Incorporating an LLC in North Carolina is a way of protecting your personal assets from legal liabilities.
If you form an LLC in North Carolina, the business’s debts and obligations will be the business’s only responsibility. There are certain requirements for doing so that we’ll cover in this article.
Starting an LLC in North Carolina is Easy
As a limited liability company (LLC) is legally defined as including a limited number of members, you’ll need to create an LLC.
The money you’ll pay for state filing fees and the process of filing with the Secretary of State will vary depending on your exact business type. This guide will explain how to form a North Carolina LLC so you can get started right away.
STEP 1: Name your North Carolina LLC
A limited liability company is referred to as an LLC. You may also see it abbreviated as “L.L.C.” or “LLC.” This abbreviation doesn’t represent a legal name, but it does indicate that you are forming an LLC business entity. It’s important to understand how the name of your North Carolina LLC will be legally structured.
- The state of North Carolina requires that you choose a business name–known as the “fictitious name”–that differs from the federal tax ID number of the company.
- The North Carolina Secretary of State requires that your LLC name include the terms “limited liability company” or “limited company.” The state also requires that you file a fictitious name statement to record the name. You can amend this information at any time.
- You may want to use your own name as an LLC business name, including your initials or even your family name. If you do this, then you’ll need to get the approval of all other members of the LLC.
STEP 2: Choose a Registered Agent Service in North Carolina
A North Carolina registered agent is a person or business that’s authorized to accept legal documents on behalf of a corporation. When you form an LLC in North Carolina, you’ll need to have a registered agent physically located within the state.
Registered agent requirements:
- You can be your own registered agent, but if you’re not available, then someone else should be able to help.
- The Secretary of State allows for an LLC registered agent to be a resident of North Carolina; this can make things easier for you and will avoid unnecessary mail forwarding fees that other states may charge.
- According to the Secretary of State’s webpage, the registered agent may also be an individual living in North Carolina that has a business address where they’re available. The registered agent may not be an individual that resides outside of North Carolina.
- The North Carolina Secretary of State will require that you register yourself as an LLC’s registered agent in North Carolina.
Depending on your needs, this may be a simple process, but calling ahead for more information can help speed up the process and avoid any problems.
STEP 3: File the North Carolina LLC Articles of Organization
Once you’ve determined what your LLC’s name will be, you’ll be ready to file Articles of Organization with the Secretary of State.
This is a simple process that involves filling out state corporation forms and paying a non-refundable filing fee. The filing fee for an LLC in North Carolina is $125.
The Secretary of State’s webpage has detailed information about how to file in North Carolina. You’ll be required to submit:
- An LLC Form Series 1, A-E. This is an eight-page form that needs to be filled out in full.
- A cover page that includes the company’s name, registered agent, and registered office.
- The filing fee of $125.
As a limited liability company, you’ll be required to provide basic information about yourself and the company’s business address and contact info.
You’ll also be required to state which state you’re from so they can determine if you’ve formed an LLC in North Carolina before.
The North Carolina Secretary of State requires that you file the Articles of Organization with the Secretary of State in person. However, you can also file them by mail.
There are no forms available online and no templates that will help complete the filing for you. You must complete every part of the state’s company form process to file your LLC in North Carolina.
STEP 4: Create a North Carolina LLC Operating Agreement
The North Carolina Secretary of State will require that you submit a copy of your LLC’s operating agreement with the Articles of Organization. There are no pre-made LLC operating agreements, so you’ll need to draft one on your own.
The state of North Carolina does not recognize a California LLC operating agreement, so if it has some provisions that you think maybe sticky in the state, then be prepared to deal with the state’s concerns over those provisions.
When you submit your LLC operating agreement for North Carolina, bear in mind that the Secretary of State recommends that this form include a clause stating that the operating agreement is not legally binding. The state’s website has a sample form you may use as an LLC operating agreement.
What should be in an operating agreement?
