Formation of an LLC in North Carolina
June 24th, 2022
One of the most critical decisions you will make as a business owner is how to structure your company. The entity you choose can have long term legal and financial ramifications. It can also affect your liability and determine how your taxes will be paid. For many business owners in North Carolina, a Limited Liability Company (LLC) offers the flexibility they need to expand their businesses — and protect their personal assets.
What is an LLC?
An LLC is a type of business entity that is created to limit the personal liability of its owners. While businesses can be structured as LLCs at any stage of development, changing to this type of entity formation is a logical step for many sole proprietors as their operations grow. LLCs offer many of the same legal protections and financial advantages as a corporation, but they are much simpler to form and manage.
How Do You Form an LLC in North Carolina?
Forming an LLC is not necessarily difficult, but it does require planning. There are a number of decisions that you will need to make as a business owner. Specifically, to form an LLC in North Carolina, you must complete the following steps:
- Select a name for your company — You must choose a name for your LLC that is different from any of the business names that have already been filed with the North Carolina Secretary of State. In addition, when you structure your business as an LLC, its name must contain the words “Limited Liability Company,” the abbreviation “LLC,” or an acceptable variation. If you wish to do business under a name other than the one that is registered, an Assumed Business Name Certificate must be filed with the Register of Deeds office in the county of operation.
- Choose a registered agent — Every LLC registered in North Carolina must have an agent for service of process in the state. This is an individual or entity who agrees to accept any legal papers on behalf of the LLC. Importantly, the registered agent that is designated must have a physical street address in the state.
- File Articles of Organization — The Articles of Organization is a foundational legal document that establishes the existence of a Limited Liability Company. They outline the basic details about your company and must include the name and address of each person signing the document, the LLC’s address and phone number, the effective date of the Articles, and other information.
- Draft an operating agreement — An operating agreement sets the rules that determine how your business is run and defines the duties, obligations, rights, and powers of the LLC members. It is also a crucial element in maintaining the legal liability protection offered by LLCs. This document is maintained for internal purposes and is not filed with the Secretary of State.
- Obtain an EIN — If there is more than one member in your LLC, an IRS Employer Identification Number (EIN) must be obtained — even if you will not be hiring employees. If you are the only member, an EIN must only be obtained if it will be taxed as a corporation, rather than a sole proprietorship.
- Comply with ongoing requirements — Once you have formed your LLC, your obligations toward it don’t end there. It’s essential to be aware of the ongoing annual requirements that must be satisfied. All LLCs in North Carolina must file an annual report with the state and ensure compliance with tax obligations.
Another consideration when forming an LLC is deciding whether it will be
Pros and Cons of Forming an LLC
It’s vital to evaluate the pros and cons of forming an LLC in North Carolina to determine whether the business structure is right for you. The two biggest advantages of an LLC are the protections from liability and the tax benefits. Significantly, LLC members are not liable for the debts, obligations, and actions of the company — this means that each member’s personal assets are safeguarded from creditors who seek to sue the business.
By default, an LLC is considered a
LLCs are a good choice for those who wish to have little to no administrative hassle. Setting up an LLC requires minimal paperwork and there is no requirement in North Carolina that annual meetings must be held, unless specified otherwise in the operating agreement. LLC members also have flexibility to decide how the company’s profits will be allocated. For instance, the operating agreement may specify that profits aren’t divided in proportion with ownership, but rather by the amount of work each member puts into the business’s everyday operations.
There are very few cons to forming an LLC. In most cases, the advantages outweigh the disadvantages. However, the biggest drawback of an LLC is that it costs more than maintaining a sole proprietorship. Business owners who elect the LLC structure should also ensure they have a solid management structure and standard operating procedures in place — while LLCs are flexible, poor management can be detrimental to the success of a business.
Contact an Experienced Southern Pines Business Formation Attorney
Understanding what structure is most beneficial for your business can be confusing and it’s best to have a knowledgeable attorney by your side to guide you through the business formation process. Carolina Tax, Trusts, & Estates is committed to helping North Carolina entrepreneurs select a structure for their company that will meet their business objectives. We welcome you to contact us for a complimentary consultation to learn how we can assist you.