Why set up an LLC in North Carolina?
North Carolina has gained a reputation on a national and international scale as a desirable place to do business over the past several decades. The rules of the state when it comes to establishing a limited liability company (LLC) are thought to be among the best globally, which has helped create that reputation.
The Department of the Secretary of State prides itself in having the LLC laws operate seamlessly for their business clients. North Carolina is definitely looking to bolster its image as a business-friendly state
5 Steps for Creating an LLC in NC
Step 1: Selecting a name for your LLC
Choosing and reserving a name for your limited liability company is part of the process of incorporating. According to North Carolina law, the Department of the Secretary of State office will accept or deny proposed LLC names, which means that the name chosen must be distinguishable from the name of another North Carolina registered business organization on the records of the Secretary of State.
Proper name selection is crucial since other parties could sue for unfair competition or misuse of the trade name if the name that was chosen is so close to the name of another business organization as to mislead or sow confusion among the public. There are things you need to consider when choosing a company name:
- The Selection of a Name
There are some legal provisions that you should be mindful of when selecting the name of a limited liability company:
- The name of a limited liability corporation shall not include a language indicating or suggesting that the entity is organized for any reason other than that allowed by its Articles of Organization.
- The name of an LLC must be differentiated from the name of any business organization registered within North Carolina.
- At the end of your LLC name, you must have either of these phrases: “ltd. Liability company”, “ltd. Liability Co.”, or the abbreviations “LLC” or “L.L.C.”
2. Determining when to use your LLC name
We highly suggest that you make sure that all of your final organizational papers have indeed been issued by the North Carolina Department of the Secretary of State prior to spending any money on materials such as checks, stationery, posters, or any other printed items.
Should your business settle on a name already reserved by another North Carolina company, if the current owners of that name agree, you can pass that name to your company. You need to fill out Form BE-04, “Notice of Transfer of Reserved Business Entity Name” to do this.
When naming your company, please bear in mind that unless you have received approval from the proper legal authority, there are certain words and phrases that you are forbidden by law from using in the name of your business entity. Those phrases and words include: Bank, Banker, and Banking Cooperative, Co-op, Mutual, and Trust.
The Department of the Secretary of State shall refuse these terms in the names of a business organization unless the applicant is able to provide documents showing that his or her company is legally eligible to provide the indicated service.
There are many other terms that the North Carolina Secretary of State could deny without sufficient documents in the name of your business organization that your company is legally eligible to provide the service implied in the corporate name. Call or email the Corporations Division if you have any concerns about whether or not you can provide paperwork for your chosen name.
3. Putting the Name To Good Use
When you have taken the appropriate steps to evaluate the availability of the name of your limited liability company, you are ready to put it into use. A domestic limited liability corporation is created by properly filing its Articles of Organization.
If you’re a foreign LLC seeking to qualify in North Carolina, you must apply for a Certificate of Authority by sending a Form (L-09), Application for Certificate of Authority, to the North Carolina Department in order to be able to conduct business in NC. The fee for filing is $250.
You could reserve a name before filing your Articles of Organization by filling Form BE-03, “Application for Reserved Name” and parting with a $10 fee. Concerning foreign LLCs, they may register a name by filing Form BE-13, “Application for Registered Name” and also parting with a $10 fee.
4. Making a Decision on a Trademark or Service Mark
Instead of wondering what to do, you can take the advice of an attorney if you are trying to get protection for a specific company name or to settle a conflict about such a name. Although the Department of the Secretary of State does not require you to register any of the trademarks or service marks used by your company, we strongly suggest that by registering them, you protect those marks. You will be issued with registration forms for your trademark or service mark by the Trademark Registration Office. Trade names may qualify as service marks for registration if they fulfill certain legislative criteria laid down by the State of North Carolina.
Step 2: Choosing a Registered Agent in North Carolina
The next step to setting up an LLC in North Carolina is to assign a registered agent. A registered agent can either be a person or an entity appointed by an LLC to receive legal notices and other important documents from the government. In short, a registered agent is the point of contact between an LLC and the NC State Department.
While you are permitted to be the registered agent for your own LLC, this is not really recommended. You may not be always available when a Service of Process is waiting at your door. Meaning, you’d want someone to handle your mail and be there to collect it when you’re on holiday.
The registered agent you choose must be either a resident of North Carolina or a business authorized to do business in North Carolina. Further more, your registered agent must also have a physical street address in NC.
Because of this, we highly recomment that you hire a professional registered agent service to collect all your important incoming mail and legal notices.
It is the registered agent’s duty to:
- Help you avoid legal penalties and fines
- Ensure that your LLC is in compliance with the state regulations
Step 3: Articles of Organization
The legal document to be filed in order to create a limited liability company is the Articles of Organization, Form L-01. The information needed to be included is listed below. Every other material can preferably be included in your operating agreement. Usually, operating arrangements are not filed with the Secretary of State.
The Articles of Organization must include the following information: company name, organizers/members, registered agent info, managers, principal office address, optional provisions, and powers. Notarization is not required in NC.
The executed original of Form L-01 of the Articles of Organization, signed by the organizers, must be sent to the NC Secretary of State’s Department, along with the $125 filing fee.
The Articles of Organization will be checked by the Office of the Secretary of State, and if the articles meet the provisions of the NC Limited Liability Company Act, they will be designated “filed” with the filing date and time. The N.C. Department of the Secretary of State will retain the approved original.
A certified copy will also be delivered either electronically via e-mail or regular mail to the person who submitted it for filing. You can consult North Carolina General Statute 57D-2-21. for more information.
