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How to Incorporate in North Carolina vs.
How to Start a North Carolina LLC

A Guide to Choosing the Best Business Entity in North Carolina

Choosing an entity type is one of the first decisions you’ll make when you’re starting up a new business in North Carolina. The Limited Liability Company (LLC) and the corporation are the most popular business entities in North Carolina, and for good reason. The LLC and corporation have the most desirable elements of all the business entities, such as limited liability protection and flexible tax structuring options. This North Carolina guide on LLC formation and incorporation will explore each of these entities specific to the state of North Carolina and what they have to offer for your business. We’ll go over the details of starting a North Carolina LLC and a North Carolina corporation, what to expect with their annual maintenance, and the advantages and disadvantages of each entity.

At Active Filings, we take care of the incorporation process for your small business, no matter which business structure you choose. Our fast services and affordable prices will show you why Active Filings is America’s most reliable business incorporation service.

 

Hire us to form your LLC or Corporation in North Carolina!

LLCs vs. Corporations

Here are the main characteristics true of all LLCs and corporations to help you begin making your decision:

  • Maintenance
    You can expect a high level of maintenance on both a day-to-day and annual basis if you choose to incorporate. You’ll see far more formalities in a corporate environment than with an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as stock issuance and meeting minutes. On the flip side, you can expect a minimal amount of maintenance with an LLC. By design, LLCs will only require minimal paperwork, have better flexibility when a decision is needed, and have low annual upkeep. An LLC will be your best choice if you have a small to medium-sized business and are looking for the lowest amount of business maintenance.
  • Tax Structure
    An LLC is the less expensive and overall simpler option in terms of time and paperwork during tax season for business owners, since an LLC is not a separate taxable entity from its owners. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their individual income taxes. A corporation is more advanced for a business owner to take care of come tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits (dividends). C corporations have opportunities for tax deductions such as travel and health care, and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
  • Investors
    If you plan to expand your business with funds coming mostly from investors, starting a corporation is the suitable choice. Investors are more comfortable investing their time and funds in a reputable business structure that offers stock, like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. On the other hand, investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which turns away many investors. Consider a corporation if you will be growing your business into a large company.
  • Prestigious Title
    Since every business starts with its appearance, having the “LLC” or “Inc” ending on your business name will give it a level of prestige. These endings convey permanence and encourage trust from potential clients and investors, and show that you are serious about your business. While both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. It’s important to note that LLCs have surpassed corporations in popularity in most states, and the prestige of an LLC is continually growing.

 

NC LLCs vs. NC Corporations

Now that we’ve highlighted the main characteristics that apply to all LLCs and corporations, next is to discuss more specific characteristics of what makes a North Carolina LLC or North Carolina corporation unique from other states, which will bring us to the final answer on which entity is best for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. The information in this section will provide these specifics for the North Carolina LLC and the North Carolina corporation.

  • North Carolina Corporate Income Tax
    The North Carolina corporation income tax is imposed on the income of C corporations, and is a flat 2.5%, which is rather low compared to corporate tax rates across the nation. If you are considering a corporation, talk to a professional about how this corporate income tax can impact your business compared to the tax structure of an LLC.
  • North Carolina Corporate Franchise Tax
    The North Carolina corporate franchise tax is imposed on the income of all corporations, and is taxed at a rate of $1.50 per $1,000 with a minimum tax due of $200 even if the corporation is inactive or has no assets.
  • North Carolina Individual Income Taxes
    The North Carolina individual income tax rate for 2019 is 5.25%, and is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes.
  • North Carolina LLC Protection From Creditors
    North Carolina LLCs have strong protection against creditors (a person who is owed funds or assets by a debtor). Creditors have only one remedy against the debtor in an LLC—a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, assuming the LLC will make a distribution. Often times, this leads to the creditor ending up with nothing, since creditors can’t order distributions from the LLC to the debtor. (§ 57D-5-03)

 

North Carolina LLC or North Carolina Corporation? Final Answer.
Now that we’ve discussed both the main and specific characteristics of the North Carolina LLC and the North Carolina corporation, you can decide on a business entity by considering the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

The North Carolina LLC wins the decision if you have a small to medium-sized business. LLCs in North Carolina stay true to character in terms of simple business formation and maintenance, straightforward management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and needing limited liability protection for your business, the LLC is your solution.

