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How to Start a Business in North Carolina

Many of the largest businesses in the United States have corporate headquarters in North Carolina, such as Bank of America, Hanes and Lowes. However, it is actually the smaller businesses that are the backbone of North Carolina. In the last polling from the U.S Small Business Administration, there were over 800,000 small businesses operating in North Carolina. The majority of those businesses were made up of one to four employees.

Part of the small business boom in North Carolina comes from the tech industry. In 2008, it was estimated that roughly 15 percent of all North Carolina exports came from tech companies, both large and small.

For many entrepreneurs, the biggest obstacle in starting a small business has to do with fear. Potential entrepreneurs often talk themselves out of starting a business because they believe it is complicated process, or they mistakenly think they need a small fortune to pay for licensing and registration. While it does certainly involve a lot of work and planning, starting a small business is not as complicated as many believe, and even businesses with under four employees can find plenty of success in North Carolina’s market.

Business Structures in North Carolina

One of the first steps new entrepreneurs have to take is identifying their business structure. Identifying the business structure is one of the more involved processes, and new entrepreneurs are faced with several different options. This is one of the reasons many entrepreneurs are intimidated with officially registering as a business. While the different business structures initially look overwhelming, they are actually fairly straightforward.

The North Carolina Sole Proprietor

For most startup small businesses in North Carolina, the initial business structure is a sole proprietorship. A sole proprietor is the direct owner of the business, which means he or she is responsible for all the profits, losses, debts or liabilities of the business. The reason this is the simplest way to structure a business is because, for tax purposes, the sole proprietor represents the business. As such, the sole proprietor does not have to file any additional taxes. He or she simply includes the business profits or losses on his or her usual tax forms. However, the sole proprietor will have to pay self-employment taxes and estimated taxes.

The North Carolina General Partnership

The next type of business structure is known as a general partnership. Under a general partnership, two or more individuals decide to start a small business together. A partner is anyone who contributes something to the business, such as money, labor or some type of service. The partnership shares the profits and losses of the business, and all accept responsibility for anything that happens to the business.

Corporations in North Carolina

Corporations are a little trickier than sole proprietorship and general partnership. Most new entrepreneurs will not initially start as a corporation, but they may restructure once their business grows. The biggest difference is that corporations are considered separate entities from the initial business owner. Corporations have different owners who are referred to as stockholders. Since the corporation is a separate entity, stockholders have much more protection from personal liability as well as business debt.

There are two different types of corporations, S-corporation and C-corporation. An S-corporation is between one and one hundred shareholders. The net income or loss of the corporation is split between all of the shareholders, who report the profits or losses on their personal tax returns. The biggest difference between the two types of corporations is that the shareholders who work for the company are also responsible for paying themselves reasonable compensation for their services to the corporation.

A C-corporation is for companies that are taxed as an individual business entity. C-corporations have their own tax rates and forms. Shareholders decide whether the corporation keeps any profits or whether the profits are paid out to the shareholders. Essentially, this means the shareholders are taxed twice: once from corporate taxes, and then again on their personal taxes.

Limited Liability Company and Partnership in North Carolina

A limited liability company is a variation of C-corporation. The business is still a separate entity, but the owners have a limited liability towards anything that happens to the company. In exchange, they are only taxed once instead of twice. A limited partnership is when two or more general partnerships or corporations decide to share a business. The majority of new entrepreneurs will not have to worry about this classification for some time.

Registering as a Business in North Carolina

Once the business owner has selected how he or she wants to structure the company, the next step is to officially register the business with the North Carolina Secretary of State’s Office. Registration is determined by the business structure, so someone registering as a S-corporation would simply use the forms provided for that structure. All the forms are available online, but physical copies are available from the Secretary of State’s Office as well. For the fastest results, business owners are encouraged to file online.

When registering as a business, the entrepreneur must come up with an official business name. Before officially registering, the business owner should first ensure there are no other businesses in North Carolina with this name. The Secretary of State offers options for checking through existing registered businesses.

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