North Carolina is considered one of the best US states to start a business. In 2021, North Carolina recorded over 964,000 small businesses with over 1.7 million small business employees. However, given the responsibilities and demands of running a business within the state, individuals who want to limit personal or tax liabilities often prefer a more stable business entity structure, such as a limited liability company (LLC).
North Carolina outlines the guidelines for creating an LLC under the Limited Liability Company Act, including the application of operating agreements. However, these six steps are often necessary for every business owner who wishes to form an LLC in North Carolina:
- Step 1: Naming the LLC
- Step 2: Choose a North Carolina LLC Registered Agent
- Step 3: Fulfill North Carolina LLC Filing Requirements
- Step 4: File for the LLC
- Step 5: Obtain an EIN Number
- Step 6: Apply for State and Local Taxes
The North Carolina Secretary of State (SOS) handles the establishment of limited liability companies in the state. Members of the public requiring information about a registered business in North Carolina may contact the SOS or search the office’s business entity database.
What Is an LLC?
Pursuant to § 57D-2-01 of the North Carolina Limited Liability Company Act, an LLC, which is short for a Limited Liability Company, is a business establishment that exists independently from its owners (who are called members). An LLC registered in North Carolina has the right to engage in a lawful business within the state.
An LLC can be created by one or more members who have a certain ownership stake in the company. It may also be formed when an eligible entity is converted into an LLC. Aside from business purposes, an LLC may exist to own assets.
Step 1: North Carolina LLC Name Search
LLCs file articles of organization to be established in North Carolina. However, before filing, LLC applicants are usually advised to carry out a North Carolina LLC name search. This search prevents a business owner from choosing an existing or non-compliant name for the company.
G.S. § 55D-20 outlines the naming requirement for LLCs:
- The limited liability company’s name must bear the words “Limited Liability Company,” “L.L.C.,” or “LLC.” The company can be addressed as “Ltd. Liability Co.” “Limited Liability Co.,” or “Ltd. Liability Company.”
- The name must be distinct and different from other existing business names in the state.
- The name of an LLC shall not bear any words that imply that the entity is formed for a different purpose other than those allowed by law or the articles of organization.
Members of the public who wish to conduct a North Carolina name search should access the Secretary of State’s business registration search portal. Searches can be conducted by inputting the preferred name into the search field.
Once the availability of a business name is confirmed, the interested person may fill out and submit a name reservation form to the Secretary of State per §55D-23 of the General Statutes. The name reservation form can be filed in person at the following address:
North Carolina Secretary of State
2 South Salisbury Street
Raleigh, North Carolina 27601-2903
(The office is located across from the State Capitol Building.)
The form can also be filed online on the SOS’s business portal or mailed at a fee of $30 to:
Business Registration Division
PO Box 29622
Raleigh, NC 27626-0622
An LLC name can be reserved for 120 days in North Carolina.
Step 2: Choosing an LLC Registered Agent in North Carolina
Section § 55D-30 of the North Carolina General Statutes mandates each LLC to appoint and maintain a registered agent and office to transact business in the state. Per the law, an LLC registered agent in North Carolina may be a resident person or a business entity whose business office is the same as the registered office an LLC must continuously maintain. If the registered agent is a business entity, the entity must be authorized to transact in the state.
A North Carolina LLC registered agent is responsible for forwarding any legal document, notice, or demand they receive on a client LLC’s behalf.
Members of the public can find an LLC’s registered agent in North Carolina (the agent’s name and address) by searching the SOS business registration database. Searches can be conducted with an agent or company’s name.
How Do I Change the Registered Agent for My LLC in North Carolina?
The procedure for changing a registered agent in North Carolina is set out in G.S. 55D-30. Per the law, an LLC must file a Statement of Change, which includes:
- The registered name of the Limited Liability Company.
- The address (street and mailing) of the LLC’s registered office and county of location.
- The name of the LLC’s current registered agent.
- The name of the new agent and their written consent to the appointment stating that the addresses of the entity’s registered office and the business of its registered agent must be the same.
An LLC also has the option of listing a new registered office address on the form.
