A limited liability company with only one owner or member is known as a single-member LLC. Single-member LLCs are popular in North Carolina because they provide the owner with limited liability protection while still enabling pass-through taxation. What transpires, though, when a single-member LLC loses that member?
A single-member LLC does not immediately dissolve when its member passes away. Instead, the LLC is incorporated into the member’s estate, and it is then run by the estate’s executor up until its dissolution or transfer to a new owner. When managing the LLC, the executor must adhere to both the operating agreement and North Carolina law.
The executor must abide by any instructions contained in the operating agreement regarding what should happen to the LLC in the event that a member passes away. If the operating agreement is silent on a situation, North Carolina law will take precedence. The LLC will be dissolved in accordance with North Carolina law unless the remaining members or the estate executor want to keep it going.
LLCs are subject to both state and federal taxes in North Carolina. A single-member LLC is treated as a “disregarded entity” for federal tax purposes, which means that the owner is subject to personal income tax on the LLC’s earnings. The LLC could, however, be taxed as a corporation or partnership if it has more than one member.
LLCs are required to pay a $200 yearly franchise tax in North Carolina. Each year’s tax is payable on or before April 15th. Additionally, LLCs’ net income is liable to state income tax. North Carolina levies a flat-rate state income tax of 5.25%.
A legal document that describes how an LLC will operate is called an operating agreement. Although an operating agreement is not required in North Carolina, it is strongly advised that all LLCs have one. To draft an operating agreement, take the following actions: 1. List the LLC’s members and their percentages of ownership. 2. Describe each member’s obligations and privileges. 3. Specify how the members will be divided up the gains and losses. 4. Describe the management structure for the LLC and the decision-makers.
5. Describe the procedure for granting ownership transfers and granting membership to new members. 6. Describe how the LLC will be dissolved. How Should an Operating Agreement Be Completed?
Follow the format established in the preceding section when filling up an operating agreement. An operating agreement may be a straightforward one-page contract or a more comprehensive document that spans several pages, depending on how complicated the LLC is. Are Operating Agreements the Same as Articles of Organization?
No, operating agreements and articles of incorporation are not the same. An LLC must be formally established by filing articles of organization with the Secretary of State of North Carolina. The LLC’s name, address, registered agent, and members’ names and addresses are normally included in the articles of organization.
On the other hand, an operating agreement describes how the LLC will be managed and is not submitted to the state. Although both agreements are crucial for an LLC, their functions are distinct.
Operating agreements and LLC agreements are essentially interchangeable terms. An operational agreement is a written agreement between members of an LLC that specifies the rules and processes for running the firm, as opposed to an LLC agreement, which is a legal document that describes ownership and operating procedures of an LLC. In North Carolina, these expressions are frequently used synonymously to describe the same legal document.