and federal requirements. As pass-through entities, LLCs do not pay federal taxes on business income. Instead, each member of the LLC reports their share of the LLC’s profits on their personal income tax return, and pays taxes on that portion.
Sometimes, members will choose to classify their LLC as a corporation for federal tax purposes. At the federal level, corporations are taxed at a flat 21% rate on income. If you need to retain earnings in your LLC or want to take advantage of certain types of tax deductions, you might benefit from corporation tax status.
Members of an LLC are not considered employees, so social security and Medicare taxes aren’t taken out of an owner’s income. Instead, LLC members pay self-employment taxes to the IRS to cover their social security and Medicare tax obligations. Businesses with employees must withhold federal income taxes and payroll taxes from their employees’ wages, and pay the employer share of payroll taxes. Employers must also pay a federal unemployment tax, but state unemployment taxes can be credited against your federal tax responsibility.
Before filing federal taxes, apply for a federal employer identification number (EIN) for your LLC if necessary. An EIN is a must-have for LLCs with employees or multiple members, and for LLCs that choose to be taxed as corporations.
Step 9: Maintain Your North Carolina LLC
Once you’ve put in the hard work to start your North Carolina LLC, you’ll want to ensure that your company remains in active status and good standing with the state. Pay your taxes on time, file your annual report on time, and keep your business finances separate from personal finances. Treating business finances distinctly makes accounting and tax time easy and also shields each owner from liability for business debts.
Here are some strategies for keeping business and personal finances separate:
- Open a business bank account, and use it only for business transactions
- Use business credit cards only for business expenses
- Use business loans and lines of credit only to cover business expenses and not for personal reasons
In addition to these steps, hold regular member meetings and document decisions in writing when a member or manager acts on behalf of the LLC.
North Carolina LLC Advantages and Disadvantages
The entity structure that you choose will influence many aspects of your business, including the taxes you pay, your day-to-day operations, and the legal risks of doing business. LLCs are a common business structure for small businesses and offer several advantages, the biggest of which is limited liability. In the normal course of business, owners aren’t personally liable for the debts or obligations of the business. LLCs also offer more tax flexibility, allowing members to choose between pass-through taxation and corporate taxation.
LLCs come with some disadvantages as well. Owners must pay self-employment taxes on all business profits, even those that are retained within the business to fuel future growth. And while they are easier to maintain than corporations, LLCs are more expensive and challenging to operate than a sole proprietorship or general partnership. Business owners who want to raise money from investors might need to form a corporation, not an LLC, so they have the ability to issue stock.
Here are the pros and cons of starting a North Carolina LLC:
- The members of an LLC aren’t personally liable for business debts and lawsuits in the normal course of business.
- An LLC is easier and less expensive to start than a corporation and has fewer recordkeeping requirements.
- An LLC’s members can vote for the company to be taxed either as a pass-through entity or a corporation.
- LLCs are more difficult and expensive to start than sole proprietorships and partnerships.
- An LLC’s members must pay federal self-employment taxes on all profits, even retained earnings.
- LLCs can’t issue stock, so this business structure is not well suited for raising money from investors.
- North Carolina LLC formation fees are higher than average, costing $200 for filing articles of organization.
Make sure you consider different business structures before settling on one. It is possible to change your business structure, but choosing wisely at the outset saves time and money down the line.
Starting a North Carolina LLC: The Bottom Line
Choosing a business entity structure is one of the most important decisions you’ll make for your company. An LLC works out well for many small business owners due to a combination of startup ease, liability protection, and tax flexibility. If you’re ready to start your North Carolina LLC, follow the nine steps we’ve outlined above. Alternatively, we recommend using a business formation service like IncFile. IncFile will help you register your North Carolina LLC with the Secretary of State, and they will include one year of free registered agent service.
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