Steps to Forming an LLC
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How to Form a North Carolina LLC
Forming an LLC in North Carolina will help protect your personal assets from lawsuits and judgments against your business. An LLC is a business 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 an annual report. 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.
Filing the annual report on time is important as is allows the LLC to stay in good standing with the Secretary of State and ensures the liability protection stays intact. Failure to pay within 60 days will result in the LLC being dissolved.
- Minimum Number – one or more
- Members/Managers- The name and address of each member and manager is required to be listed in the Articles of Organization
- Residence Requirements – none specified
- Age Requirements – none specified
Business Licenses and Permits
In addition to forming your LLC, you will need to check for North Carolina business licenses and permits, such as registering for a sales tax number with the Department of Revenue.
Steps to Forming a North Carolina LLC
Step 1. Naming Requirements
North Carolina LLC Name Search
Before settling on a company name, you want to be sure nobody else is using it as each LLC must have a unique name. Here’s how to search available LLC names in North Carolina.
If you find a business name you want to register, but aren’t ready to form your LLC, the North Carolina Secretary of State to hold the name.
Your company 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.
Step 2. Choosing a Registered Agent
What is a Registered Agent?
A registered agent is the central point of contact for the LLC, that can be either an individual or business entity, that receives important legal documents, tax notices or communications with the state.
Registered Agent Requirements
The North Carolina registered agent must generally be available during normal business hours at a physical street address or principal business address in the state of North Carolina to accept service of process. 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.
Who can be a Registered Agent in North Carolina?
A registered agent can either be a resident of North Carolina or a corporation authorized to do business in the state.
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. Filing the Articles of Organization
The Articles of Organization is the paperwork used to form an LLC with the state. This is the most important step and many people believe that you need an attorney to file.
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 as ZenBusiness.
Step 4. Creating 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. Getting an EIN
What is an EIN?
The Employer Identification Number (EIN), or Federal Employer 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
How to Register an EIN for a North Carolina
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. Selecting the Tax Status of the LLC
In addition to the personal liability protection the Limited Liability Company provides its members, another key benefit of an LLC the four business entities don’t provide is the flexibility in taxation. 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.
ZenBusiness has a special offer right now to form an LLC for $49 plus the cost of the state fees.
Step 7. Open a bank account for your business
Opening a separate LLC bank account is important as it establishes a clear division between your personal and business finances. Should the LLC be sued and you are using a personal bank account for your LLC’s finances, that would be considered a commingling of funds, which may make it difficult to maintain the liability protection of the LLC.
To open a bank account for your LLC, you will need to bring the following with you to the bank:
- Form of identification for each member, such as a driver’s license
- Copy of the Certificate of Formation
- LLC operating agreement
- Employer Identification Number – If you are a single-member LLC with no employees, you can simply use your Social Security Number
A bank resolution may be needed depending on the bank and the tax election of the LLC. A banking resolution is a formal document that provides authorization for who has access to the LLC bank account.
Learn more about opening a bank account for an LLC
Step 8. Obtain a sales tax permit (not required for all businesses)
If your business sells a taxable product or service you will also need to apply for a North Carolina Sales Tax Permit through the North Carolina Department of Revenue.
Wanting to form an LLC in a state other than North Carolina to save money on taxes? This doesn’t typically do as much as you may think as you will likely register an LLC in the other state and will also usually need to file as a foreign LLC in your home state of North Carolina as well. In addition to paying two filing fees to start the LLC and two annual reports each year, there will be multiple tax filings as well. Be sure to do your research as there are a lot of people promoting formation services in other states and weigh all the pros and cons before making this decision as it can be a costly one.