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North Carolina has consistently enjoyed a reputation as a business-friendly state. When CNBC News ranked the best states for business last year, North Carolina came in second among all 50 states. Access to capital, workforce, economy, and cost of doing business were just some of the many factors the news outlet evaluated in its annual ranking for 2021.
Choosing to start an LLC may help you to protect your personal assets in the event that someone sues your business. Should you fall behind on loan payments and if you run your business as legally required, creditors might have a tough time coming after your personal assets to pay them when you have registered your business as an LLC.
North Carolina requires all business owners except sole proprietors to register their business as a separate legal entity from themselves. We outline exactly how to do that in the steps below.
Here are the steps you’ll need to take in order to get your LLC in North Carolina.
Below, you’ll find a detailed explanation to walk you through each step.
The first step to registering a business as an LLC is to choose a name that is not the same or substantially similar to other business names in the state. You could find yourself facing a lawsuit from another business if you choose a name that is too similar. Here are three resources you can use to make sure your business name is unique:
Starting with a local search is best. If you plan to trademark a symbol or any part of your business name, you will want to use one or both of the second two links to make sure no one else has claimed it.
North Carolina enforces some unique business naming requirements that you should know before you select the name. For example, you can’t include any of the following in your business name unless you receive permission from a state licensing board:
You also need to choose a business name that a typical person would not find offensive due to race, disability, age, or any other protected class. Lastly, you will need to include the phrase “limited liability company” or the abbreviation LLC somewhere in your business name.
Registering for a Doing Business As (DBA) designation allows you to operate your business under a different name than its legal registered name. Some business owners choose this option for branding purposes. Since the County Register of Deeds processes DBA filings, you need to contact the county where you will operate your business to receive instructions.
A trademark is a symbol, name, or word used to identify your business. The symbol used by Nike to differentiate its shoe brand from others without any words is a good example. If you plan to use a trademark, North Carolina requires you to register it.
You can complete a trademark search at the North Carolina Trademark Registration or the United States Patent and Trademark Office links above. The next step is to submit three complete and original renderings of the mark that your company has used in the last six months. For the final step, complete a trademark application and mail it along with a $75 fee to:
Trademark Section, North Carolina Department of the Secretary of State
PO Box 29622
Raleigh, NC 27626-0622
You are ready to file LLC Articles of Organization with the North Carolina Secretary of State’s office once you have selected a business name. The state requires that you complete Form L-01 and pay a $125 fee when submitting your application.
If you are in a hurry for the state to process your LLC Articles of Organization paperwork, you can include an extra $100 with your application for 24-hour service. North Carolina also offers same-day service for $200.
Before you turn in your final LLC Articles of Organization paperwork, be sure that you have included the following information:
You may submit Form L-01 and pay the fee online via credit card, debit card, or direct bank withdrawal at this link. North Carolina also allows new business owners to pay in person at the Secretary of State’s office, located at 2 South Salisbury Street in Raleigh. A third option is to mail your form and fee to the Business Registration Division at PO Box 29622, Raleigh, NC 27626-0622.
A registered agent is the person designated by the business partners to receive tax, legal, and other documents on behalf of the LLC. The person selected must meet all three of these requirements:
You can act as your own registered agent if you meet each of the criteria above. Another option is to hire Tailor Brands as a North Carolina registered agent service. Working with us can save you time, protect your privacy and business reputation, and ensure prompt handling of all correspondence.
An LLC Operating Agreement is a written document that outlines how you and your business partners will operate the business. Specific topics the agreement should cover include how to divide profits and losses and the responsibilities of each member of the LLC.
North Carolina does not require that businesses formally file an LLC Operating Agreement. However, it is vitally important to create this document when forming an LLC with one or more business partners. The agreement will help solve disputes that could lead to legal action after the business has been in operation for a while.
The Internal Revenue Service (IRS) requires people operating a business under any structure other than sole proprietor to apply for an EIN. An EIN for your business is similar to what a Social Security number is for your personal affairs. Banks and other lenders require business borrowers to list an EIN when applying for financing.
If you plan to hire employees for your new business, the IRS uses your EIN to track hiring activity. This is to ensure that your LLC complies with payroll regulations. You will also need an EIN to file tax returns and issue payments on behalf of your business.
You do not have to pay a fee to obtain an EIN. Simply navigate to this link and follow the on-screen instructions. Tailor Brands can also apply for EINs on behalf of your new business to save you time. We understand you have dozens of other tasks to attend to all at once.
North Carolina requires LLC owners to abide by several tax regulations. Be sure to educate yourself on each of the tax topics below to ensure that you remain in compliance with these requirements.
Most LLC business owners choose a pass-through structure for federal income tax purposes. Pass-through taxation means that each member of the LLC reports their share of profits and expenses on their individual tax return. LLCs operate like sole proprietorships in this regard.
The LLC itself does not pay federal income taxes with pass-through taxation. Although some states require LLCs to pay federal income tax at the corporate level, North Carolina is not among these states.
The flexible structure of an LLC means that you can also choose to pay your federal tax obligations as a sole proprietor, partnership, corporation, or S-corp. You will need to complete IRS Form 2553 if you choose to pay your taxes in any way other than on a pass-through basis.