- How a new member will join the LLC and become a member
- How and when a member can be removed from the LLC
- The duties, restrictions, and rights of each member
- Each member’s percentage of ownership in the LLC
- Your state’s requirements for an LLC to terminate. This information may be included in your LLC’s operating agreement. The state’s website has this information on its frequently asked questions list.
How do I write an operating agreement?
The North Carolina Secretary of State recommends that you provide a sample LLC operating agreement as part of the filing process. You may use this form, or you may choose to draft your own.
If you come up with your own operating agreement, then be sure to also make it a comprehensive document containing everything the Secretary of State requests in its annual franchise tax filing form for LLCs.
STEP 5: Get a North Carolina LLC EIN
After filing your Articles of Organization, you’ll need to get an EIN from the IRS to open a bank account for your LLC.
You may be able to get this information by May 1st if you file the form early enough. The IRS charges a one-time fee of $60.00 for an EIN, and this is your corporation’s tax identification number.
What do you need EIN for?
- Without an EIN, you will not be able to open a bank account or file your annual tax returns as an LLC in North Carolina. Your liability will start small, but if you forget to renew your EIN, then the IRS could levy taxes against you that would be very expensive to pay.
- An EIN should only be used by the LLC that it’s assigned to. You should not share the tax number with another LLC, corporation, or limited partnership.
- You should also keep your EIN away from your personal tax identification number. These unique numbers are often confusing, and mistakes caused by this confusion can be detrimental to you and your business in North Carolina.
- The IRS requires that you provide a unique principal place of business for an LLC corporation. This should be the same as your mailing address. The IRS requires that you provide a street address and telephone number where you can be reached and where LLC tax returns can be sent.
- Your EIN cannot be the same as your Social Security Number (SSN). The IRS does not accept an EIN based on an SSN, so if you want to use an SSN-based EIN, then you must change it to a TIN (Taxpayer Identification Number) upon filing your Articles of Organization with the North Carolina Secretary of State.
Pros and cons of NC LLC
- Tax exemption. LLCs in North Carolina may qualify for a tax exemption if they pay fewer than 2,000 in annual taxes.
- Ownership protection. North Carolina LLCs are more protected from being attacked by outside creditors compared to corporations when they are sued or become involved in a bankruptcy filing.
- An LLC can be taxed as a partnership, corporation, or sole proprietorship, depending on how the business is operated and how it’s structured.
- Flexibility. An LLC is a business structure that gives you total control over how the business is operated and how profits are distributed to owners.
- Limited liability protection. This is an important feature of an LLC that protects each member from being held responsible for another member’s debt or wrongdoing. The only exception to this rule is if a member is found to have acted out of fraud, deceit, or malice toward the other members of the LLC.
- Limited personal liability protection. Owners of a single-member LLC are not publicly identified in the same way that corporate officers are, and they have limited personal liability.
- The costs of starting up a new LLC may be more expensive because of the initial legal fees and taxes that need to be paid.
- If you have a corporation in North Carolina that you want to convert to an LLC, then you’ll not only need to pay for this change in business structure, but you’ll also need to file your corporate records with the state and pay additional fees or penalties associated with filing the conversion form and other official paperwork.
- If a North Carolina LLC has multiple members, then each business owner needs to agree on major decisions involving the business. This could cause lengthy delays and may require that some issues be resolved through mediation or arbitration.
- Limited liability does not mean a total loss of liability. If an LLC is found guilty of violating business laws, then the government may hold a member or members responsible for damages in civil court.
Cost to Form an LLC in North Carolina
The cost for filing an LLC in North Carolina is $90.00. This fee is the same whether you are starting a new LLC or converting your existing business structure into an LLC.
If you file the form before May 1st, then you’ll need to pay a $15 startup state fee, and if you file the form on May 2nd or later, then you’ll have to pay a $90 annual franchise tax fee.
If you want to renew your LLC’s EIN, then you’ll be charged an additional $60.00. These fees need to be paid using a credit card or money order, and the North Carolina Secretary of State’s office accepts both of these forms of payment.
The state also charges a one-time $35 publication charge for filing certain forms that are required by the Secretary of State. If you are starting a new LLC or you are incorporating your business, then you’ll need to pay this publication fee.