Step 4: Creating an Operating Agreement
In order to form an LLC, North Carolina does not require an operating agreement, but executing one is strongly recommended. The substance of an operating agreement has no fixed requirements, but it usually covers issues such as how meetings are held, how the business will be run, what capital contributions each participant wants, and how income and losses will be distributed.
It is not mandatory to file an operating agreement with the state. Any clauses not inconsistent with the law or the Articles of Organization may be included in the Operating Agreement. Generally, the written Operating Agreement is not filed with N.C. Secretary of State’s department. Refer to North Carolina General Statute 57D-2-30 for further clarification.
Step 5: Apply for an EIN
You must request the IRS for an Employer Identification Number (EIN). This can either be done online, by fax, or by mail. No fee is charged when you apply for an EIN. You will need an EIN in most cases especially if you plan on hiring staff.
If you have an employee or staff, you need to register for employee taxes at either of the taxpayer service centers located in the state of North Carolina.
You must notify both the IRS and the State of North Carolina if you recruit an employee in NC. On the Hiring Employees section of the IRS website, you can find descriptions of all the required steps, including checking job eligibility and withholding allowances. At the North Carolina New Hire Reporting website, you can find state-level information on reporting new hires.
You are expected to carry health insurance for staff if you have three or more employees other than yourself and your fellow LLC members. The program is managed by the North Carolina Industrial Commission.
There may be other informational returns that you have to file annually or semi-annually with the IRS as a small business owner or employer. Take a look at the IRS Guide To Information Returns for more information.
Things to do After Setting up your NC LLC
Acquiring Any Required Local Licenses
As a company, you ought to figure out whether you are eligible or not to obtain any federal or state licenses or permits relevant to a particular trade. However most state or city governments require any business to obtain a simple business license, also called a certificate of tax registration.
You can acquire this license either from your county or city. Contacting the county or town clerk’s office or other local government body is the easiest way to get information about fees and procedures. A good reference for local licenses and/or permits may also be the local chamber of commerce and other small businesses.
Opening a Bank Account For Your LLC
Holding the assets of your organization away from your personal accounts is a wise decision. The opening of a bank account for your company is a sure way to not mix your personal and business finances.
You will need a tax ID number (EIN), a copy of the Articles of Organization, and a resolution identifying approved members in this regard. This is also known as a Banking Resolution. For an LLC, you will need this document to apply.
Other Notable Conditions For Having an LLC in North Carolina
Every year after the date of creation, a North Carolina LLC must file an annual report with the Secretary of State. The fee for filing is $200. The first annual report is due on or before 15 April of the year after the year of creation and each year afterward. The annual report can either be sent electronically or the annual prepopulated report may be downloaded digitally and mailed to the Office of the NC Secretary of State.
All limited liability corporations must have a structure and rules of organization under which they are governed. The organizational structure consists of officials and managers of the company who oversee the company’s internal management and representatives who have some stated rights to operate the company. The Operating Agreement and the Articles of Organization regulate the internal management of the company.
LLCs are considered “pass-through” entities and can choose how it’s taxed by the IRS as selected by the members. They may be viewed as a sole proprietorship, a company, or a partnership. Taxation similar to that of a sole proprietorship is the most common tax choice for an LLC.
As compared to the LLC paying the taxes, a member has to pay taxes themselves on the LLC’s income. The gains and losses of an LLC are transferred to the owner through the company. In their own personal tax returns, the owner then needs to declare the gains or losses. Any corporate tax is not paid by the LLC itself. This approach prevents double taxation, which is a downside for corporations.
The development and management of an LLC is in general, much simpler and more versatile than that of a corporation. Also, all forms of business structures have benefits and drawbacks, you get to decide what works best for you.
Remember, North Carolina is not just a great place to practice entrepreneurship, but also a lovely place to get into outdoorsmanship as well. Maybe it’s time you go hunting or fishing!
Frequently Asked Questions
What is an LLC?
An LLC is a business structure whereby the shareholders are not individually responsible for the debts or liabilities of the company. LLCs are hybrid companies that combine the features of a corporation and those of a sole proprietorship or partnership.
What is a Registered Agent Service?
A registered agent service is a person or entity that has been appointed to accept business process documents and official mail on behalf of your LLC. Interestingly, you can appoint yourself, or you can appoint another business as the registered agent for your LLC.
It is highly recommended to go with a registered agent service for this purpose since they will never miss any important mail or legal notices from the government.
What is the Difference Between Domestic NC LLC and Foreign NC LLC?
A domestic NC LLC is a company that has been registered in North Carolina and operates or does business within North Carolina. A foreign NC LLC is a company that has been registered outside the State of North Carolina and does business operations in NC.
Do I Need a DBA For a North Carolina LLC?
A DBA (Doing Business As) may be required if you’re going to be doing business under a trade name or brand name. Under the stipulations of North Carolina law, if an LLC in NC wants to utilize the name other than under which it was formed, or other than the name of its owners, it must file for a DBA (Doing Business As).
There are a variety of ways that limited liability companies differ from corporations. When deciding whether you want to form a limited liability company, you will need to weigh several factors, from the management structure to tax codes.
The Limited Liability Company (LLC) has been the chosen vehicle of preference in North Carolina and elsewhere for the most privately held enterprises, particularly farms. In order to retain family land rights, the LLC has also become commonplace.
Unless otherwise negotiated between the owners by written contract, the establishment, management, and dissolution of LLCs are regulated by the North Carolina Limited Liability Company Act.
When making the decision of setting up an LLC, you may want to consult an expert, such as a lawyer. In addition to reviewing the North Carolina General Statutes, an attorney will assist you in deciding which structure better suits your needs. Also, you might want to peruse Chapter 57D of the North Carolina Limited Liability Company Act; and Chapter 55D on Filings, Titles, and Registered Agents for Companies on the same Act.