When you decide to start a small business, you need to register the business as a legal entity. A legal business structure lends you extra personal liability protection and operational advantages, unlike sole proprietorship. Once you decide on an appropriate business structure, like a Limited Liability Company (LLC), registering your operations is a matter of following several simple steps to comply with the North Carolina laws and regulations.
In North Carolina (NC), LLC members must select an entity name, a registered agent, and file articles of organization with the secretary of state (SOS). The articles of organization is a state filing that initiates LLC formation.
This post provides step-by-step instructions for forming an LLC in North Carolina.
Steps to form an LLC in North Carolina (NC)
- Step 2: Hire a registered agent
Step 1: Choose a name for your North Carolina LLC
The first step to forming your Limited Liability Company (LLC) is picking an operating name.
The legal business name is present on all your company documents, invoices, website, and other touchpoints with the customers.
When choosing a name for your LLC means, you’ll need to develop a unique combination.
If you pick a name that’s similar or the same as another business, you can be sued under trade name laws.
There are ways to check if the business name you want to use is available:
- Start with your county, do local business searches of the Register of Deeds office to make sure the name is available.
- The North Carolina Trademark Registration site is also an excellent source to check if the name of the LLC is already registered as a trademark under state law.
- You can also hire an attorney to do a federal name search through the U.S. Patent and Trademark Office.
If you want to use a business name that’s close to the name of another business, you can contact the business owner and ask for a name transfer. If the person agrees, you can use the name by submitting Form BE-04, “Notice of Transfer of Reserved Name,” to the North Carolina secretary of state.
If you plan to sell products in other states, it’s a good idea to follow these same steps and run name searches in the states where you plan to do business.
Also, mind that North Carolina has several unique naming requirements for LLCs. Unless you obtain special permission from the licensing boards or state agencies in the state of North Carolina, you cannot include the following terms into your LLC name:
Other than that, the name of your Limited Liability Company must include only words that are legal and non-offensive. The name must also contain the words “Limited Liability Co,” or “LLC,” “Ltd. Liability Company,” or some other type of abbreviation.
Step 2: Hire a registered agent
Once you’ve chosen a name for your LLC, you must select a North Carolina registered agent.
Your registered agent is a person or professional services business who agrees to be your point of contact with the state. This person or business will receive government notices on behalf of your business. For example, your registered agent will receive the subpoena or court papers at the designated office address if your business is sued. P.O. boxes are not accepted.
Your registered agent must be a person who lives in North Carolina or a business whose principal office is in the state. Registered agent service providers specialize in helping businesses stay in good standing with local laws and regulations. A registered agent service charges a fee but provides privacy, flexibility, and availability that you may not have as a new business owner.
You can be your own registered agent
When people form new businesses, managing money is a top priority. For that reason, you can choose to be your own registered agent instead of hiring another individual or firm.
There are tradeoffs to serving as your own registered agent, including:
- Your street address becomes public if it’s your principal place of business.
- You may receive more marketing or junk mail from companies that purchase public mailing lists from the secretary of state.
- If you’re served legal papers, your family, friends, and neighbors may witness this, which can be embarrassing.
- Anytime you move, you’ll have to update your mailing address with the secretary of state and pay applicable fees.
Sure, there’s a fee to hire a registered agent service, but many business owners find the cost well worth the peace of mind knowing that business filings and official mail are received and handled timely.
Step 3: File the North Carolina LLC articles of organization
The articles of organization filing is required to form an LLC in North Carolina officially. This business document details the baseline information about your company, such as:
- Your business name
- All LLC members (owners)
- Each member’s role in the business
- Registered agent address and contact details
You’ll need to download a Form L-01 from the SOC website, fill it, and then submit it to the North Carolina secretary of state along with a $125 state fee. You may submit your document online, in-person at the North Carolina secretary of state’s office in Raleigh across from the State Capital Building, or mail your documents and payment to the Business Registration Division.
Processing times vary, but you can check your filing status on the “Online Business Services” page. Expedited processing is available too. For an extra $100, you can form an LLC in 24 hours. And for an additional $200, you get same-day service. Same-day service guarantees that the documents will be reviewed and filed (or rejected) by the end of the business day.
Step 4: Obtain an Employer Identification Number from the IRS
An Employer Identification Number (EIN) is like the social security number for your business. When you open a bank account or apply for business credit, lenders will likely ask for your EIN.
If you plan to hire employees, your EIN is required to track your small business’ hiring activity and ensure you comply with compliance with payroll regulations.
