Business Formation

The philosopher Plato once said “The beginning is the most important part of the work” and determining which legal entity best aligns to your business goals is one of the most challenging first steps. The legal entity you choose, whether an LLC, PLLC, C-Corp, S-Corp, Non-Profit or some form of partnership will have a significant impact on the management of the company and the taxes of the business and its owners.

The legal entity you choose will also impact your asset protection, personal risk, and future funding opportunities. It is important to get it right at the beginning because changing your legal entity later on can be a costly and difficult experience.

North Carolina Small Business Law works with small business owners, start-ups, and entrepreneurs to help them select and form the right business entity by analyzing the ownership percentages, tax implications, required liability protection, and management issues that are important to the new business and its owners.

Call 336-221-4457 or schedule an appointment here to discuss the needs of your new business venture and North Carolina Small Business Law’s flat fee startup packages.

Limited Liability Company

Running a business takes a lot of time and effort. A Limited Liability Company (LLC) is simple to maintain and very flexible when it comes to sharing profits and maximizing your tax savings, which is why so many new business owners opt to form their business as an LLC.

An LLC only requires an annual filing with the North Carolina Secretary of State and there is a lot less paper work involved than a traditional corporation. When it comes to taxes, the profits and losses are passed through directly to the owner of the LLC. An owner pays at their personal tax rate. Thus, avoiding the double taxation issue that occurs with a Corporation. Usually only two tax forms are required for an LLC, a Schedule SE for self-employment taxes and a Schedule C used to record revenues and deductions.

In addition to being easy to maintain an LLC will be a lot more flexible than other legal entity formations. For instance, there are no residency requirements for owners. In a multi-member LLC, the members/owners have a lot of flexibility in deciding how to divide up the profits. Finally, while the default tax position of an LLC is a “pass through entity” a business owner can elect to have the LLC taxed as a Corporation or Partnership depending on which method is most advantageous to the LLC’s members.

North Carolina Small Business Law offers two LLC start-up kits:

Form a Single-Member LLC - $750*

  • File Articles of Organization with Secretary of State
  • Federal Tax Identification Number
  • Single-Member Operating Agreement
  • 2 Hours of Consultation

Form a Multi-Member LLC - $1500*

  • File Articles of Organization with Secretary of State
  • Federal Tax Identification Number
  • Multi-Member Operating Agreement
  • Minute Book for LLC
  • 3 Hours of Consultation

* Fees do not include state filing fees.

S-Corporation

A Sub-Chapter S Corporation, better known as an S-Corp, is an LLC, C-Corporation, or limited partnership that has taken a special “S” election with the Internal Revenue Service (IRS). An S-Corp functions very similarly to an LLC with a few key distinctions. Like an LLC an S-Corp provides company owners and shareholders with personal liability protection and an S-Corp is treated as a pass-through entity for federal tax purposes. This means the profits and losses are passed through directly to the shareholders. A shareholder pays at their personal tax rate. Thus, avoiding the double taxation issue that occurs with a C-corporation.

However, there are some limitation with an S-Corp. For instance, you must be a domestic corporation, cannot have more than 100 shareholders, there are certain qualifications placed on who can be a shareholder too, and you can only have one class of stock.

So why not just operate as an LLC and avoid the stringent S-Corp requirements?

Because for many small business owners the savings on pay roll taxes i.e. avoiding the self-employment tax is well worth the additional limitations. After the “S” election the IRS will treat your LLC as a business entity which is separate from the owners. Meaning, the business can pay wages and salaries to the owners, provided they are active in the business. These wages are subject to the FICA tax but not the self-employment tax.

However, the real benefit is that once a business owner pays him or herself a reasonable salary, they can distribute the remaining net earnings from the business to themselves as passive dividend income. This passive dividend income is not subject to the self-employment tax, as it would be if the business owner operated strictly as an LLC. Taking an “S” election could be an effective tax planning strategy to reduce your overall tax liabilities.

North Carolina Small Business Law attorney Jeffrey Bloomfield can discuss the pros and cons of making an “S” election for your LLC with you. Book an appointment here or call 336-221-4457.

S-Corp election for an LLC:

LLC/S-Corp Election - $200*

  • 1 Hour of Consultation
  • Complete and File Form 2553 with the IRS

* Fees do not include federal or state filing fees.

501(c)(3) Non-Profit Corporation

Creating a great for-profit business is not the only way to make a difference in the world. Starting a non-profit is a great way to make a positive impact. While non-profit corporations share many similarities with for-profit corporations there are some more complicated tax and corporate governance requirements that must be adhered to.  

However, adhering to these additional requirements can have a lot of benefits. First, qualifying for 501(c)(3) status means the non-profit corporation is tax-exempt. Second, 501(c)(3) status is often a prerequisite for getting grants and funding from businesses, private foundations, other non-profits and government agencies. Being a 501(c)(3) non-profit corporation also incentivizes businesses, private foundations and individuals to donate to your organization because the donation will be deductible on their income tax returns. Finally, the directors of a non-profit corporation will receive personal liability protection similar to that provided to members of an LLC or directors and shareholders of an S-Corp and C-Corp.

The application process to become a 501(c)(3) non-profit corporation is complicated and the process when done correctly can take between two to twelve months. North Carolina Small Business Law can help make sure the process goes smoothly and you get your 501(c)(3) non-profit status approved as quickly as possible.

North Carolina Small Business Law offers a 501(c)(3) Non-Profit Corporation formation service and a 501(c)(3) Non-Profit Corporation reinstatement service for organizations that have had their non-profit status revoked.

Form a 501(c)(3) Non-Profit Corporation - $1595*

  • Incorporate Organization with North Carolina Secretary of State
  • Draft Articles of Incorporation
  • Draft Bylaws
  • Draft Conflict of Interest Policy
  • Federal Tax Identification Number
  • File Form 1023 with IRS
  • Guaranteed 501(c)(3) Approval
  • Minute Book for Non-Profit Corporation
  • 501(c)(3) Non-Profit Corporation Compliance Manual
  • 3 Hours of Consultation

* Fees do not include federal or state filing fees.

Due to the additional regulations that a 501(c)(3) is subject to, compliance issues may arise that could cause the non-profit corporation to lose its tax-exempt status with the IRS. North Carolina Small Business Law has helped non-profits regain their non-profit status with the IRS after a revocation.

Reinstate a 501(c)(3) Non-Profit Corporation - $995*

  • Complete Form 1023 or Form 1024,
  • File Application for Exemption if Required
  • File All Required Annual Returns and Form 990s*
  • Draft Reasonable Cause Letter
  • 2 Hours of Consultation

* Fees do not include IRS filing fees

* The filing of annual returns and Form 990s does not include the preparation of these forms. Additional accounting or bookkeeping services may be required to properly prepare these forms.