North Carolina may not seem like the obvious choice, but the state is actually considered to be one of the best places for business opportunities.
According to Lending Tree, North Carolina has been determined to be the best state for small business owners, while its impressive second place on the CNBC list of top states for business proves that North Carolina has plenty to offer with its workforce opportunities and access to capital.
We also recommend to consider the local North Carolina company Gorman and Associates.
All this to say that North Carolina is an excellent place to get your enterprise up and running. But if you’re new to the process of business formation, especially if it’s an LLC or PLLC, it’s likely you don’t have a good idea of where to begin.
With this article, we aim to provide the basics of North Carolina LLC formation for all promising new business owners, including:
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The first item on your formation agenda is to pick an appropriate name for your North Carolina LLC. Keep in mind that it’s not enough for an LLC name to be suitable only from your point of view as the company owner. When deciding on a name, you must above all consider the state’s regulations as outlined in the North Carolina General Statutes section 55D-20.
All North Carolina LLCs must state their business designation by using any of the following indicators:
Most importantly, North Carolina LLC names should be unique. The state requires new businesses to choose names that are clearly distinguishable from those already in use by registered entities in North Carolina.
If your name is already taken and you have to alter the name in some way, remember that the changes should be significant. Changing letter cases or adding one article won’t be enough to deem the name distinguishable.
For instance, you plan to start a cleaning business under the name “Carolina Professional Cleaning, LLC” but the state search shows that the name is already registered to “Carolina Professional Cleaning, Inc”.
Even though the business structures are different, you will still need to alter the name by changing the order of words or adding new ones such as “NC Cleaning Network, LLC” or “Carolina Professional Residential Cleaning, LLC”.
Under subsection “c” of the North Carolina General Statutes section 55D-20, LLCs are prohibited from using words that imply any relation to licensable and heavily-regulated industries unless explicitly authorized to do so.
Always make sure to check if your LLC requires special licenses to operate in North Carolina. In many cases, naming restrictions directly follow your licensing status very closely.
Fortunately, the North Carolina Secretary of State’s website provides a list of word prohibitions, as well as their connections to state licensing boards and agencies. The restrictions concern words related to banking, trusts, real estate, as well as a list of licensable professions.
As stated before, it’s important to pick a name that hasn’t already been registered. You can find out whether your preferred name is available by using North Carolina Secretary of State’s business search tool.
Even if you didn’t manage to grab a perfect name for your LLC formation, you can always register a fictitious name also called DBA (“doing business as”). In North Carolina, DBAs are referred to as assumed business names which can be attributed to your LLC for commercial use as trade names.
DBA registration is mostly done locally by filing an assumed business name certificate. According to the North Carolina General Statutes Section 66-71.4, a DBA may be used in one or multiple counties.
You won’t have to file your assumed name certificate in every county. A single filing with your home county’s office of the register of deeds will be enough.
You can also register multiple DBAs, though be careful how you file them—the state allows only five assumed business names in a certificate attributed to a single LLC.
A more expanded outline of the DBA filing can be found in the North Carolina Assumed Business Name Act, including the items that must be included in the assumed business name certificate.
A DBA certificate should detail the following information:
Thankfully, the North Carolina Secretary of State has adopted new regulations of keeping records on assumed business names. As such, you can search all active DBAs in North Carolina regardless of the county. This also means that even if you register in one county, other jurisdictions will have this information available, making registration more convenient.
To register a DBA, you must file the assumed business name form along with the service fee of $26 per filing.
Under the North Carolina General Statutes section 57D-2-40, every North Carolina LLC must appoint a registered agent and maintain them throughout the company’s duration.
A registered agent is an entity or individual responsible for receiving correspondence and legal documents like service of process on behalf of a business entity. Without a registered agent, no North Carolina entity is authorized to conduct business.
Service of process refers to the legal practice of serving a court summons to the defendant. In this case, an LLC would be the defendant, so the registered agent will receive any court notices on its behalf.
A registered agent, therefore, acts as a delegate of sorts who represents your LLC, so the state treats them as the primary point of contact. Technically, almost anyone can be a registered agent as long as they are over 18 and have a physical address in North Carolina.
This rule is part of what makes the choice of acting as your own LLC registered agent so accessible. Some entrepreneurs prefer it to the traditional agencies and attorneys due to financial convenience.
However, there are plenty of aspects to this method that are less convenient. Let’s look at the main pros and cons of being your own registered agent in North Carolina:
The best way to ensure you never miss any legal papers and vital correspondence from the state is to hire a professional registered agent service. A good number of LLC formation companies even offer this service for free for up to a year. The average registered agent fee is about $100.
It’s worth noting that expanding your LLC to other states guarantees you will need separate agents in each new state, meaning that acting as your own agent is impossible in a case like this.
As stipulated by the North Carolina General Statutes section 57D-2-20, a North Carolina LLC is considered formed only if it files the articles of organization with the Secretary of State.
If you want your formation documents to be in order, you can always let a professional service handle it. For more information about formation providers, see our article on Best LLC formation services.
The Secretary of State provides a ready form for the articles of organization and other formation documents on their website.
Additionally, the North Carolina General Statutes Section 57D-2-21 lists the items that must be included in your LLC articles of organization. Your formation document should specify:
The articles of organization have a mandatory service fee of $125 per filing. More information on business registration costs can be found on the North Carolina state fees page.
