Winston-Salem & Greensboro Business Formation and Coaching Attorneys

When choosing an appropriate entity for a business, our attorneys weigh the benefits and drawbacks of all available options. These can include the following.

Sole proprietorship

The easiest type of business to form, a sole proprietorship is one person. It is not necessary to submit any forms to the state of North Carolina or the Internal Revenue Service (IRS). Depending on the type of business, the proprietor may need to acquire a business license. Sole proprietors are required to pay self-employment taxes.

When considering a sole proprietorship, clients must remember they are personally responsible for everything. If their business is sued, they must pay any judgements against them from their own personal assets. Our attorneys can help you take the next step from a sole proprietorship to formalize your business and mitigate your risk.

General partnership

A general partnership is when two (or more) people agree to do business together for profit. All partners play management roles and all partners are responsible for any liabilities. This means if one partner is the subject of a lawsuit, all partners are involved and liable. A partnership is similar to a sole proprietorship, except more than one person owns the business.

Limited partnership

A limited partnership is much like a general partnership. However, one (or more) of the partners has no management control or input and is there for investment purposes only. This partner receives income from the business and also holds limited liability for company debts or lawsuits. Limited partnerships are required to file paperwork with the NC Secretary of State.

Limited liability partnership

A limited liability partnership (LLP) combines the advantages of a partnership and a corporation. In an LLP, all the partners enjoy limited liability from the negligent behavior of another partner(s). However, any partner may be held personally responsible for any type of business malpractice he/she commits. LLPs must be registered with the NC Secretary of State. These types of partnerships are a relatively safe business entity for all partners.

Limited liability company

Limited liability companies, or LLCs, are a common option for businesses as they have fewer formalities as a corporation. LLCs tend to be popular due to their tax advantages. Although LLCs operate like a corporation, the financial distribution to the owners are not subject to taxation at the corporate level. Instead, profits are taxed at the personal level only – meaning that LLCs avoid the double taxation of corporations. An LLC also protects the owners’ personal assets from business creditors and lawsuits. LLCs must be registered with the NC Secretary of State.

Corporation

Corporations are the most formal type of business. Incorporated companies have a board of directors, empowered to make overall management decisions, and shareholders, who invest in the company and receive dividends in return. To form a corporation, individuals must file papers called Articles of Incorporation with the NC Secretary of State, as well as request an Employer Identification Number (EIN) from the IRS. The state also requires a number of other rules, depending on the type of corporation, which our business formation attorneys are happy to explain.

Clients may choose from two types of corporations, depending on their needs:

• A C-Corp is the traditional corporation. The main disadvantage of the C-Corp is the double taxation. Whenever a corporation makes money, it pays taxes. Then, when the shareholders receive their dividends, they pay their personal taxes as well. However, because a corporation is a separate entity, shareholders have zero personal liability for the corporation’s actions.
• An S-Corp is a different type of corporation, and is taxed differently than a C-Corp. An S-Corp cannot have more than 100 shareholders, and any shareholder who works for the company must pay him/herself “reasonable compensation.” Profits from the business are not double-taxed, and appear only on each shareholder’s personal tax return. Filing requirements for an S-Corp tend to be detailed and complex.

These are only a few of the options prospective business owners have to choose from when forming a business. Additionally, clients must take into consideration a variety of other dynamics unique to their business.