Forming an LLC in North Carolina will help protect your personal assets from lawsuits and judgments against your business. An LLC is a legal structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming a North Carolina Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
Before getting into the six steps, here are a few things to know about North Carolina LLCs.
How Much Does It Cost to Get an LLC In North Carolina?
The filing fee for a North Carolina Limited Liability Company is $125, payable to the North Carolina Secretary of State.
North Carolina Annual Report and Annual Fees
North Carolina requires all limited liability companies to file annual reports. Annual Reports are due every April 15th and must be delivered to along with a $200 fee to the N. C. Department of the Secretary of State, Corporations Division.
- Minimum Number – one or more
- Members/Managers- at least one is required to be listed in the Articles of Organization
- Residence Requirements – none specified
- Age Requirements – none specified
In addition to forming your LLC, you will need to check for North Carolina business licenses and permits.
Steps to Forming a North Carolina LLC
Step 1. Name Requirements
Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Now that you have the perfect name, you want to be sure nobody else is using it as each state requires a unique name per LLC or Corporation. To check if your name is being used, visit our list of Secretary of State offices to do a free North Carolina LLC name search with the North Carolina Secretary of State.
Step 2. Choose a Registered Agent
The registered agent must have a physical presence in North Carolina but may be an individual resident, domestic or foreign corporation authorized to transact business in North Carolina. The registered agent must also have a physical mailing address and be available during normal business hours to accept delivery of documents. A Post Office Box or personal mailbox is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.
Provided you as the business owner have a physical presence in North Carolina, you can be the registered agent, however, there are additional privacy benefits to having a third-party registered agent.
Check out our article on why an LLC Registered Agent may be a good choice for your business for more details.
Step 3. File the Articles of Organization
This is the most important step and many people believe that you need an attorney to complete an LLC formation. While we don’t discourage having an attorney, filing a North Carolina LLC can be done by most people, but you can save considerable money over an attorney and make sure everything is filed correctly by using a formation service such IncFile.
Step 4. Create an Operating Agreement
An operating agreement is not required in North Carolina but is typically a good idea. While not as useful for a single-member LLC, it becomes more important for an LLC owned by multiple people. The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Step 5. Get an EIN
What is an EIN? The Employer Identification Number (EIN), or Federal Tax Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Select the Tax Status of the LLC
One of the advantages of an LLC is the flexibility in taxation as there are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC- An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. North Carolina requires the D400, it’s version of IRS Form 1040. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment tax on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form1065. At the state level, Form D403 is filed.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. At tax time, IRS Form 1120 and North Carolina Form CD405 is filed. The major difference is now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation as more costly as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553. What makes the S Corporation attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting an LLC that elected S Corporation status. As an S Corporation, you will need to file CD41015 with the state for Income and Franchise Tax.
Each of the four ways for an LLC to be taxed in North Carolina can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one works best for the members.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost. Take a look at our comparison page of popular LLC formation services.
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