Limited liability companies (LLCs) are a category of business structure that is often chosen because of their simple and flexible structures as compared to other business structures. This is due to the fact that LLCs incorporate some of the features of partnerships and some of the features of corporations.
One of the most favorable corporate characteristics of LLCs is the limited liability for the owners of the LLC, who are known as members. This means that the members are not personally liable for the LLC.
Any company that is structured as an LLC has the freedom to enjoy the pass-through taxation as well as the lack of corporate formalities and paperwork, which are typically required with partnerships. Under the laws governing corporations, if a party files a lawsuit against a corporation and that lawsuit is successful, the corporation will pay money out of its assets.
The assets of the individuals owners and members are not touched. In other words, the owners of the corporation are not held personally liable for the corporation’s debts, including the damages that are awarded against it in a lawsuit.
Additionally, LLCs, similar to partnerships, are not taxed at the entity level. This means that, unlike a corporation, the entity does not pay taxes as an LLC.
The only taxes that are paid are paid by the individual members who have earned a profit. It is important to note that there are downsides to organizing as an LLC.
The liability of an LLC structure means that individual owners may be sued for their own negligence. Similar to many other types of businesses, LLCs are separate legal entities that must be registered with the North Carolina Secretary of State.
How is a Limited Liability Company Different from Other Business Forms?
An LLC is different from other common types of business entities. In contrast to corporation income, LLC income is taxed only once.
In other words, the income of the LLC passes through the business and is only taxed at the individual member level. There are also other types of businesses that have this type of tax structure, including:
As noted above, LLCs differ from corporations in terms of ownership structure. LLCs are owned by individuals, whereas corporations are owned by shareholders.
LLCs differ from both sole proprietorships and partnerships in their liabilities. The partners in a partnership can be held personally liable for debts that are incurred by the partnership.
These debts may include debts that are incurred by another partner. This means that if the partnership owes money to a creditor, that creditor may be able to come after the individual’s own real and personal property in order to satisfy the debt.
Owners of LLC are, in general, not personally liable for the liabilities or debts that are incurred by the LLC. This allows for LLC owners to manage their businesses without having to worry about losing their own assets.
Who Should Form a Limited Liability Company?
There are certain categories of individuals who should consider forming a limited liability company. An individual who wants to own a small business should consider forming an LLC.
Forming an LLC will protect their individual assets and limit their liability to the resources of the LLC. an individual who is interested in forming a business with minimal paperwork and costs should also consider forming an LLC.
What are the Requirements for an LLC in North Carolina?
Companies are required to meet several requirements to qualify as LLCs in North Carolina. The LLC is required to include certain terms in its name, including:
- Limited Liability Company;
- LLC;
- L.L.C.;
- Ltd. Liability Company; or
- Ltd. Liability Co.
In addition, the name must be different from other existing business entity names that are already on file in the state. The LLC is required to designate an agent for service of process who is either a North Carolina resident over the age of 18 or a business entity already authorized to do business in the state.
The agent must agree to accept legal papers on behalf of the North Carolina LLC. A foreign LLC, or an LLC that is organized outside of North Carolina that is choosing to do business in the state, is required to register with the North Carolina Secretary of State. Failure to register before conducting business in North Carolina may subject a foreign LLC to a civil penalty of $10.00, or up to as much as $1,000 per year, for each day that the LLC operates in the state without registering.
What Paperwork Do I Need to Form an LLC?
In North Carolina, an LLC cannot be formed without first filing the appropriate paperwork with the North Carolina Secretary of State. This must be sent in via mail.
Domestic LLCs, or LLCs formed in North Carolina, are required to file Articles of Organization. In order to complete this form, the following must be provided:
- Name of the LLC;
- Address of the LLC’s principal office if the LLC or confirmation that the LLC does not have a principal office;
- Name and street address of the registered agent of the LLC, as well as the agent’s mailing address if it is different from the street address;
- Name, address, and capacity, such as a member or an organizer, of each person executing the Articles of Organization; and
- Any other information that the LLC wishes to include, such as a list of the company officials or the purpose of the LLC.
A foreign LLC is required to file an Application for a Certificate of Authority for Limited Liability Company. This form requires the applicant to provide the following:
- Name of the LLC and the name that it plans to use in North Carolina if the original name cannot be used in the state;
- The place where the LLC was originally created;
- Either the address of the LLC’s principal office or a confirmation that there is no principal office for the LLC;
- The registered agent’s street address, as well as the agent’s mailing address if there is a difference between the two; and
- A list of the LLC’s officials, including their names, titles, and business addresses.
The foreign LLC will also be required to submit a Certificate of Existence from their state or country of origin that is no more than 6 months old.
What Benefits Does North Carolina Give to an LLC?
North Carolina provides several advantages for LLCs. For example, the state does not require the majority of LLCs to pay a franchise tax.
Unlike other states that require an operating agreement to be either written or oral, North Carolina allows an LLC’s operating agreement to be implied. It may be implied either in its entirety or in combination with written or oral portions.
What Disadvantages Does North Carolina Give to an LLC?
Limited liability companies that are registered in North Carolina are required to file annual reports with the North Carolina Secretary of State. These reports are due each year by April 15.
This annual report must include a $200 filing fee. In addition, if an individual is a member of an LLC that is being taxed as a C Corporation and they have other economic activities in the state beyond the LLC, then the individual will be required to file both a franchise tax return and a corporate income tax return.
Where Can I Find the Right Lawyer?
The process of forming a company in North Carolina may be complex. The decision regarding which business structure is right for you is an important one.
It may be helpful to consult with a North Carolina corporate lawyer to determine the risks, benefits, and process that are associated with forming an LLC in North Carolina. Once you determine the proper business structure for you, your lawyer will assist you with any paperwork and requirements to form your LLC.