If you are only renewing your North Carolina Articles of Organization and LLC operating agreement, then the publication charge will not apply to you.
Separate Your Personal and Business Assets
Even though your LLC may be treated as a separate entity type, you will still need to keep your personal and business assets separate.
If the LLC becomes involved in a lawsuit or in a bankruptcy filing, then these assets will not be subject to division by the other party involved in the lawsuit.
1. Opening a business checking account:
You should also have an account with at least three months of operating expenses in it before you open your business.
This account will be used to cover the startup costs for the business, and you’ll need to open a checking account with a North Carolina bank as soon as possible.
North Carolina credit unions, banks, and insurance companies will usually require that you set up a business savings or checking account before they will allow you to open a business bank account.
2. Getting a business credit card:
You should try to get a credit card from a local bank or credit union for use with business expenses.
Your personal credit card can be used, but it will be easier to keep business and personal expenses separate if you get your own card.
3. Hiring a business accountant:
If you haven’t already found a business accountant in North Carolina, then you should start looking for one as soon as possible.
Not only will a business accountant help you keep track of your finances, but he or she will also be able to help you avoid making costly mistakes when filing state and federal tax returns.
A good business accountant can also be helpful if you need to apply for a bank loan or apply for local, state, or federal grants.
Get Business Insurance for Your North Carolina LLC
Your business insurance policy will cover any losses that occur due to a natural disaster or another event that is not your fault. You should also get your business insured against “acts of terrorism” and physical damage like vandalism.
A business policy will also provide coverage in the event of a personal injury lawsuit against you or your employees. If the injured person files a suit against you, then your business will be able to fight it off with the help of your insurance policy.
One of the most important things to remember is that if you or one of your employees is injured while on the job, then your business insurance policy will cover medical expenses and any disability payments that are necessary due to the employee’s injuries.
If you don’t have a business insurance policy, then you’ll have to pay for any damages and injuries out of your own pocket. This could force your LLC into bankruptcy if the debt is too large to handle.
Create Your Business Website
Your North Carolina LLC should have its own website that you control. You’ll need to register this website with the North Carolina Secretary of State’s office so that your company name and address can be included on the official business registration form.
Send Out a Press Release
You should send out a press release when you first register your LLC in North Carolina. The press release will inform local newspaper reporters and business owners that your company has opened a new business in the area.
This will help get your name out there and drive business towards you.
North Carolina LLC Business Licenses and Permits
If you want to sell merchandise to your customers in North Carolina, then you will have to get a retail sales tax permit from the state.
You will also have to pay a $5.00 application fee for this permit. These fees need to be paid by check or money order, and the North Carolina State Board of Tax Commissioners office accepts these forms of payment.
If you want to advertise your business on television or radio in North Carolina, then you’ll have to apply for a “TV commercial” license from the state.
This license isn’t required if you only want to advertise your business on the radio, in newspapers, or on billboards. The application fee for this TV commercial license is $15.00.
Performing a Massage Without a License
If you want to perform a massage, then you should apply for a license from your local town or city.
You will not need to purchase any additional insurance, but make sure that you read over all of the regulations before you begin offering your services in North Carolina.
Performing Audits Without a License
If you want to perform audits on other businesses in North Carolina, then you will have to apply for an “Enrolled Agent” license.
You will also need to get your clients to sign a “privileged communication” statement that allows you to perform your audit without getting into trouble if the client releases the information. The cost of this license is $75.00 for three years.
A federal tax identification number may also be required if you want to file for an enrolled agent license in North Carolina. You’ll need to fill out a Form 1023 application and provide the IRS with your social security number.
Filing a Tax Return Without a License
If you are auditing another person in North Carolina, then you will need to get a “non-practicing tax return preparer” license. This license will allow you to submit your audits electronically and file for yourself in North Carolina. The cost of this license is $50.00 for one year.
Performing Engineering Services Without a License
If you are an engineer, then you will need to get a “professional engineer” license before working in North Carolina.