The Statement of Change form may be mailed, submitted online, or delivered in person to the North Carolina SOS. The form costs $5 to file.
Step 3: LLC Filing Requirements in North Carolina
To register in North Carolina, an LLC must meet the following requirements:
- The LLC can be a domestic or foreign entity.
- One or more persons may form the LLC, known as the organizers.
- The LLC must have a registered physical office address and a registered agent
- Foreign entities must obtain a Certificate of Authority to conduct business affairs in the state.
LLCs must file the following documents with the Secretary of State’s office:
LLC Articles of Organization in North Carolina
Articles of Organization comprise important details about an entity. Every entity in North Carolina must fill out and submit this document to the Secretary of State to be formed. The articles of organization give the LLC the right to transact business in the state. The following details are required in the articles of organization:
- The LLC’s name.
- The names and business addresses of the LLC’s organizers and whether they are members.
- The name and address of the LLC’s registered agent.
- The street address, mailing address, and county of the LLC’s principal office
- Signify if the LLC will render professional services
- Any other information the LLC wants to include (for example, a business purpose)
The charge to file articles of organization in North Carolina is $125.
LLC Operating Agreement in North Carolina
An LLC operating agreement controls the internal affairs of an LLC, including the members’ obligations and company operations. Every LLC member is expected to sign the document. However, the North Carolina statutes do not require this document to be drafted or submitted to the SOS office before an LLC can be established.
LLC Annual Report in North Carolina
Each LLC that conducts business transactions in North Carolina must submit an annual report to the Secretary of State. The report carries current information about the LLC, including:
- The name of the limited liability company.
- The street address of the LLC’s registered office (and a mailing address if it is different from the street address).
- The county where the registered office is situated.
- The name of the entity’s registered agent.
- A statement of any change of the registered office or registered agent.
- The address and telephone number of the LLC.
- The names, designated titles, and business addresses of the limited liability company’s members.
- A brief description of the business.
Each LLC in North Carolina has a due date for filing an annual report. The report can be submitted online, over the counter at the SOS office, or via mail to:
Business Registration Division
PO Box 29525
Raleigh, NC 27626-0525
Do You Need a North Carolina Address for LLC?
Yes. Every LLC in North Carolina is expected to have an address to be formed. However, the state only requires the listing of a registered agent’s address in the articles of organization. A company’s organizers are free to provide a principal office address in North Carolina or leave that section of the form blank. An LLC that does not currently lease or own a physical office location in North Carolina can opt to use a virtual address as its principal office address.
However, it should be noted that although LLCs in North Carolina can skip providing a principal office address in articles of organization, they must include this address when filing the first annual report.
How To Get a Virtual Address for LLC in North Carolina
LLC owners can obtain a virtual address in North Carolina through different service providers. These providers can be found by a simple internet search. However, pricing varies with each virtual address service company. Thus, it is important to research product offerings and choose one that serves the needed business purpose.
Step 4: How To File for an LLC in North Carolina
Intending LLC owners can file for an LLC in person (over the counter) at the North Carolina Secretary of State’s office, by mail, or online. Organizers who wish to file in person should complete and download articles of organization from the SOS website. Then, they must take the form and fee ($125) to the following address on a weekday:
North Carolina Secretary of State
2 South Salisbury Street.
Raleigh, North Carolina 27601-2903
Phone: (919) 814-5400
Persons paying with checks should make the instruments payable to the NC Secretary of State.
How To Create an LLC Online in North Carolina
Individuals who want to create an LLC online in North Carolina should follow these steps:
- Go to the Secretary of State’s Business Registration page.
- Scroll to find the blue button that says “Register Your Business Online.” Notably, this button can also be found on the Online Business Services and Forms pages, as well as the North Carolina SOS home page.
- Clicking the blue button takes the user to a sign-in page, where the individual will be asked to create a new account (for new users) or log in (for existing users).
- After logging in, provide information about the new LLC. Each entry from the applicant is captured and used to populate the form toward the end of the application process. There will be a chance to review the documents for errors and make changes as needed.
