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Editorial 6 MIN READ

North Carolina in October 2017: what the LLC actually costs

A $125 filing fee, a $200 annual report due every April 15, and a tax code that keeps getting cheaper

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 5 sections
  1. The mechanics
  2. Maintenance is where people get it wrong
  3. The 2014 rewrite is still the thing to know
  4. Who this state actually makes sense for
  5. Sources

North Carolina LLC costs $125 to form and $200 a year to keep. Those are the two numbers that matter. Everything else — the rewritten LLC Act that took effect in 2014, the corporate rate that drops again in 2019, the flat individual rate that keeps sliding down — is texture around those two numbers.

This is a guide for someone forming in October 2017, written to survive one reading rather than thirty. North Carolina is not Delaware, and the pitch here is different: a low-cost filing, a modern statute, and a tax code that has been moving in one direction for four years.

The mechanics

You file Articles of Organization with the Secretary of State's Corporations Division. The form (L-01) asks for the LLC's name, its principal office address, its registered office and registered agent in North Carolina, and the names and addresses of the persons executing the articles. You can file online through the SOS's business portal, by mail, or in person in Raleigh.

The fee is $125, set by N.C. Gen. Stat. § 57D-1-22. That is the same whether you file online or on paper. If you need it faster, the Division sells two expedited tiers on top of the base fee: $100 for 24-hour turnaround and $200 for same-day service (same-day requests must be received by noon). There is no one-hour or two-hour option; North Carolina does not run the kind of expedite menu Delaware does, which is fine for almost every real use case.

The registered agent requirement comes from § 57D-2-40, which folds in the general requirements of Article 4 of Chapter 55D. The agent must have a physical North Carolina street address — a P.O. box will not do — and must be available during business hours to accept service of process. You can serve as your own agent if you live in the state, which a lot of single-member founders do to save the $100-to-$200 a commercial agent charges. The case for paying someone else is less about cost than about not having a process server knock on your home door in front of a client.

You will then need an EIN from the IRS, which Form SS-4 produces in the time it takes to fill it out online. You will want an operating agreement, which North Carolina does not require you to file but which § 57D-2-30 contemplates and which any competent bank, investor, or subsequent member will ask for. And you will need to decide, for federal tax purposes, whether your LLC runs on the default treatment (disregarded for a single member, partnership for multiple members) or elects S-corp or C-corp status. Most owners let the default ride and revisit when there is payroll.

Maintenance is where people get it wrong

North Carolina requires every LLC to file an annual report with the Secretary of State. The fee is $200, and the report is due by April 15 of each year following the year of formation. An LLC formed in October 2017 has its first report due April 15, 2018. The report is short — principal office, registered agent, officials — and can be filed online for the same $200.

The state also runs a separate tax-side maintenance regime. Individual income tax for 2017 is a flat 5.499%, confirmed by the Department of Revenue's rate schedule for tax years 2017 and 2018. That rate flows through to owners of LLCs treated as partnerships or disregarded entities, who pick up North Carolina-source income on their personal returns.

If your LLC elects to be taxed as a C-corp or S-corp, a different machinery engages. The corporate income tax rate for 2017 is 3.0%, down from 4.0% in 2016, and scheduled to drop to 2.5% in 2019 under the rate-trigger mechanism the General Assembly enacted in its 2013 tax overhaul. There is also a franchise tax: $1.50 per $1,000 of the corporation's tax base, with a $200 statutory minimum. Ordinary LLCs that have not elected corporate treatment are outside the franchise tax, which is one of the quieter advantages of running an operating business as a pass-through here.

Miss the annual report and the Secretary of State will eventually administratively dissolve the LLC under § 57D-6-06. Reinstatement is available — it is not a death sentence — but it requires filing all missed reports and paying all back fees, and if the name has been taken in the interim you will reinstate under a different one. The cleanest move is a calendar reminder set for March.

The 2014 rewrite is still the thing to know

North Carolina replaced its old LLC Act (former Chapter 57C) with a new one (Chapter 57D) by way of Session Law 2013-157. The new chapter took effect January 1, 2014, and applies to every LLC in the state regardless of when it was formed. If you are reading case law or forms older than that, you are reading about a statute that is no longer operative.

Three features of Chapter 57D are worth a founder's attention. First, the operating agreement is given broad freedom-of-contract treatment: § 57D-2-30 lets members structure governance, distributions, and fiduciary duties largely as they see fit, subject to the non-waivable provisions listed in the statute. Second, management defaults to member-management but can be shifted to manager-management by the operating agreement. Third, the statute explicitly contemplates series LLCs in only a limited way — North Carolina is not a series state in the sense Delaware or Illinois are, and a founder who wants a true series structure should plan accordingly.

The rewrite also cleaned up dissolution, withdrawal, and member-transfer rules that had accumulated friction under the old chapter. The overall effect is a statute that reads like something written this decade, which matters more than it sounds like it should when your counsel is drafting an operating agreement.

Who this state actually makes sense for

North Carolina is a good formation state for a business that operates in North Carolina. That is the honest pitch. The filing fee is mid-pack nationally, the annual report fee is on the higher side, and the tax code has been steadily becoming more attractive since 2013 — the flat individual rate, the declining corporate rate, the $200 franchise minimum. None of that is a lure to out-of-state formations the way Delaware's case law is; all of it is reason to stop shopping for exotic states if your business is based in Charlotte, Raleigh, or Asheville.

Three situations make North Carolina the clear choice. An operating business with a North Carolina office, customers, or employees should form here and skip the foreign-qualification tax a Delaware or Wyoming formation would add. A real-estate LLC holding North Carolina property belongs here for the same reason — the property is here, the liability is here, the litigation venue is here. A professional practice organized as a PLLC uses the same Chapter 57D machinery, with the additional licensing-board overlay specific to the profession.

The situations that push elsewhere are the familiar ones. A venture-backed company whose lead investors will require a Delaware C-corp should start in Delaware; converting from a North Carolina LLC later is doable but costs a few thousand dollars and a cap-table scar. A holding company for intellectual property or interstate investments may still prefer Delaware or Wyoming for reasons that have nothing to do with North Carolina and everything to do with the target jurisdiction's case law.

If you are forming this quarter and the business is operational and local, file in North Carolina this week, set a calendar reminder for April 15, and get back to the business. The state has done the boring work of modernizing its statute and lowering its rates; the payoff is that you do not have to think about any of it again until next spring.

Sources

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