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Starting A Multiple Member North Carolina LLC
Filing for an LLC in North Carolina is one of the easiest processes you'll have to go through when starting your new venture, and starting a company with multiple members has very little difference from starting a company on your own. This article will outline how to go through the process of setting up an LLC in North Carolina, and it will highlight the areas you must take care to follow when there are multiple members.
Step 1: Download the Articles of Organization Form
The Articles of Organization are the foundation of your LLC. They tell the state, and anyone who works with your LLC what the rules are. At a minimum, they must contain the name of the company, address, names of the members of the LLC, the registered agent of the company, purpose of the company, and whether the LLC is member-managed or manager-managed. These minimal terms are contained in a form available on the North Carolina Department of the Secretary of State's website:www.secretary.state.nc.us. It costs $125 to file the Articles of Organization.
You may add additional terms to your articles, and if you're looking to create a strong business out of this company, you might want to look to legal help to ensure you've covered all your bases in the Articles of Organization. You may always amend the Articles later for an additional fee; however, it is always better to do it right the first time.
Step 1.1: Name
You can search on the North Carolina Department of the Secretary of State's website to ensure your name isn't taken by an existing company here. If it isn't, that name is valid unless it violates some other rule. Your name must contain one of the following phrases: "limited liability company," "LLC," "L.L.C.," "ltd. Liability Co." or "ltd. Liability Company." The name also cannot be misleading, suggesting it is organized for any purpose other than what it is organized for. i.e. you cannot name your company Brick's Law Firm, LLC and operate as a bakery, not a law firm. Certain phrases such as "trust" or "insurance" are also off limits.
Step 1.2: Registered Agent
The registered agent must be an individual who resides in North Carolina and whose business address is identical to the registered office or a business whose business address is identical to the registered office. The registered agent can be one of the members, but only as long as that member has a physical address where summons can be served. It is also important to note that any time you change address, you will have to submit a new form to the State along with a new fee. (Just a heads up there).
If you do not have a physical address which can receive your official mailings, process or demands, then you can employ the services of someone you know who is willing, your attorney or a company that offers registered agent services. A simple Google search will reveal many companies willing to forward your mail for large sums of money who would qualify as a registered agent.
Step 1.3: Purpose
This is the area that allows for the most, or the least, creativity. Some recently created LLC's have purposes as short as "engineering," but others have detailed plans that narrow in their focus. The most important thing to remember here is it must be broad enough that it allows you to operate as you need, but specific enough that your articles aren't rejected. I've heard that the State will no longer accept "for all legal purposes" under the purpose section. It must be slightly more narrow than that. For an LLC with more than one member, this area is somewhat crucial, albeit not focused on by most startups. The reason this section is so important to multiple member LLCs is that this is the guide to which your company is initially bound. The limitations listed in this section carry into the operating agreement, and wherever a dispute may arise, this section is the ultimate source of law for your company's purpose. This section, if done properly, can save your company a lot of trouble down the road when owners have disagreements.
Step 1.4: Additional Clauses
If you don't include additional clauses, that is fine. Under the North Carolina laws, you're not required to; however, you will be stuck with default rules in certain areas, and others won't even be addressed. I always recommend putting something in the Articles about the amendment process as well as mentioning how the operating agreement is created and modified, but it all depends on what your LLC is going to be doing. Since we're looking at a multiple member LLC, it is vital to discuss certain things in these additional clauses. For example, you want to include how meetings are called or how the operating agreement is agreed upon and modified later on. You will certainly want some listed method to amend the articles at a later date if your business plan changes. Although many of these things can be addressed in the operating agreement, if they're addressed in the Articles of Organization, they are more set in stone and controlling over any other company document. This is useful for continuity and expectations of members.
Step 2: Mail it.
Once you've completed your Articles of Organization to your satisfaction, you need to mail it in to the North Carolina Department of the Secretary of State. The address you will mail your Articles and $125 check to is: Corporations Division; PO Box 29622; Raleigh, NC 27626-0622. It takes between a couple of days to a few weeks to receive your certificate back from the State.
Step 3: Get an EIN
Now that you've got an LLC, you need to go on the IRS website and apply for an EIN. It takes about 5 minutes to do so, and it is free.Click here, and then click APPLY ONLINE NOW towards the bottom. You'll be able to print off your IRS letter at the end of the process.
Step 4: Operating Agreement
The Operating Agreement isn't that big of a deal if you're the only member in the LLC. It's still good to have in order to have a solidified business plan, but not necessary. When there are two or more members, however, it is vital. Countless joint ventures crash and burn because of disagreements. Most of those could have been avoided with clear expectations outlined in the Operating Agreement.
Step 4.1: Distribution of Profits and Loss
One of the major components of the Operating Agreement is the written agreement of the distribution of losses and profits from the company. There is a default rule, but why would you want to leave something up to differing expectations. Sit down and discuss with your fellow members before you begin work on how profits and losses will be allocated.
If you chose to be taxed like a partnership, distributions of profits and losses will have a bearing on your income taxes as well. You're able to fully customize the profits and losses to benefit whomever and whatever the members agree on.
Step 4.2: Management
You'll want clear definitions of what management is allowed to do, who management is, how the management occurs, and how to replace the managers. You won't want this to get settled in an argument later, so set it up now.
Step 4.3: Dissolution
Companies close their doors. It happens, and when it does, you don't want to be stuck fighting in court over who gets what assets. Instead, outline how assets are to be distributed before the business even starts. Lots of times, assets are distributed according to who contributed what, but this area is also able to be fully customized.
Step 4.4: Other provisions
There are an infinite number of provisions available to put in an Operating Agreement. I've seen Operating Agreements that were in the form of an email, and I've seen 200 page Operating Agreements that cover everything from arbitration between members to how meetings are conducted. The terms are completely up to the members, and the more detail involved, the less ambiguity later.
Step 5: Do All the Business Stuff
Now, you can go out and do what you need to do as a business. If you need a bank account, they'll need your EIN and certificate from the state. If you want to hire employees, that's another process for a later article.
Your taxes are based on what type of tax structure you chose. Most LLCs choose to be taxed as a pass through entity, or like a partnership. This means that the taxes will be reported on a Schedule K-1 and Form 1065. If you chose to be taxed like a corporation, you'll file a separate business tax form, IRS Form 1120.
Step 6: Keep up the Formality.
One of the best parts of having an LLC instead of a Corporation is that you have less formalities; however, like a corporation, you're still required to do certain things like submit an annual report each year. It costs $200, but it only requires the bare minimal information. It may also be submitted electronically for your convenience. The first annual report is due on April 15th of the year following the creation year.
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