Engineers typically work in the construction and manufacturing industries, and they often help supervise the jobs that are being done while ensuring that all safety regulations are being followed.
A “professional engineer” license in North Carolina is good for five years. The cost of this license is $200.00 for five years or $100.00 for one year.
A mining license in North Carolina is also required if you want to work in the mining industry. This state license will allow you to perform exploratory or pre-feasibility studies in the area of mine development.
You should be able to get this license within ten days of applying for it at the local licensing office. If it is not granted, then you may have to wait up to four months before your application can be processed again.
Several other permits and licenses may be required if you want to start an LLC in North Carolina. Make sure that you check with your local city or state offices before you apply for a license because they may have specific rules about obtaining one.
Similar rules will be in place for other states, so make sure that you are up to date on the latest requirements before applying for a license. A small mistake could cost you lots of money in penalties and application fees.
North Carolina LLC Tax Filing Requirements
If you want to start an LLC in North Carolina, then you will have to register your business online with the Secretary of State. You can also file for a tax identification number online or by mail. There is a $120.00 filing fee that is required for this type of business.
If you are filing for a federal business tax identification number, then it will cost $200.00 for an application, plus about $60.00 in-state fees. A license renewal fee will also need to be paid if the application is renewed annually.
North Carolina Sales Tax
Certain types of businesses will have to charge a sales tax to their customers, while other businesses will not. The North Carolina Department of Revenue has declared that most LLCs do not have to pay a sales tax on any goods or services that they are selling.
If you want your LLC to start paying sales tax, then you will need to register for a retail license first. You will have to provide a license number when you file your taxes, and then you’ll have to pay a $5.00 application fee that needs to be made out by check or money order.
This license is valid for one year, and it will allow your LLC to charge sales tax over the course of that entire year. After that time period is up, your North Carolina LLC can file for an extension to get another annually. To get this extension, you will need to fill out the new and revised registration form with a $5.00 fee.
The North Carolina Department of Revenue may be able to issue you a retailing license if your application is approved.
Contact the department if you would like to have one, and make sure that you request it at least ninety days before you need it. The North Carolina sales tax rate for most goods and services is 6%, and rates can change every year.
North Carolina LLC Sales Tax Calculator
- The average annual sales tax rate in North Carolina for 2012 was 5% (2010 stats).
- The average sales tax rate on services in North Carolina is 6% (2010 stats).
- The average sales tax rate on food and groceries in North Carolina is 2% (2010 stats).
North Carolina Gross Receipts Tax
All LLCs that are making more than $50,000 per year in income from operations will have to pay a gross receipts tax. The gross receipts tax amount can be calculated by adding up all of your business expenses and then subtracting them from your total income for the year.
If you are making less than $50,000 per year in North Carolina, then you will not have to pay a gross receipts tax. This state has a gross receipts tax rate of 0.8%.
If your business income for the year is less than $10,000, then you can avoid paying this tax by filing for an exemption application. The application will take about ten minutes to complete, and it can be filed online or by mail.
This application exemption is good for one year, and it will need to be renewed if you want to continue avoiding the gross receipts tax in North Carolina.
North Carolina Employer Taxes
All employers in North Carolina will need to pay a North Carolina unemployment tax and a federal unemployment tax. You can get an employer identification number online or by mail when you register your LLC with the state.
The name of your LLC is also required when you apply for this license, so make sure that it has been legally registered with the Secretary of State before applying for this number.
On top of these taxes, employers in North Carolina will also have to pay social security and Medicare taxes every year. These taxes are based on the net salary of the employer.
A “single employer” is defined as a business that has a total annual gross income of more than $75,000 per year for each person who is employed by the business.
North Carolina Business Tax Return Filing Requirements
Your LLC will have to file a North Carolina business tax return for most LLCs that are making less than $100,000 in revenue during one year or that are less than ten different types of businesses.
If your LLC generates less than $25,000 in revenue during one tax year, then you will have to file a simplified tax return. This type of tax return does not require the average monthly number of employees to be reported.