The North Carolina corporation wins the decision if you are growing your business big with the funds from investors, and you have the means for the amount of maintenance required. A North Carolina corporation remains true to design in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

How to Incorporate in North Carolina

If you’re ready to start a corporation in North Carolina, also known as incorporating, you’ll need to file the Articles of Incorporation with the North Carolina Secretary of State. You can find the Articles of Incorporation document online at the Secretary of State website. Once your Articles of Incorporation are approved, your corporation is officially formed.

You can file the Articles of Incorporation in the following ways:

  • Online at the North Carolina Secretary of State website
  • By postal mail
  • In person at the Secretary of State office

Filing your North Carolina Articles of Incorporation on the website is fast, secure, and is the preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs a flat $125, plus an extra $2 electronic transaction fee if you choose to file online. You can expect your North Carolina Articles of Incorporation to be approved in around 5-7 business days. If you would prefer a faster approval time, you can pay a $200 fee for same day processing (when submitted by noon that day), or a $100 fee for 24-hour processing.

While not required, it is recommended to attach a cover sheet to your Articles of Incorporation. A cover sheet will allow a certified copy of the filing to be sent to your email, and will let you choose the processing time and return method for your Articles of Incorporation.

To complete your North Carolina Articles of Incorporation, include the following information:

Enter your corporation’s name exactly as you would like it to appear. Your corporation name must include one of the following words: “Incorporated,” “Corporation,” “Limited,” “Company,” or an abbreviation of one of those words.

Your corporation name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Incorporation. The name can’t already be in use, and can’t sound similar to the name of any other company in North Carolina.

List the number of shares your corporation is authorized to issue (most corporations start out with around 1,500). You can attach a schedule to this filing if you need to.

Check the appropriate box depending on whether your company shares will be all of one class (classes are differentiated by levels of voting rights), or divided into classes or series within a class. If you select the latter option, include an attachment with descriptions of the class designations.

A registered agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. Enter the name of your North Carolina registered agent here.

If you hire Active Filings to form your North Carolina corporation, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

A registered agent office is the physical address where the registered agent resides during business hours. Enter the physical address of your registered agent office here.

If the registered agent office mailing address is different than the physical address, list that address here.

Check the appropriate box depending on whether or not your corporation has a principal office. If your corporation does have a principal office, list the phone number, street address and mailing address here.

If you have any additional limitations, modifications, or contingencies regarding your corporation or its purpose, list them here.

Enter the names and complete addresses of each incorporator. At least one incorporator is required here.

Enter the names and complete addresses of the company officers. This part is optional, but recommended in helping comply with federal banking regulations.

If you’d like to get notifications from the Businesses Division of the Secretary of State about your corporation, such as annual report reminders, provide your business email address here. Your email address will not be listed on the Secretary of State website.

The date your corporation officially becomes effective will be the filing date. If you would rather have your corporation effective on a future date (no later than 90 days after filing), specify that date and time here.

Have the incorporator sign and date here.

How to Start an LLC in North Carolina

If you’re ready to start an LLC in North Carolina, you’ll need to file the Articles of Organization with the North Carolina Secretary of State. You can find the Articles of Incorporation online at the Secretary of State website. Once your Articles of Organization is approved, you officially have your LLC created.

You can file the Articles of Organization in the following ways:

  • Online at the North Carolina Secretary of State website (recommended)
  • By postal mail
  • In person at the Secretary of State office

Filing your Articles of Incorporation on the website is most secure, quick, and preferred method by the Secretary of State. The fee for filing your North Carolina Articles of Organization costs a flat $125, plus an extra $2 electronic transaction fee if you choose to file online. You can expect your North Carolina Articles of Organization to be approved in around 5-7 business days. If you would prefer a faster approval time, you can pay a $200 fee for same day processing (when submitted by noon that day), or a $100 fee for 24-hour processing.

