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Starting a Limited Liability Company (LLC) in North Carolina can be an exciting venture for entrepreneurs, regardless of their experience level. Whether you're a seasoned business owner or new to entrepreneurship, understanding the process of LLC formation is crucial. This guide will take you through the steps of establishing an LLC in North Carolina, from choosing a business name to understanding costs and advantages.
As we explore how to start a business via an LLC, keep in mind that launching one involves more than just paperwork it also means building a solid and profitable business.
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How to start an LLC in North Carolina in 7 steps
01. Pick your business name
When starting a business in North Carolina, the first step is to choose a name for your LLC. Your business name should be unique and different from others on record with the North Carolina Secretary of State. Make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company" to meet state requirements.
You can also perform a domain name search if you plan to also focus on building a website.
Tip: If you're having trouble coming up with a unique name for your business, consider using a business name generator.
02. Choose your registered agent
Every LLC in North Carolina must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in North Carolina. As well as this they must be able to handle confidential documents and meet all legal requirements set by the state for this position.
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03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in North Carolina. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, first check with local and state agencies to determine what permits you need. Then fill out and submit any necessary paperwork. Finally pay any required fees.
For example, if you want to start a bookkeeping business, you may need a business license from your local county government, as well as state and federal agencies. You may also need specialized permits if you plan to handle sensitive financial information for your clients. It's important to research and comply with any regulations related to bookkeeping services in your area.
Learn more: How to get a business license
04. File Articles of Organization
Articles of Organization is a critical document that officially creates your LLC in North Carolina. You'll file this with the North Carolina Secretary of State, either online or by mail, along with the required filing fee.
The following key steps are included in the filing process:
Fill out Form PLLC-02: This is the specific form used for filing an LLC's Articles of Organization in North Carolina.
Submit and pay any fees: Complete the submission process by paying the $125 filing fee.
05. Draft your LLC operating agreement
While not legally required in North Carolina, creating an operating agreement for your LLC is highly recommended. This internal document outlines ownership structures, member roles and operational procedures for any type of business. It also maintains your limited liability status by proving that your LLC is a separate business entity.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is like a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes. You can apply for a free EIN through the IRS, either online or by mail.
Make sure to research state-specific taxes that apply to your LLC, such as franchise tax or sales tax.
Do you need to pay taxes on an LLC in North Carolina? In North Carolina for an LLC owner the required taxes include a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the North Carolina Comptroller's Office website.
07. Organize annual reports
North Carolina requires LLCs to file annual reports which keep your company's information up-to-date with the state. These reports typically include details about your LLC’s current activities and any changes in addresses or management structure since the last report was filed.
To ensure you’re compliant with this mandatory requirement make sure to:
Know due dates: Your North Carolina Annual Report is due on April 15th each year after the year of creation.
Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
Submit and pay fees: Complete the submission process by paying the $25 filing fee.
How much does it cost to start an LLC in North Carolina
Starting an LLC in North Carolina involves various costs that are essential to consider when planning your business venture. From registration fees to initial operating expenses, it's crucial to budget wisely. Here's a breakdown of the expenses you can expect during the process:
Filing fee for Articles of Organization: The state requires a fee to file your articles of organization. This is a one-time fee that is mandatory for all new LLCs. For an LLC it costs $125.
Registered agent fee: If you choose to hire a professional registered agent, they will charge a service fee. Costs vary depending on the provider.
Business permits and licenses: The cost for permits and licenses can vary widely depending on the type of business you're starting and the specific regulations in your industry.
Operating agreement: If you hire a lawyer or use a professional service to draft your operating agreement, there will be associated costs. However, drafting it yourself can reduce expenses.
EIN registration: Obtaining an EIN from the IRS is free of charge.
Annual report fee: North Carolina requires LLCs to file an annual report, which comes with a filing fee each year.
Additional costs may include
Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Establishing an online presence via a website is crucial in today's market. Costs here include domain registration and potentially hiring a web designer or using a website builder like Wix.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Learn more: How much does it cost to start an LLC
How long does it take to start an LLC in North Carolina
Forming an LLC in North Carolina typically takes about 5-7 business days after filing Articles of Organization with the Secretary of State. However, the actual processing time may vary depending on factors such as the complexity of your filing and the current workload of the Secretary of State's office.
This also doesn't cover all of the other steps you will need to take to your business up and running - creating a website, choosing a business name, planning inventory or your service offerings.