- Once satisfied with the information provided, the user can pay for the new company.
- After the payment is confirmed and the platform displays a successful transaction page, the submission will be placed in the examination queue.
Individuals who require additional information or a tutorial about applying for an LLC online in North Carolina can review the SOS Online Creation Wizard page.
Can You Have Multiple Businesses Under One LLC in North Carolina?
Yes, one can have multiple businesses under an LLC in North Carolina by filing different Assumed Business Names (fictitious business names) with a county register of deeds.
Some business owners choose to operate multiple businesses under one LLC due to an LLC’s simplicity and cost-effectiveness. However, it may increase the risk of liability if the different divisions are not managed properly.
How Long Does It Take To Set Up an LLC in North Carolina?
There is no fixed time to set up an LLC in North Carolina. The time it takes to set up an LLC is determined by the individual’s pace in providing the required documentation. For example, checking an LLC name’s availability takes a couple of hours, but the process could be delayed if the name already exists. Also, if any rule for LLC setup is violated, the process of filing an LLC could be prolonged.
Another factor that determines how long registering an LLC will take is the means of filing the articles of organization. In-person visits are ordinarily faster than mail submissions, and online applications are usually the faster application method. However, a business owner can pay for expedited processing to speed up the creation process to a few hours or days.
Step 5: How To Get an EIN for LLC in North Carolina
An employee identification number (EIN), also called federal tax ID, is a basic requirement for LLCs in North Carolina. The EIN is used to calculate an LLCs federal taxes and track its history of payments. LLC members can get an EIN from the Internal Revenue Service (IRS) by mail, telephone, fax, or phone.
These are the eligibility requirements for getting an EIN online from the IRS:
- The principal business must be situated in the United States or its territories.
- The business owner applying for EIN online must have a valid Taxpayer Identification Number.
- Online applications only permit one EIN per responsible applicant per day.
- Ensure that the online application is made within 15 minutes, as after 15 minutes of inactivity, the user must start afresh.
Every applicant must submit the following details during an EIN application:
- Taxpayer’s name
- Taxpayer Identification Number (SSN, ITIN, or EIN) of the principal owner, partner, grantor, or trustor
Eligible applicants must use IRS EIN Assistant to complete the online application.
Those who prefer the mail or fax alternative must complete Form SS-4 and submit it to the following addresses:
Internal Revenue Service
Attention: Employee Identification Number Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Parties who do not have a legal residence, principal office, or principal place of business in any state should use the following address:
Internal Revenue Service
Attention: Employee Identification Number International Operation
Cincinnati, OH 45999
Fax: (855) 215-1627 (within the U.S.)
Fax: (304) 707-9471 (outside the U.S.)
The processing timeframe for an EIN application by mail is four weeks.
Depending on whether an LLC is a foreign or domestic entity, the company may also need to acquire a North Carolina Department of Revenue identification number for state taxation (also called a state tax ID).
Step 6: Do LLCs Pay Taxes in North Carolina?
Yes. LLCs pay taxes in North Carolina. LLCs taxes in North Carolina are handled by the North Carolina Department of Revenue. The tax rate is determined by the type of LLC, the assigned taxation method, and the entity’s overall revenue.
The estimated tax rate for an entity in North Carolina is $1.50 per $1,000, applied per the law. If the LLC is not treated as a corporation, the owners may pay taxes on personal returns to the state.
How Are LLCs Taxed in North Carolina?
LLCs in North Carolina can choose to be taxed as corporations or pass-through entities. If taxed as a pass-through entity (the default LLC tax classification), it means that the LLC does not pay corporate income taxes on profits. Instead, an LLC passes its profits to the members, who report the money as income on their personal tax returns.
Tax Benefits of an LLC in North Carolina
LLCs in North Carolina enjoy certain tax advantages, which include:
- North Carolina enjoys the lowest corporate income tax rate at 2.5% compared to other US states and a statewide sales tax rate of only 4.75%.
- LLCs in North Carolina can opt for pass-through taxation to allow members to handle profits and losses directly.
Do You Have To Renew LLC Every Year in North Carolina?