The processing time, also known as “examination” in the Secretary of State’s terminology, can vary between five and seven business days for standard filings. To counter that, the state offers expedited services that could reduce the overall formation time. You can two expedited options:
Note that the same-day option requires you to submit the articles of organization before noon on the day you wish the documents to be approved.
The easiest and fastest way to form your LLC is to apply online. In addition to the standard $125 filing fee, you will also need to pay a $3 transaction fee.
The operating agreement is a set of internal regulations meant to manage the conduct of the LLC itself and its members, their responsibilities, rights, and other duties in relation to the entity and each other.
It’s not a hard requirement to draft an operating agreement in North Carolina, but it’s nevertheless a highly recommended step.
There is no uniform template for the operating agreement, but most examples of these administrative documents include the following items:
The North Carolina General Statutes 57D-2-320 also provides a list of things that an operating agreement cannot do. In general, an operating agreement cannot defy the North Carolina law or restrict the rights and protections of the LLC and its members.
As was mentioned in the section on the articles of organization, North Carolina LLCs are technically allowed to include items typical of an operating agreement in their formation document instead. This is generally inadvisable as the two documents may end up containing conflicting provisions.
Another reason for creating an operating agreement as opposed to relegating all your internal regulations to your articles is convenience. If you want to amend the existing rules in the articles, you will have to make corrections each time and refile the articles. Such amendments cost $50 per filing. When you have a separate operating agreement, you can alter it legally without any state filings.
An Employer Identification Number or EIN is a nine-digit code issued by the IRS to business entities for the purpose of tracking their tax activities. In a way, an EIN is like a Social Security Number for businesses.
While not all LLCs might need an EIN at the beginning, in most cases, you will require one sooner or later. If you aren’t sure whether to register an EIN at this point of your LLC formation, consider the following:
Even if only one of these applies to your LLC, it still indicates that your business will likely need an EIN to operate legally.
Fortunately, the registration process is simple. All you need to do is send an online application on the IRS website. If you prefer to work with physical documents, you can apply by mail or tax using the IRS form SS-4.
Note that this service is completely free of charge. The trouble is, some LLC formation agencies try to inflate their prices by charging extra for this filing, so it’s best to stir clear from such providers.
After you finish with your formation documents and other basics, your next step as a new LLC owner is to ensure your business runs effortlessly. Let’s look into a few things that could make your LLC’s operations easier.
While sole proprietors often use their personal accounts to run their business, this method is highly inefficient for LLCs as a whole and multi-member companies in particular.
The main advantages a business bank account can provide include:
Perhaps the main reason for opening a business bank account is to ensure your LLC is able to apply the concept of the corporate veil to protect your personal securities. If you can’t prove that your LLC is a separate entity from you as an individual, the corporate veil can be “pierced” which means you become vulnerable to lawsuits that are initially brought against the company itself.
In theory, if your LLC is sued by creditors, your personal assets are out of reach and cannot be seized by the court order. However, if you don’t maintain a business bank account for your LLC and therefore can’t provide sufficient proof that the company has nothing to do with your personal finances, the court can potentially allow the creditors to requisition your personal assets to pay the LLC’s debt.
This is precisely why business bank accounts are vital for your personal protection. The concept also applies to single-member LLCs. Technically, sole owners can use their personal bank accounts, but it’s more convenient to separate your business transactions and have a separate credit for your LLC.
Another essential part of maintaining your LLC’s stability is purchasing the appropriate insurance policies. In some cases, North Carolina LLCs are even required to obtain a specific kind of insurance depending on their status as an employer.
The most common types of business insurances are:
Compliance is a necessary aspect of business maintenance. Every LLC registered in North Carolina has to operate legally, and to prove that everything is in order, business owners must follow specific state regulations.
There is no general business LLC license requirement in North Carolina, but your LLC will most certainly need one or more licenses and permits from your county and municipal authorities.
The scope of license requirements depends on your location and the industry in which your LLC operates. In most cases, you will need to register with different agencies to obtain these licenses and permits. You can find out more about each licensing board and regulatory agency on Business Link North Carolina website.
If your LLC has a default pass-through system of taxation, your business doesn’t pay income state tax directly. Instead, LLC members report their profits and losses (according to their share) on their personal returns.
Companies that sell goods and services are eligible for sales and use tax, while LLCs that employ workers are required to pay FICA taxes including unemployment insurance and withhold the necessary amount of these taxes from their workers’ paychecks.
You can find out more about state tax requirements on the North Carolina Department of Revenue website.
The same pass-through principle applies to federal income taxes. If your LLC has elected the default system, you don’t need to pay the federal income tax the way C-corporations do.
Members of pass-through LLCs report their individual profits and losses using form 1040, Schedule C. If your LLC has elected a corporate tax system, it has to follow the S-corp or C-corp filing rules.
All North Carolina LLCs must submit annual reports to the secretary of state no later than April 15 of the following year. Annual reports are designed to inform the state of any changes that have occurred since the previous filing or, alternatively, confirm that none have occurred.
According to the North Carolina General Statutes Section 57D-2-24, annual reports should cover the following items:
Annual reports can be filed online or by mail using paper forms. Each filing comes with a $200 fee regardless of the application method, though online filings are much faster than traditional postage.
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.