North Carolina Single-Member LLC Operating Agreement

Introduction

Key Things to Know

1. 1

   Written form is not required for a North Carolina operating agreement in general; oral and implied agreements are valid, though a written provision controls over an oral or implied one when someone outside the agreement has reasonably relied on it (N.C. Gen. Stat. Section 57D-2-30).

2. 2

   Without a provision saying otherwise, North Carolina allocates distributions in proportion to each member's capital contribution, not split evenly among members (N.C. Gen. Stat. Section 57D-4-03).

3. 3

   A charging order is the exclusive statutory remedy against a member's LLC interest in North Carolina, and no reported North Carolina case has carved out a different rule for single-member LLCs (N.C. Gen. Stat. Section 57D-5-03).

4. 4

   A standard North Carolina LLC (taxed the default, pass-through way) owes no state franchise tax. The recurring state-level obligation is a $200 Annual Report filed with the Secretary of State every year by April 15 (N.C. Gen. Stat. Sections 57D-1-22, 57D-2-24).

5. 5

   By default, every member of a North Carolina LLC is also a manager with equal management rights, unless the operating agreement says otherwise; there is no separate Articles of Organization election like some states use (N.C. Gen. Stat. Section 57D-3-20).

6. 6

   North Carolina lets an operating agreement modify, or even eliminate, a manager's statutory standards of conduct, without requiring that change to be in writing, a more flexible rule than many other states use (N.C. Gen. Stat. Section 57D-3-21).

7. 7

   The operating agreement itself is not filed with the state. You form the LLC by filing Articles of Organization with the North Carolina Secretary of State ($125 filing fee, N.C. Gen. Stat. Section 57D-1-22).

North Carolina Requirements for LLC Operating Agreement

• Formation and Governing Law (North Carolina General Statutes § 57D-2-01)

  The LLC is formed by filing Articles of Organization with the North Carolina Secretary of State (N.C. Gen. Stat. Sections 57D-2-20, 57D-2-21) and is governed by the North Carolina Limited Liability Company Act, Chapter 57D. Chapter 57D does not require the Operating Agreement to contain an acknowledgment clause; the Agreement is simply subject to the Chapter's mandatory provisions.

• Operating Agreement Authority (North Carolina General Statutes § 57D-2-30)

  Establishes that the Operating Agreement governs the internal affairs of the LLC and the rights, duties, and obligations of members, managers, and the company itself, subject to mandatory provisions of NC law.

• Limited Liability Protection (North Carolina General Statutes § 57D-3-30)

  Confirms that members and managers are not personally liable for the debts, obligations, or liabilities of the LLC solely by reason of being members or managers.

• Management Structure (North Carolina General Statutes § 57D-3-20)

  By default, every Member of a North Carolina LLC is also a manager, with equal rights to participate in management, unless the Operating Agreement itself provides that Members are not automatically managers (N.C. Gen. Stat. Section 57D-3-20). Unlike some states, North Carolina does not use a member-managed/manager-managed election in the Articles of Organization; the Operating Agreement controls.

• Capital Contributions (North Carolina General Statutes § 57D-4-01)

  A Member may contribute money, other property, services rendered, or another benefit to the LLC, including a promissory note or other obligation to contribute in the future (N.C. Gen. Stat. Section 57D-4-01). North Carolina law does not require a Member to make any contribution at all, and does not prescribe a valuation process for non-cash contributions; the Operating Agreement sets those terms.

• Allocation of Profits and Losses (North Carolina General Statutes § 57D-4-02)

  North Carolina's LLC Act does not have a separate profits-and-losses allocation rule; the applicable default is in the distributions statute. Absent a contrary Operating Agreement provision, distributions are made in proportion to each Member's aggregate capital contributions relative to all Members' contributions (N.C. Gen. Stat. Section 57D-4-03, not Section 57D-4-02, which covers a Member's liability for an unfulfilled contribution promise).