Yes, technically. Business owners do not need to re-register their LLC each year in North Carolina. Once the Secretary of State approves an LLC’s articles of organization, the company is officially recognized and authorized to carry out business in the state. However, every LLC in North Carolina must file an annual report with the SOS. The annual report shows that the LLC is compliant and in good standing.
Each LLC is expected to submit its annual report on the due date. Annual reports are due for submission to the SOS on the 15th day of the fourth month following the fiscal year-end. For instance, if an entity’s fiscal year ends in December, its annual report is due April 15.
If an LLC fails to meet the due date, the Secretary of State issues a notice of grounds indicating the default. Any LLC that fails to respond to this notice will be administratively revoked and dissolved. If the LLC wishes to reinstate a revoked company, members must file all overdue annual reports with a reinstatement application fee of $100. It is worth mentioning here that an annual report is not a financial report but rather a mandatory business report for every LLC in North Carolina.
How Much Does It Cost To Start an LLC in North Carolina
Below is a breakdown of all costs that may be necessary to start an LLC in North Carolina:
- Articles of Organization: $125
- Application to Reserve Corporate Name: $30
- Application to Register a Corporate Name (by a foreign corporation): $10
- Notice of Transfer of Reserved Name: $10
- Statement of Change of Registered Agent/Office: $5
- Annual report: $200 (paper submission); $203 (online submission)
The Secretary of State charges an extra processing fee of $10 each time an entity files a business document and extra fees that cover the following services:
- $1 per page for copying
- $15 for a paper certificate
- $10 for an electronic certificate
Current fees can be obtained from the NC SOS website.
Can You Form an LLC In North Carolina For Free?
No. As stated above, the Secretary of State charges intending LLC owners fees to file articles of organization and other business documents. Besides filing formation paperwork, an LLC owner may also need to pay for legal services (although some private companies may offer free consultation and paperwork filing services) and other startup costs.
How To Start an LLC in North Carolina At a Minimal Cost
The only way to start an LLC for free in North Carolina is to waive the filing fee. However, this option may only be offered if the owner or interested members are veterans—a person authorized to enjoy benefits under the United States law because of service in the Armed Forces.
Notwithstanding, the cost of starting an LLC in North Carolina is minimal since the only compulsory document that an LLC must file is the articles of organization, charged at $125.
What Businesses Should Consider Forming an LLC in North Carolina?
According to the US Small Business Administration, an LLC is best suited for medium or high-risk business owners who want to lower their liability for business debts and lawsuits, protect personal assets, and pay a lower tax rate than they would pay with a corporation.
What Are the Benefits of An LLC in North Carolina
An LLC packs a ton of benefits for the members, such as:
Independent legal identity: A limited liability company is a separate being from its owners or members. This means that an LLC in North Carolina can file a lawsuit or be sued as an entity. It can also own or buy real assets, make contracts, and invest funds.
Limited liability: The members or owners of an LLC have limited liability. This means that the private assets of the members cannot be used to settle the LLC’s debts.
Pass-through taxation: A limited liability company in North Carolina is seen as a “pass-through” tax entity. This means that the gains and losses of the LLC pass through to the members. The members can report their share of the company’s profits on their personal income tax and pay them individually. An LLC does not receive corporate taxation, except the company opts to be taxed as a corporation.
How Does an LLC Work in North Carolina
LLCs in North Carolina are established when an organizer (an individual or business entity) files articles of organization with the Secretary of State. An organizer may or may not be a member of the entity.
Per the North Carolina Limited Liability Act, an LLC may exist as:
- A Domestic Limited Liability
- A Professional Limited Liability
- A Foreign Limited Liability
An LLC exists separately from the owners, thus protecting owners and their assets from its liabilities. An LLC also possesses a flexible management and ownership structure. It can be run by one or more members and managers.
LLC VS S Corp in North Carolina
S corps in North Carolina are corporations that have a special tax status given to them by the Internal Revenue Service. These corporations are owned by “shareholders.”
