Limited liability companies (LLCs), have significant advantages over the default option for business organization, which is a sole proprietorship. The primary advantages are pass-through taxation and limitations on liability.
Pass-through taxation treats the profits and the losses of the LLC as if they were the profits and losses of the owners. An LLC is not a separate tax entity like a corporation. Therefore, you get simple taxation with an LLC just as you would with a sole proprietorship.
What you get with an LLC that you don’t get when you operate as a sole proprietorship is limited liability. Your personal assets are shielded from any losses and liability of the LLC.
You can be the sole member of your LLC, or you can form the organization with others. If you are in the health care field, you should know that there are some limitations on who can form an LLC in concert with others.
Is forming an LLC difficult?
No, although you may wish to have a lawyer advise you. There are seven simple steps:
1. Choose a business name that is not already in use by another company and which conforms to North Carolina’s rules regarding business names. You can check if your preferred name is available on the North Carolina Secretary of State’s business name database.
2. Appoint a registered agent. This is a person who can receive legal papers on behalf of the LLC if it should be sued. This can be a person or a company and must have a physical street address within the state.
3. Create and file your articles of organization. Your articles of organization must include:
- The LLC’s name
- The names and addresses of everyone signing the articles
- The name and address of your registered agent
- The address and phone number of the LLC’s principal office
- The effective date of the articles upon filing
- The signature of at least one member, the organizer or their representative
4. Create an operating agreement. (optional but advisable). This is the document that sets out the members’ rights, powers, duties, liabilities and obligations, along with those of the entity itself.
5. Obtain any necessary licenses and permits.
6. Comply with tax and regulatory requirements. Set up an IRs employer identification number (EIN) even if you do not yet have employees. If you will be selling goods, you will need to register with the North Carolina Department of Revenue to collect sales tax.
7. File annual reports. If your LLC goes into operation before April 15, you must file an annual report for that year. If you form after April 15, you do not owe an annual report until the following year.