• Distributions (North Carolina General Statutes § 57D-4-03)

  Interim distributions before dissolution, and liquidating distributions after dissolution, are made in proportion to each Member's aggregate capital contributions relative to all Members' contributions, absent a contrary Operating Agreement provision (N.C. Gen. Stat. Sections 57D-4-03, 57D-6-08(2)). No distribution may be made if it would leave the LLC unable to pay its debts as they come due, or make liabilities exceed assets (N.C. Gen. Stat. Section 57D-4-05).

• Voting Rights and Decision-Making (North Carolina General Statutes § 57D-3-21)

  Each manager has equal rights to participate in management, and management decisions are controlled by a majority vote of the managers (N.C. Gen. Stat. Section 57D-3-20(b)). Unanimous approval of all Members is required to adopt or amend an Operating Agreement, admit a new Member, sell substantially all assets outside the ordinary course, dissolve outside the statutory grounds, or convert or merge the LLC (N.C. Gen. Stat. Section 57D-3-03).

• Transfer Restrictions (North Carolina General Statutes § 57D-5-02)

  North Carolina's default rule is the opposite of a restriction: an economic interest is freely transferable in whole or in part (N.C. Gen. Stat. Section 57D-5-02). A transfer only conveys the right to receive distributions; it does not make the transferee a Member or give the transferee management or voting rights unless the Members unanimously approve. Any right of first refusal must be added by the Operating Agreement; the statute does not create one.

• Withdrawal or Dissociation of Members (North Carolina General Statutes § 57D-3-02)

  North Carolina does not give a Member a general right to voluntarily withdraw capital or resign (N.C. Gen. Stat. Section 57D-5-05). Membership instead ends only on specific triggering events: bankruptcy, death, incompetency, or transfer or abandonment of the Member's entire interest (N.C. Gen. Stat. Section 57D-3-02). Chapter 57D does not itself provide a buyout mechanism; any buyout terms must come from the Operating Agreement.

• Books and Records (North Carolina General Statutes § 57D-3-04)

  Establishes each Member's right to inspect and copy specific LLC records on 7 days' written notice, including the Articles of Organization and Operating Agreement, up to 4 years of tax returns or financial statements, a list of current interest owners, and information needed to determine capital interests (N.C. Gen. Stat. Section 57D-3-04). The LLC may redact other Members' information and impose confidentiality conditions.

• Fiduciary Duties (North Carolina General Statutes § 57D-3-21)

  Sets the standard of conduct for Managers: act in good faith, with the care an ordinarily prudent person in a like position would exercise, and in a manner believed to be in the LLC's best interests (N.C. Gen. Stat. Section 57D-3-21). Unlike many states, North Carolina lets the Operating Agreement modify or fully eliminate this standard, and does not require that change to be in writing (N.C. Gen. Stat. Sections 57D-3-21, 57D-3-31, 57D-4-06).

• Indemnification (North Carolina General Statutes § 57D-3-31)

  The LLC must indemnify a Member, Manager, or other company official who is wholly successful in defending a proceeding arising from that role. The LLC must also reimburse and indemnify such a person for obligations incurred in the LLC's authorized business, but only if that person complied with the standards of conduct in N.C. Gen. Stat. Section 57D-3-21, as modified or eliminated by the Operating Agreement (N.C. Gen. Stat. Section 57D-3-31). Chapter 57D does not list separate non-waivable exceptions to indemnification the way some states' statutes do.

• Amendment Procedures (North Carolina General Statutes § 57D-2-31)

  Adopting or amending an Operating Agreement requires the approval of all Members (N.C. Gen. Stat. Section 57D-3-03(1)), a unanimous-consent default, not a majority-vote default. Once adopted, an amendment binds every person who is a party to or otherwise bound by the Operating Agreement (N.C. Gen. Stat. Section 57D-2-31(e)).

• Dispute Resolution (North Carolina General Statutes § 57D-2-30)

  Provides mechanisms for resolving disputes among members, such as mediation or arbitration, and may specify venue and jurisdiction for any litigation.

• Anti-Dilution Provisions (North Carolina General Statutes § 57D-5-01)

  North Carolina's LLC Act does not include an anti-dilution statute. Section 57D-5-01 states only that an ownership interest is personal property. Any anti-dilution protection must be created by the Operating Agreement itself; it is not a default statutory right in North Carolina.