Who can start an LLC in North Carolina
Starting an LLC in North Carolina is a process that's open to almost anyone, but there are certain eligibility criteria you should be aware of before you begin.
You must be at least 18 years old to form an LLC in North Carolina.
There is no residency requirement to start an LLC in the state. You don't have to live in North Carolina to form an LLC there.
You must have the legal capacity to enter into a contract. This means you cannot be barred from doing so due to any legal restrictions.
Your LLC must appoint a registered agent with a physical address in North Carolina. This can be a resident or a business authorized to do business in the state.
Most types of businesses can form an LLC in North Carolina, except for some that are specifically regulated, such as banks and insurance companies.
Benefits of starting an LLC in North Carolina
Forming an LLC in North Carolina has a number of benefits that might be quite appealing to business owners. These advantages include legal protections and tax breaks, making it a popular option for enterprises.
Limited liability protection
As the name suggests, owners (members) of an LLC have limited liability, meaning their personal assets are typically protected from business debts and lawsuits.
Flexibility in management
Unlike corporations, LLCs have a flexible management structure. You can manage your LLC yourself (member-managed) or appoint managers (manager-managed).
Pass-through taxation
Profits from the LLC pass through to the members' personal tax returns, avoiding the double taxation that corporations can face.
Ease of formation and compliance
Compared to other business entities, forming an LLC is relatively straightforward, with fewer formalities and compliance requirements.
A limited liability company—or LLC—is a type of business entity that offers some of the benefits of a corporation with less formality. One key benefit of an LLC is that it can protect a small business owner’s personal assets—like homes, cars, and personal bank accounts—from lawsuits against the business. Additionally, LLCs offer the flexibility of filing taxes as a sole proprietorship, partnership, or corporation. Also, you won’t need to worry about some of the same formalities as corporations, such as keeping minutes at shareholder meetings. Shylene D’Addario, VP and associate general counsel at LegalZoom
Credibility with customers and vendors
Operating as an LLC can enhance your business's credibility with potential customers and vendors compared to operating as a sole proprietorship or partnership.
Disadvantages of starting an LLC in North Carolina
When considering incorporating an LLC in North Carolina, it's critical to examine the pros and drawbacks. Understanding these disadvantages will allow you to make an informed choice about whether an LLC is the best business structure for you.
Here are some issues you can face with an LLC in North Carolina:
Annual report requirements
North Carolina requires LLCs to file annual reports, which includes a fee and can be seen as an administrative burden.
Limited growth potential
If you plan on seeking outside investors or going public in the future, the LLC structure may not be ideal as it does not allow for issuing shares of stock like a corporation does.
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits since they are considered self-employed.
Variability by state
If you do business in multiple states, you'll need to understand and comply with each state's laws regarding LLCs, which can vary significantly.
Why start an LLC over another business entity in North Carolina?
Choosing the correct business structure is critical for all business owners. In North Carolina, forming an LLC is frequently recommended due to its distinct benefits. However, it's important to compare it to other types of business forms to determine whether an LLC is the best option for your business.
Here's how an LLC compares with other company entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
You've formed your LLC in North Carolina, now what?
Ongoing management and compliance are just as important as the initial setup of your LLC. After successfully forming your LLC in North Carolina, there are several important steps to take to ensure your business operates smoothly and remains compliant with state laws:
Open a business bank account
To keep your personal and business finances separate, open a bank account specifically for your LLC. This will also help establish your business's credit history and help with applying for business loans and funds.
Obtain business insurance
Protect your LLC by obtaining the appropriate insurance. Common types include general liability insurance, professional liability insurance and workers' compensation if you have employees.
Stay compliant with state taxes
Understand and fulfill your state tax obligations. Depending on the nature of your business, you may need to pay sales tax, payroll tax, or other state taxes.
Additionally, focus on these areas to manage and grow your LLC:
Understand ongoing compliance requirements: Familiarize yourself with any annual filings or fees required by the state of North Carolina to keep your LLC in good standing.
Develop a strong brand identity: Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Implement a good accounting system: Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
For more information on how to start an LLC by state
How to start an LLC in North Carolina FAQ
What's the processing time for forming an LLC in North Carolina?
The processing time can vary, but typically, the North Carolina Secretary of State's office processes filings within 7-10 business days. Expedited services are available for an additional fee if you need your LLC formed more quickly.