While not required, it is recommended to attach a cover sheet to your Articles of Organization. A cover sheet will allow a certified copy of the filing to be sent to your email, and will let you choose the processing time and return method for your Articles of Organization.

To complete the North Carolina Articles of Organization, include the following information:

Enter your LLC name exactly as you would like it to appear. Your company name must include the words “Limited Liability Company,” “L.L.C.,” or the word “Limited” can be abbreviated as “Ltd,” and the word “Company” as “Co.”

Your company name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Organization. The name can’t already be in use, and can’t sound similar to the name of any other company in North Carolina.

Enter the names, addresses, and titles of each member or organizer who is executing these Articles of Organization.

A registered agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. Enter the name of your North Carolina registered agent here.

If you hire Active Filings to form your North Carolina LLC, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

A registered agent office is the physical address where the registered agent resides during business hours. Enter the physical address of your registered agent office here.

If the registered agent office mailing address is different than the physical address, list that address here.

Check the appropriate box depending on whether or not your LLC has a principal office. If your LLC does have a principal office, list the phone number, street address and mailing address here.

If you have any additional limitations, modifications, or contingencies regarding your LLC or its purpose, list them here.

Enter the names and complete addresses of the company officials. This part is optional, but recommended in helping comply with federal banking regulations.

If you’d like to get notifications from the Businesses Division of the Secretary of State about your LLC, such as annual report reminders, provide your business email address here. Your email address will not be listed on the Secretary of State website.

The date your LLC officially becomes effective will be the filing date. If you would rather have your LLC effective on a future date (no later than 90 days after filing), specify that date and time here.

Have each person executing these Articles of Organization sign and date here.

North Carolina Annual Report

You can keep your business in good standing and updated with the state of North Carolina year after year by taking care of a few annual maintenance tasks.

1. File your business’s annual report
2. File your annual North Carolina business tax returns

Below, we’ll explain the basic instructions and resources you’ll need to help you take care of your tax-related upkeep and annual maintenance.

What is a North Carolina annual report?
North Carolina’s annual report is meant to update or confirm the records for your business, such as officer/member names and addresses, and lets your business remain in good standing. North Carolina LLCs and North Carolina corporations that do business in the state are required to file annual reports with the Secretary of State.

How do I file an annual report in North Carolina?
North Carolina LLCs and North Carolina corporations need to file their annual reports online at the Secretary of State website (recommended), or by postal mail.

How much does it cost to file an annual report in North Carolina?
For LLCs, the annual report fee in North Carolina is a steep $200 (plus $2 online processing fee).
For corporations, the annual report fee when filed online in North Carolina is $20, and $25 if filed by postal mail.

When are North Carolina annual reports due?
Corporations and LLCs in North Carolina must file their annual reports by April 15th each year after the year of formation.

North Carolina Business Taxes

Business taxes involve a lot of complex paperwork, and you will probably have a lot of questions come tax season. The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Take a look at our North Carolina Business Tax FAQ below:

What is the North Carolina corporate income tax?
The North Carolina corporation income tax is imposed on the income of C corporations, and is a flat 2.5%, which is rather low compared to corporate tax rates across the nation. If you are considering a corporation, talk to a professional about how this corporate income tax can impact your business compared to the tax structure of an LLC.

What is the North Carolina corporate franchise tax?
The North Carolina corporate franchise tax is imposed on the income of all corporations for the privilege of doing business in North Carolina. The rate of the corporate franchise tax is $1.50 per $1,000 with a minimum tax due of $200 even if the corporation is inactive or has no assets.

What is the North Carolina individual income tax rate?
The North Carolina individual income tax rate for 2019 is 5.25%, and is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes.

What forms do you file for your North Carolina business taxes?
Corporations
For the corporate income tax, you’ll need to file Form CD-405.
LLCs
For single member LLCs, submit Schedule C as part of your individual income tax return (Form D-400)
For multi-member LLCs, submit Form D-403 along with Schedule K-1, included within the form.

When are my North Carolina business tax returns due?
In North Carolina, all business taxes are due on the 15th day of the fourth month after the close of a business’s tax year, or April 15th for calendar year filers.

Hire us to form your LLC or Corporation in North Carolina!