An S corp and LLC share similarities, including pass-through taxation and protection from business debts and lawsuits. However, they also have their differences:
The IRS restricts the number of shareholders in an S Corp to 100, but LLCs can operate with an unlimited number of members. Further, other LLCs, corporations, etc., can own a limited liability company, but S corps are limited to the type of owners they can have.
LLCs are operated by members, who can choose fellow members to manage daily operations or contract managers to oversee business activities.
However, S corps are managed by a board of directors that oversees the decision-making aspect and corporation but not its daily operations. Directors are free to elect officers who may manage the daily operations in their place.
Transfer of ownership
An S Corp can easily transfer its stock as long as the entity meets the ownership demands of the IRS. However, an LLC’s membership interests are not transferable to another person without the approval of other members.
Profits and losses
S Corp owners or shareholders allocate their profits and losses based on the individual percentage of ownership. Whereas LLC members allocate profit and losses as agreed.
LLC vs. Sole Proprietorship in North Carolina
Business owners are often faced with choosing between an LLC or sole proprietorship, given that both allow owners to be exempt from corporate taxation. The following are some differences between an LLC and a Sole Proprietorship in North Carolina,
- A sole proprietorship is an unincorporated one-man business, whereas an LLC may be owned and managed by one or more members.
- A sole proprietorship is not considered distinct from its owner, but an LLC is.
- A sole proprietor is duly responsible for the business’s debts and obligations, whereas an LLC limits the personal liability of its members.
- With an LLC, owners can attract and secure business credit faster and easier than with a sole proprietorship.
However, a sole proprietorship has lesser filing requirements and fees than an LLC.
LLC vs. Corporation in North Carolina
A corporation, also called a C Corp, is an independent establishment owned by stockholders or shareholders. The shareholders of a C Corp are shielded from personal liability on corporate debts of the entity.
A corporation and LLC are both regarded as legally separate from their owners and protect their owners from liability. However, these entities are taxed differently. A C corporation is subject to double taxation, meaning that the dividends of its stockholders are taxed, as well as the corporation’s profit. However, LLCs, by default, are pass-through entities. This allows them to avoid double taxation and only pay taxes at the individual level. An LLC, however, can apply to be taxed as a corporation, in which case it will be subject to corporate taxation.
A corporation’s shares can be easily transferred to another person; however, members of an LLC may not transfer ownership rights to another person. In some cases, a member’s withdrawal from an LLC may lead to the administrative dissolution of the entity.
The business losses of a corporation are accounted for on the entity’s tax return. The shareholders do not receive tax benefits when the corporation faces loss. However, LLC members in North Carolina can receive tax benefits when the entity suffers losses.
Business License vs. LLC in North Carolina
A business license is an official permit that most LLCs need to obtain before running and transacting business in North Carolina. On the other hand, an LLC is a legal structure operated by one or more members with the Secretary of State’s authorization.
Do I Need a Business License If I Have an LLC in North Carolina?
Yes. Most LLCs in North Carolina will need to get a business license. Starting an LLC does not automatically translate to a business license, nor do the articles of organization replace the need for a relevant license.
North Carolina does not have a general license that every business must get to ensure compliance at all levels, as there are hundreds of licenses issued by various bodies in the state. Business owners are advised to consult a legal or business advisor for their applicable licenses. For example, the Economic Development Partnership of North Carolina (EDPNC) provides business consultants who can help business owners determine the licenses they may need.
How To Dissolve an LLC in North Carolina
Pursuant to § 57D-6-01, an LLC in North Carolina is administratively dissolved when any of the following occurs:
- When an event mentioned in the entity’s operating agreement occurs
- If original members of the LLC are not mentioned in the articles of organization
- If the members vote unanimously
- Upon a judicial decree
To dissolve an LLC in North Carolina, the members must clear pending business debts or obligations and submit Articles of Dissolution to the Secretary of State. The processing fee for Articles of Dissolution is $30.
If the members change their mind after filing the Articles of Dissolution, they may revoke the dissolution by submitting Articles of Revocation of Dissolution within 120 days. It costs $10.
More information regarding dissolving an LLC in North Carolina is available on the Secretary of State’s website.