Multi-member LLCs and partnerships are required to have an EIN. If you plan to withhold taxes on non-wage income, file employment or excise taxes, or operate in specific organizations like trusts, nonprofits, or certain investment firms, you must also obtain an Employer Identification Number.
Obtaining an EIN is free and accessible by following the instructions on the IRS website.
Once you complete the application, your EIN is available immediately for use. When applying for your EIN, you must select a business structure for federal income tax purposes to tell the Internal Revenue Service how you want your LLC to be taxed — as a sole proprietorship if you’re a single-member LLC or as a corporation for multi-member LLCs.
LLC Tax Classifications
The sole proprietorship is the default tax classification for LLCs.
In this case, you don’t need to file extra federal tax forms since profits and losses from the business are included in your personal tax return.
Choosing to be taxed as an S-corporation provides added tax benefits since LLC members pay only half of the self-employment tax, but business profits and losses are passed through to the members’ personal tax returns.
On the other hand, electing to be taxed as a C-corporations means double taxation. You’ll need first to pay income taxes on profits and personal income tax when distributions are made to shareholders.
Step 5: Prepare an LLC operating agreement
An LLC Operating Agreement outlines how you’ll operate the business, how profits and losses are shared amongst LLC members, and which rights and duties each member has.
There are several templates online for members to use as a starting point. Operating agreements are internal to the LLC and are not required to be submitted or filed with the North Carolina secretary of state.
However, it’s vital to draft one if you have one or more business partners.
Step 6: Open a North Carolina business bank account
North Carolina has no state requirements around opening a business bank account upon LLC formation. Yet, since you must keep your business and personal finance separate, it’s a sound next step to make.
Note: Limited liability company laws require you not to blend your business and personal assets (transactions, lending, asset ownership, etc.).
For example, you should not pay for business items out of your personal checking account or vice versa. This implies that your LLC isn’t truly a separate business entity. If you’re commingling funds and you get sued, you could lose the added asset protection that an LLC provides, and your personal assets could be in jeopardy.
Using your EIN to file your business tax returns ensures that your business finances are separated from your personal finances and don’t violate the above rule.
North Carolina LLC taxes, costs, and fees
Since LLC is a business structure, it comes with some extra maintenance costs and tax requirements.
Every LLC in North Carolina must file an annual report. LLC filings are due on April 15th of each year. You can file reports online with the North Carolina secretary of state.
The annual report fee is $200.
If this is your first year in business, your first annual report will be due on April 15th of the following year.
North Caroline doesn’t charge minimal annual franchise taxes for the privilege of doing business in the state.
However, if you plan to sell products, account for the state-wide and county-specific sales tax rates.
- North Caroline has a 4.75% sales tax rate.
- Local countries have specific sales tax rates too.
Check the current county sales tax rates on the North Carolina Department of Revenue website.
Also, if you plan to hire people to work in your small business, you may need to carry worker’s compensation insurance and pay federal and state unemployment taxes.
Federal Unemployment Tax (FUTA)
The Federal Unemployment Tax (FUTA) provides payments for employees who lose their jobs voluntarily. When someone loses a job and files a claim, they may be eligible for unemployment benefits if they meet the requirements. Although FUTA is a federal program, it’s managed through state unemployment systems that process claims and provide payments to unemployed individuals.
State Unemployment Tax (SUTA)
The State Unemployment Tax (SUTA) rates are assigned to employers based on an experience rating formula. The formula includes payroll, state taxes paid to the Department of Revenue, the timeliness of taxes paid, and unemployment payment activity on the employer’s account. The tax rates, ranging from 0.60% to 6%, are reviewed and adjusted every year.
Employers are also required to submit a quarterly filing that reports tax and wage information.
Worker’s compensation insurance
Any business in North Carolina, regardless of structure (LLC, sole proprietorship, etc.) with at least 3 employees, must have worker’s compensation insurance. If an employee is hurt on the job, this insurance covers their injuries. In exchange, employees give up the right to sue the company.
Worker’s compensation insurance rates are calculated using injuries reported across businesses in similar industries.
North Carolina has over 600 business classifications and uses a combination of (1) safety, training, and medical advice, and (2) the classification that North Carolina assigns to your business determines the rates that employers pay each year.
North Carolina business permits and licenses
There’s an array of provisions around business licenses in North Carolina. Certain business types may require local business licenses, but the state of North Carolina doesn’t require a blanket business license to do business.
