If you are chartering a business today, you should consider your vision for the future. How big do you want to grow? How do you want to attract investors? Do you want to protect your personal assets from business liabilities? You have several choices when forming a business, and each structure offers different advantages.
Before you choose a vehicle for your company, call a knowledgeable attorney at Sparks Law. One of our North Carolina business formation lawyers can discuss the merits and drawbacks of a sole proprietorship, partnership, limited liability company, or corporation.
Owners who plan to run their small business alone may want the convenience of a sole proprietorship, as it is the simplest business structure. For instance, a local handyperson may choose this entity because record-keeping is kept at a minimum. The business’s income and loss are reported as personal income on owners’ IRS income tax returns.
Sole proprietors are personally liable for the company’s debts and for any judgments against the business. The main benefit of a sole proprietorship is that owners do not have to file formal documents with the state.
Owners should choose a business name and vet it through the North Carolina databank if the name is not the same as the owner’s legal name. If different, the owner must file an assumed name certificate with the county where the business is located.
An owner must also secure local licenses, zoning clearance, and permits, along with an Employer Identification Number from the IRS. A local business formation attorney can help with any of these steps in starting a sole proprietorship.
If more than one person engages in a business for profit, they form a partnership. The duties concerning choosing a name and filing an assumed name certificate are the same as a sole proprietorship. Additionally, partners should work with a North Carolina lawyer to create a written agreement when forming their business. Some covenants in a partnership agreement include:
A business formation attorney can help draft a partnership agreement to address future problems before they arise.
LLCs offer flexibility because owners, called members, can choose a default pass-through tax structure or be taxed like corporations. The pass-through method allocates LLC profits and losses to members who report on their personal taxes.
Members are also allocated a percentage ownership of the LLC, depending on their initial capital contributions. The LLC is governed by an operating agreement similar to a partnership agreement. LLCs must appoint a registered agent to accept official documents and must file Articles of Organization with the Secretary of State. Yearly reports to the state are also required, along with filing fees.
Corporations include more stringent reporting requirements but offer many advantages for owners who wish to trade publicly and raise capital through debt or equity. Raising capital by selling stock to investors allows them to gain ownership in the company and reap a profit reselling it as the company grows, whether the corporation is public or private.
Although corporations require significant record-keeping, an experienced North Carolina business formation attorney could help with organizing company documents and meeting state filing requirements.
The foundation of all businesses is the structure under which they operate. You can keep it simple and form a sole proprietorship, or you can charter a corporation and trade on one of America’s stock exchanges. No matter what your vision is, we can help you decide the best vehicle to achieve it.
A North Carolina business formation lawyer can discuss this critical choice with you and help ensure that your decision matches your goals. Call Sparks Law today for your initial consultation.