Raleigh Business Formation Lawyer Providing Reliable Counsel for Business Owners in North Carolina
Business owners face many critical decisions when starting or running their businesses. Choosing the right business structure is one of those critical steps that can affect how your business is taxed and how much liability protection you can get for your personal assets. Our firm helps guide business owners in Raleigh through the process of making those decisions with confidence and clarity. Here are some answers to common questions we get about business formation in North Carolina.
What Is the Difference Between a Sole Proprietorship and an LLC in North Carolina?
As a new business owner, you may be faced with several options when it comes to business structures, and it may be confusing to understand which one you should pick. Many small businesses choose a sole proprietorship for its simplicity and lack of requirements for extensive paperwork. Others prefer to start as an LLC (Limited Liability Company). So, how do you choose which one is best for you?
It all comes down to which business formation offers the most protection in case your business suffers a loss or becomes the target of a potentially damaging lawsuit. An LLC legally separates the owner’s assets from the business assets, thus offering more personal liability protection than a sole proprietorship. With a sole proprietorship, there is no distinction between what belongs to you and what belongs to the business. If your business ever faced financial issues, your assets may be on the line. An LLC may be a better choice if you are concerned about personal liability, but as always, consult an attorney to find out which business formation is right for you.
How Are S-Corps and C-Corps Taxed in North Carolina?
In North Carolina, a corporation can be classified as an S-Corp or a C-Corp. Both types of corporations may be required to pay a franchise tax to the state of North Carolina. However, corporate tax is handled differently when you have a C-Corp or an S-Corp.
Simply put, an S-Corp is considered to be a “pass-through” entity and is not required to pay federal income taxes. Instead, when shareholders receive dividends, those dividends will be taxed as part of the shareholders’ personal tax return. In contrast, a C-Corp is subject to double taxation, because it must pay federal taxes on any profits it yields, and once those profits are passed on to shareholders, they will once again be subject to income tax on the shareholders’ personal tax return. It is worth mentioning that S-Corps still need to file a tax return even though taxes will be collected directly through the shareholders. However, both types of corporations offer different levels of personal liability protection, so speak to an attorney to see which one is right for you.
What Should I Consider When Choosing a Business Structure for My Company?
There are several important aspects to consider when choosing a business structure for your start-up. First, you need to think about what type of business you want to operate, and what the financial requirements of your business will be. You will also want to analyze how risky your business may be, how your business will be managed and controlled, whether you will have employees or use independent contractors, and the projected size of your business now and in the future.
It is also common for some businesses to start with a less complex structure, such as an LLC or PLLC, and as they grow and become more complex, their current business structure may no longer serve them. This is another factor to consider – if your business grows exponentially, will your current structure still work, or will you have to upgrade it? All of these decisions are key for your business to thrive.
Why Should I Work With a Business Formation Attorney?
By working with a business formation attorney, you will be better equipped to make all the crucial decisions required to start and run a business. Your cannabis industry attorney can not only assist you with paperwork, forms, and contracts but can also provide invaluable advice and help you plan for the future. If you are looking to start a business or have business formation-related questions, contact our Raleigh office at 919-756-6437.