If your company’s revenue for the year is more than $25,000, then it will need to file an annual report. The business must give a complete description of all of its income and expenses over the course of the year.
Federal LLC Tax Filing Requirements
If your LLC generates less than $50,000 per year in total revenue, then it will not have to file any federal taxes.
If your company makes more than $50,000 per year in revenue, then you will need to start filing IRS forms for your LLC business. This is necessary if you want to avoid being taxed on the profits from your business every year.
Most businesses will have to file a form known as an EIN (Employer Identification Number) in order to register their business with the IRS and avoid tax penalties.
Even if you are not required to file a tax return, you may still be required to fill out some other forms for your LLC. You can find out what forms you will need to file on the IRS website.
This business entity can file an SS-4 Application for EIN online or by mail with the Social Security Administration (SSA) in order to get an Employer Identification Number (EIN) issued by the SSA.
How to Avoid Paying North Carolina Self-Employment Tax
The self-employment tax is a tax that is paid by people who are self-employed. The self-employment tax is essentially paying the employee’s share of federal and state taxes to make sure that the employee has complete coverage when taking a vacation or sick day.
If you hire an independent contractor, then you will not have to worry about paying this tax to the government.
North Carolina LLC Tax Rates
Depending on what business you are operating in, your North Carolina LLC Tax Rate could range from 1 to 4.75%. The table below shows the tax rates as of 2012 for several North Carolina businesses:
- Tax rate for sole proprietorships (1%)
- Tax rate for C corporation (0%)
- Tax rate for S corporations (0%)
- The IDT will be charged at a flat 4.75% rate regardless of the type of your business or whether you are operating locally or within the state.
Tax Filing Due Dates
All LLCs in North Carolina will be required to file a state tax return no later than April 15th of the year after the taxpayer’s fiscal year ends. This date is usually pushed back to May 1st if the 15th falls on a weekend or holiday.
If your company has been operating continuously for less than a year, then you will have up until May 1st of the second year to file an annual report and end your registration period.
If your business is a corporation, then you will have to file business taxes for your LLC with the state of North Carolina every year.
The filing location of your corporation’s tax return depends on which county within the state you operate in. The county for each taxpayer should be on their business license or operating agreement. If these documents are not available, then the location can be found on the Secretary of States’ website.
Tax Filing Changes
If your LLC has been operating for less than one year, then you have until May 1st to file your first annual report. Once this date passes, the state will require you to file an annual report even if you have not generated a significant amount of revenue.
To avoid being fined, make sure that your company files its reports on time.
File Your North Carolina LLC Annual Report
Your corporation’s annual report should be filed with government state agencies online or by mail to receive a North Carolina LLC Annual Report.
The North Carolina Department of Revenue will send you your annual report when it is completed. After the filing period ends, the Department of Revenue will send you a printed copy to keep for your records.
This paper version of the report can be used as proof of the filing requirement and can also be submitted for state tax purposes.
Hiring Employees for Your North Carolina LLC
If you are hiring employees for your LLC, then you will need to decide who will be responsible for employee management:
- The sole member of the corporation
- The managers of the corporation
- All of the shareholders or members.
If you choose to hire an employee working on behalf of your North Carolina LLC or Corporation, then you should be aware that this employee is considered an independent contractor and not a traditional employee.
The reason for this is because the worker runs their own business and they are paid by contract and not salary.
If you hire an employee who is not an independent contractor, then the business may be required to withhold payroll taxes for the employee.
The independent contractor will be responsible for paying their own self-employment tax as well as a portion of required federal and state unemployment insurance.
This is much easier than hiring an employee who will expect to receive benefits such as a paid vacation or sick days.
The process of setting up a new LLC in North Carolina is relatively simple as long as you have already filed your articles of incorporation.
If you plan on establishing an LLC, then be aware that you will need to file some type of tax report for your LLC, no matter what size your business is.
If your company has more than one business location or employee, then it may be wise to hire an LLC management company that will take care of the administrative work for you and help you avoid costly mistakes.