Soundly, local officials understand the confusion that comes with figuring out if your small business needs a business license or not. Through a partnership with Business Link North Carolina (BLNC), the NC Department of Commerce helps business owners with phone consultations to help understand which permits and business licenses may be required.
Pros and cons of forming an LLC in North Carolina
Operating an LLC out of the Old North State is a good decision as minimal annual franchise taxes don’t bind you, and the state sales tax levels are moderate. Local regulators are also somewhat proactive in supporting new businesses. Yet, there are some slight disadvantages too.
North Carolina LLC pros
- Simple and low cost of forming an LLC ($125 fee)
- LLCs provide personal asset protection for members
- Most LLCs don’t pay corporate income taxes – taxes flow to members’ individual tax returns
North Carolina LLC cons
- Need to file an annual report and pay a $200 fee
- LLC may be dissolved upon death of members, whereas a corporation keeps operating
- Forming an LLC in North Carolina is a fast and straightforward process you can accomplish in a day.
- LLCs are required to file articles of organization with the state of North Carolina.
- Select a registered agent that you trust and will be available to receive official correspondence on behalf of your business.
North Carolina LLC FAQs
These are some frequently asked questions about forming an LLC in North Carolina.
1. How much does it cost to start an LLC in North Carolina?
The baseline cost to start an LLC in North Carolina is $125. This fee covers the cost of filing the North Carolina articles of organization, which is required to form your LLC officially. Other than that, you may also incur optional fees related to hiring a registered agent service, legal and tax consultations, and name reservations. But these are optional.
2. What is the processing time to form an LLC in North Carolina?
Processing times vary when forming an LLC in North Carolina. The standard timeline is 7-10 business days unless there isn’t an operational backlog. Filers also have the option to request expedited filing where the submitted documents will be reviewed, processed, and filed (or rejected) the same day for $200 or in 24 hours for $100.
3. What are the benefits of an LLC in North Carolina?
Forming an LLC in North Carolina allows business owners to conduct business while protecting personal assets from risk when the company is sued. It’s also inexpensive and straightforward to form an LLC for less than a couple hundred dollars. Moreover, NC doesn’t have any minimal annual tax threshold LLCs are required to pay.
4. How do I know if my LLC name is available?
It’s recommended to check with the North Carolina secretary of state to ensure your business name doesn’t infringe upon another business. You may check for existing state and local trademarks to ensure your business doesn’t get confused with others.
5. Can I be my own registered agent in North Carolina?
Yes, LLC owners can serve as their own registered agents if they reside in North Carolina. Doing so means the owner’s personal information will be made public plus there are added requirements for you to be available during normal business hours to receive official correspondence and process of service, which could interfere with your ability to run your business.
6. Does North Carolina LLC require an annual report?
North Carolina requires LLCs to file annual reports by April 15th of each year after the business entity was created. If you create a business in a given year before April 15th, your first annual report will be due on April 15th of the following year. Annual reports are $200 and can be filed online.
7. Can a North Carolina LLC do business in other states?
An LLC based in North Carolina can do business in other states. However, the company will be considered a foreign LLC in other jurisdictions outside of North Carolina. This means you’ll need to register with the local authorities too. If you sell physical products, you may also be required to collect and remit sales taxes to each state that you do business in.
8. Do I need to file an operating agreement with the state of North Carolina?
LLC operating agreements are highly recommended to document how the business will be run and governed by multiple members. However, there’s no requirement to file your LLC’s operating agreement with the state of North Carolina.
9. Which licenses and insurance are required for an LLC in North Carolina?
There’s no general business license required for NC-based companies. But if your LLC plans to hire more than 3 employees, you’ll be required to carry worker’s compensation insurance and pay federal and state unemployment insurance called FUTA and SUTA taxes. Federal regulations require these, and companies face fines, penalties, and imprisonment for failure to comply.
10. Does an LLC need a business license in North Carolina?
There’s no generic business license that all businesses must carry in North Carolina. Depending on the type of business, however, occupational licenses or local permits may be required. North Carolina offers consultations for business owners who need help determining if they need licenses or permits to operate in the state.
11. Do LLCs pay taxes in North Carolina?
From a federal tax standpoint, LLCs are disregarded entities. Single-member LLCs are treated as sole proprietors where any income or loss flows to the owner’s personal tax return. The same applies to multi-member LLCs unless members choose to be taxed as a corporation and file a business tax return as an entity separate from its owners. On a state level, you’re not required to pay any privilege taxes for doing business in the state. But you’ll need to pay local sales taxes if applicable.