What Are the Steps for Forming a North Carolina Limited Liability Company?
6 There are a number of steps required to form a limited liability company (LLC) under the North Carolina Limited Liability Company Act, G.S. § 57D. An LLC is beneficial because it can limit the liability of the managers and members, provide a level of privacy protection, and may give you certain tax advantages. Following are six basic steps to forming a North Carolina limited liability company (LLC).
1. Choose a Name for Your LLC
Every LLC must have a name, and the name must indicate that the company is an LLC. The NC LLC Act, G.S. § 57D, requires that the name of every LLC include the words “limited liability company,” “L.L.C.,” “LLC,” “ltd. liability co.,” “limited liability co.,” or “ltd. liability company.” G.S. § 55D-20(a)(2).
The LLC’s name must be distinguishable from the name of other companies registered with the Secretary of State – you cannot use the name that another company is already using.
It is also possible to reserve a business name without actually registering the LLC, though this is not frequently done. North Carolina permits you to reserve an LLC name for 120 days for a fee of $30.
There are additional requirements if you are using an assumed name (also called a trade name). An example of an assumed name is if your LLC were named “Acme Company, LLC” but you wanted to call your store “Joe’s Chocolates.” This often occurs with franchisees who are using the name of their franchisor to do business, but are required to use a different corporate name. In this case, in addition to filing the LLC paperwork with the Secretary of State, you would also need to file for an assumed business name with your local registry of deeds and indicate each county in North Carolina where you intend to do business.
2. File the LLC Articles of Organization
To formally file the LLC, you must file the Articles of Organization with the North Carolina Secretary of State. Articles of Organization are the charter for your LLC. By statute, it must contain the following:
The name and address of each person executing the articles of organization and whether the person is executing the articles of organization in the capacity of a member or an organizer,
The street address, and the mailing address if different from the street address, of the LLC's initial registered office, the county in which the initial registered office is located, and the name of the LLC's initial registered agent at that address,
The street address, and the mailing address if different from the street address, of the LLC's principal office, if any, and the county in which the principal office, if any, is located, and
If the LLC is to render professional services and is subject to G.S. § 57D-2-02 as a professional limited liability company, the professional services to be rendered by the LLC.
You have the option of include any other provisions that you would normally include in an Operating Agreement (addressed below). This is not often done, however, and is usually better left to the Operating Agreement.
3. File with the Secretary of State and Pay the Required Fees
Most documents filed with the North Carolina Secretary of State are now filed online. The cost to file your LLC’s Articles of Organization is presently $125 plus a $3 electronic filing fee. You can have them expedited for an additional fee.
4. Have Your Attorney Draft an Operating Agreement
An Operating Agreement is the contract that governs the internal affairs of the LLC, including the rights, duties, and obligations of the members of the LLC in relation to each other and to the LLC itself.
Though you are not technically required to have an Operating Agreement, it is the most important document you will have for your company.
There is no required format for your LLC Operating Agreement. Each is different, and your attorney will tailor each Operating Agreement to suit the specific needs of the parties and the circumstances.
The Operating Agreement should cover the following issues:
Whether the LLC is member-managed (i.e., managed by its owners) or manager-managed,
Procedures for admitting and expelling members,
Management rights and authority of each member, including whether there are different classes of members and the relative rights and responsibilities of each class,
Allocation of profits, losses, and distributions among members and different classes of members,
Initial capital contribution required of members,
Whether there are different series within the LLC, including the members, managers, assets, and business associated with each (this should also appear in the certificate of formation),
Notice and procedure required for member meetings (and for managers, if applicable),
Voting rights of members and the voting power of each,
Procedure for amending the articles of organization or the LLC operating agreement,
Rights and powers of managers, including whether there are multiple classes of managers and the duties and voting powers of each,
Procedures for electing and removing managers, and
Indemnification of members and managers by the LLC.
There are default provisions under the North Carolina LLC Act, G.S. 57D, but these are often not appropriate to every LLC. Also, be aware that there are certain provisions of the North Carolina Limited Liability Company Act that cannot be overridden by your operating agreement. Those provisions are contained in G.S. § 57D-2-30(b).
5. Business Licenses
Depending on the line of work your LLC is in, you may also need to obtain a license from a state licensing authority. The Economic Development Partnership of North Carolina provides a list of the 319 occupational licenses and 498 business licenses that maybe required to do business in North Carolina. You should always verify whether your line of business falls within one of these.
6. Regularly Update Your Company Documents.
Some business owners do the above steps and never think about the legal aspect of their business again. That is common a mistake.
First, you are required to file an annual report with the North Carolina Secretary of State every year. Failure to do so may result in your company’s charter being revoked and your permission to do business being withdrawn. It may also put your business license in jeopardy. Your annual report updates the state about any changes to your Articles of Organization so that your information stays current.
And second, any time you make a change in your company, you may need to update your Operating Agreement or other company documents. This may be required if you make a change in the way you do business, you take on a partner (or get rid of a partner), you take on an investor, you borrow or lend money, and so on. Failure to stay current may jeopardize your right to the company’s profits or the company’s control.
There may be additional requirements for your LLC that are not listed here. Just as every person is different, so, too, is every LLC different. The terms of your company may need to be specifically tailored to your wants and needs. You should always consult a licensed North Carolina business law attorney before starting, or changing, your company.
Dye Culik PC has worked with business owners, startups, franchisees, investors, other entrepreneurs of every type. If you have a question about your business, we're here to help.