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From the peaceful Appalachians to the hectic research triangle, business owners in all parts of North Carolina can benefit from forming an LLC.
4 EASY STEPS TO FORM A NORTH CAROLINA LLC
- Step 1: Name
North Carolina LLCs must choose a name that contains one of the following: “limited liability company,” “L.L.C.,” “LLC,” “ltd. Liability co.,” “limited liability co.,” or “ltd. liability company.”
The name must also be distinguishable from every other business entity formed or authorized to transact business in North Carolina, and cannot assume that name of a dissolved entity for a certain period of time (depending on how it was dissolved). The name also cannot imply that the LLC is organized for a purpose other than those authorized by the law.
- Step 2: Articles of Organization
Articles of organization can be filed by any organizer with the Secretary of State for a $125 fee. The articles of organization must include: the LLC name, the name and address of the organizer and if they are a member or manager, the name, address, and county of the registered agent, the address of the principal office, and a statement that the LLC will be managed by members or managers. It is optional to include a dissolution date, or a statement that the LLC is perpetual, as well as any other provisions.
- Step 3: Operating Agreement
North Carolina LLCs may have an operating agreement that governs their internal affairs. This can be written or oral, although it can be set forth in the articles of organization that it has to be written (and we recommend that it be written).
- Step 4: Continuing Compliance
EIN: Any North Carolina LLC with employees or multiple members will need an EIN. This can be obtained from an incorporation service, such as Incnow, or directly from the I.R.S.
Annual Report: North Carolina LLCs must file an annual report with the Secretary of State that includes: the LLC name, the street and mailing address of the registered agent (and a statement saying the registered agent has changed if it has changed), the address and phone number of the principal office, the names and addresses of managers or organizers, and a brief description of the nature of the LLC’s business. This report is accompanied by a filing fee of $200
WHY FORM AN LLC IN NORTH CAROLINA?
The Benefits and Advantages of Creating a North Carolina LLC
The North Carolina LLC Act explicitly endorses the freedom of contract, and it enables members to customize their capital contributions and their shares of profits and losses. It also provides for an LLC’s unlimited life and allows members to protect their control of an LLC.
North Carolina Has a Large and Growing Economy
Each year, North Carolina forms over 33,000 new LLCs. North Carolina has over 128,000 active LLCs. North Carolina is the tenth largest state by population and by gross domestic product. According to the U.S. Chamber of Commerce, North Carolina ranks as the seventh best tax environment for mature firms, and the thirteenth best for new firms.
- Advantages of Forming a North Carolina LLC
The North Carolina LLC Act explicitly endorses the freedom of contract: “Except as otherwise provided in this Chapter, it is the policy of this Chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”
The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses, and it enables members to create classes of membership. An LLC agreement may establish classes of membership interests with different rights, powers, and duties. The Act states that “[i]ncome, gain, loss, deduction, or credit of a limited liability company shall be allocated among the members, and among classes of members, in the manner agreed to in an operating agreement.” This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.
The North Carolina LLC Act does not require filing of members’ names. A “person” may form an LLC by filing its articles of organization, and the definition of “person” includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member act as an “organizer” to file the LLC’s articles of organization with the North Carolina Secretary of State.
The Act provides for an LLC’s unlimited life. It states that “[i]f no date for dissolution is specified, there shall be no limit on the duration of the limited liability company.” An LLC’s existence can therefore outlive its members’ lifetimes.
Preventing Unwanted Business Partners
The North Carolina LLC Act allows members to protect their control of an LLC. The articles of organization or the LLC agreement may provide that a person ceases to be a member if the person grants a lien, encumbrance, or security interest in his or her membership interest. The documents may also prohibit members from assigning their membership interests. But even if the articles of organization and the LLC agreement do not prohibit assignment, an assignment does not dissolve the LLC or entitle the assignee to exercise the rights of a member. Instead, the assignee may only receive the allocations of profit and loss and distributions to which the assignor would have been entitled but for the assignment, and all the other members must consent before the assignee may become a member.
Creditors Only Get Passive Rights, Not Control Rights
In addition, the Act states that unless the articles of organization or the LLC agreement provide otherwise, or all members give consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief. These events are considered “events of withdrawal.” If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee.”
- North Carolina Registered Agent
A North Carolina LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as a North Carolina registered agent.
- Qualifying Foreign LLCs
An unusual aspect of North Carolina is its penalties for failing to obtain a certificate of authority for a foreign LLC. This is sometimes called “qualifying” a foreign LLC to do business in the state. A foreign LLC is an LLC that is formed under the laws of a state other than North Carolina.
In most states, a foreign LLC may defend itself in state court if it has not qualified to do business in their jurisdiction, but it may not be a plaintiff in state court until it has qualified. Many states also require a foreign LLC to pay the taxes and fees that it would have paid if it had qualified when it first started doing business in their jurisdiction. In addition to these two penalties, North Carolina charges a civil penalty of $10.00 per day up to a maximum of $1,000 per year for each year a foreign LLC did business in North Carolina without being qualified.
Because of the advantages of forming an LLC in North Carolina, over 33,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in North Carolina. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in North Carolina with your Delaware LLC (Form Delaware LLC).
- North Carolina LLC Act Statutory References
§ 57C-1-03 “Definitions” § 57C-2-20 “Formation” § 57C-2-21 “Articles of Organization” § 57C-2-23 “Annual Report for Secretary of State” § 57C-2-40 “Registered Office and Registered Agent” § 57C-3-02 “Cessation of Membership” § 57C-4-03 “Allocation of Income, Gain, Loss, Deduction, or Credit” § 57C-5-02 “Assignment of Membership Interest” § 57C-5-03 “Rights of Judgment Creditor” § 57C-5-04 “Right of Assignee To Become a Member” § 57C-7-03 “Consequences of Transacting Business Without Authority” § 57C-7-07 “Registered Office and Registered Agent of Foreign Limited Liability Company” § 57C-10-03 “Rules of Construction; Policy”
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