Form 2553 is for organizations paying taxes as a business and will accompany your LLC’s official tax return. Before choosing this option, you should know that North Carolina charges a 5 percent flat tax on annual business income along with an annual franchise fee. You may wish to consult with a tax advisor before deciding how to file taxes on behalf of your LLC for the first time.
North Carolina requires businesses selling certain products and services to register with the Department of Revenue. Typical examples include:
The state does not collect sales tax on gasoline, groceries, and prescription drugs. If you plan to mainly sell services with your LLC, check this list to see if you need to collect and remit sales tax.
The North Carolina Department of Revenue (NCDOR) provides the option to register online or download and mail Form NC-BR. Here is the address to use if mailing the form:
North Carolina Department of Revenue
PO Box 25000
Raleigh, NC 27640-0100
You will also need to register for a seller’s permit by providing the following information to the Secretary of State’s office:
Keep in mind you still need a seller’s permit to sell secondhand merchandise. However, you do not need to collect sales tax on it.
North Carolina charges a flat 4.75 percent rate on all taxable merchandise. Cities and counties can also assess sales tax at a combined maximum rate of 2.75 percent. State laws cap total tax collected per transaction at 7.5 percent.
Your LLC must remit sales taxes to the state, city, and county once each month if it collects more than $100 in total. If your business collects less than that in sales tax, you can remit the amount due every 90 days.
North Carolina LLC laws require each member to pay state income tax on any income they pay to themselves and list on their federal income tax return. The current income tax rate is 5.25 percent, and North Carolina is one of the few states with a single tax bracket. You can claim deductions and allowances just as other taxpayers do.
The IRS requires employers to deduct the following from every employee’s paycheck:
North Carolina also requires employers to deduct state taxes from every employee’s paycheck at a rate of 5.25 percent. If you offer shared-cost benefits to your employees, you will use payroll deduction to recoup the cost of the benefits.
LLCs normally do not have to pay taxes to another state unless the owners have previously qualified to do business in that state. However, exceptions do apply. Most states, including North Carolina, consider the following to be intrastate business transactions:
The term intrastate means that all business activity takes place within a single state. North Carolina exempts the following activities from out-of-state taxation:
Your LLC can usually avoid double state taxation when it pays income tax on profits earned within the state. The one time you’ll most likely need to pay taxes in another state is when you sell and initiate the shipment of goods outside of state lines.
Too many entrepreneurs have learned the hard way that not separating their business and personal finances causes major headaches, especially at tax time. You can make things easier for yourself by opening a business bank account as soon as you receive your EIN and have filed your LLC Articles of Organization.
Sole proprietors can get away with having a single bank account because the person and the business are one entity in the eyes of the law. This is not the case with LLCs. By mixing your finances, you run the risk of losing the limited liability this type of entity provides.
Apart from the legal reasons for opening a bank account, consider how it would look to customers and vendors to receive a check from your personal account. When they see the check is from your personal name instead of the name of your business, they can assume you are unprofessional and don’t take your business seriously.
Another benefit of having a business checking account is that you can delegate payroll and accounting tasks to employees or your business partners. Having an EIN and a business bank account also makes your LLC come off as more professional with potential creditors. Here is the documentation you will need to open a business banking account in North Carolina:
If you are part of a multi-member LLC, all members need to be present when opening a business bank account. You will need to contact the bank for guidance if you need to add or remove an LLC member at a later date.
Your LLC must pay ongoing fees to North Carolina to remain operational and in compliance. The state collects these fees regardless of business activity or income throughout the year. These fees include:
If you do not pay the required annual fees, you run the risk of North Carolina shutting down your LLC and losing the limited liability protection.
All types of business owners should consider hiring an accountant or tax advisor along with a business attorney. An accountant or tax advisor will handle business finances for you and ensure that you pay as little taxes as possible. This person can also provide guidance throughout the year on how to best manage your business finances.
Having a business attorney on retainer means that you always have someone to call with legal questions. You don’t want to ever assume you can take a certain action with your LLC unless you are certain it’s 100 percent legal and legitimate.
You do not need a general business license from the North Carolina state government to operate your LLC. However, several cities do require that you register for a business license before you begin serving customers or clients. As of early 2022, these cities include:
Each city has its own zoning regulations for businesses. Be sure to contact the city government office where you intend to conduct business to find out if your LLC is subject to zoning regulations. This includes most home-based businesses.
You will need a building permit from the city or county if you plan to construct a new facility or renovate an existing facility. Some cities and counties in North Carolina also require that business owners obtain permission before putting up certain types of signs.
North Carolina requires businesses selling physical products and certain digital products to register for a sales and use tax number, which is the same as a seller’s permit. We have already discussed Form NC-BR needed to obtain a seller’s permit. The state does not charge a fee to process this form.
If your business qualifies as a reseller, you will need to obtain a Sales Tax Certificate of Exemption to avoid having to collect sales tax from customers and remit it to the state.
Businesses operating in several professions must apply for and pay a professional license fee in North Carolina. Some common examples include barber shops, fur dealers, firearms trainers, and commercial fishermen. You can find a complete list of professions requiring licensing and the fees due at this link.
Several types of industries also require special licenses in North Carolina. Daycare facilities, restaurants, and salvage dealers are just three common examples.
Please reach out to Tailor Brands with any additional questions about forming an LLC in North Carolina.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.