So you’ve decided to start a business in North Carolina! Congratulations – this exciting decision can lead to great things for your career and your community. North Carolina has a thriving economy, plenty of entrepreneurial resources, and a business-friendly climate. While starting a business in our state may seem daunting, it’s not as complex as you might think. In this guide, we’ll outline the essential steps of how to start a business in North Carolina. Let’s get started!
Making a Business Plan
Do you have a great business idea? Or have you found an existing business to purchase? Business plans allow you to think through the nuts and bolts of your desired business.
The first step in starting a business in North Carolina is to create a business plan. Your business plan should include your mission statement, target market demographics, marketing, financial strategies, and how you will manage your day-to-day operations.
Mission Statement for A Successful Business
Creating a mission statement is essential and should convey your company’s purpose and how you are different from other small business owners in the area. It should also show how you plan to serve your customers and be successful in the long term.
Who Is Your Target Market?
Once you have your mission statement, it’s time to consider who you want to serve with your business. Conduct market research into local demographics and trends to create a customer profile for the people most likely to purchase your product or service.
What Is Your Marketing Strategy?
Your marketing strategy involves how you plan to reach your potential customer base and how you will promote your product or service.
Marketing can include a combination of digital funnels and emails, social media accounts, print, outdoor, and other media outlets such as radio or TV. Also, ensure you can set up a business website to attract new clients. Consider how much money you have budgeted for marketing and how it will impact your overall strategy.
Now that you have a business and financial plan, it’s time to pick a location for your business. North Carolina offers several options, including shopping malls, office parks, and other commercial spaces. Small businesses that serve customers in-person need a strategic location. However, if your customers will reach your business online, you may be able to save money by working out of your home.
Now that you’ve set the groundwork, you’ll need to consider how to legally structure your business to prepare for paying federal taxes and state business taxes.
Choose Your Business Structure
North Carolina offers several different business structure options, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
Each legal structure has its own advantages and disadvantages, so take the time to research each before making a decision.
Sole Proprietorship Pros and Cons
A sole proprietorship is the simplest and least expensive business structure, but it offers the least protection when starting your own business.
As a sole proprietor, your business is not a separate legal entity. Instead, your business ownership brings you financial liability for any debts or lawsuits your business might face.
However, there is no requirement for legal documents to register your business as an entity with the secretary of state.
Partnership Pros and Cons
If you’re starting a business with one or more other people, you may consider forming a partnership. This structure offers more flexibility than a corporation and fewer legal requirements than an LLC. However, a general partnership also has the same liability issues as a sole proprietorship.
The types of partnerships are:
- General Partnerships
- Limited Partnerships
- Registered Limited Liability Partnerships
- Limited Liability Limited Partnerships
Let’s look at how a general partnership works:
- You can create a general partnership by agreement with one or more other owners. When two or more people venture into business together without forming another business entity, they are by default deemed to be in partnership.
- You do not necessarily need to submit any paperwork with the Secretary of State for this type of business, though it may be beneficial to consider registering trademark documents and assumed name certificates if you operate under an assumed business name.
- The partners establish how to manage their partnership through either verbal or written contracts.
- General partners have unlimited personal liability for the debts and obligations of the general partnership
- Partners pay taxes on their personal tax returns for the income of the partnership business structure.
Learn more about the other types of partnership business types at NCSOS
Limited Liability Company (LLC) Pros and Cons
LLCs are increasingly popular business structures because they offer limited liability protection and have fewer formalities than corporations.
However, LLCs can also be more expensive to form and require ongoing administrative requirements.
- Create an LLC by filing Articles of Organization in compliance with the North Carolina Limited Liability Company Act, complete with a professional registered agent.
- Managers or members (owners) manage Limited Liability Companies
- The liability of members is limited to their capital contributions
- Limited Liability Companies don’t pay taxes on business income. Instead, members owners pay taxes on LLC income (unless they elect to pay taxes as a corporation)
Get started with your LLC filings today. Talk with an experienced business attorney in North Carolina to understand how to file correctly and start your LLC.
C Corporation Pros And Cons
Start a corporation with the right paperwork. A corporation is the most complex structure available and offers the most significant level of asset protection.
However, it also comes with a host of formalities, including annual meetings and reports. Additionally, corporations are taxed differently than other businesses.
- Created by filing Articles of Incorporation in compliance with the North Carolina Business Corporation Act
- Shareholders own the corporation, and an elected board of directors manages the company acting under the authority of the Articles of Incorporation and bylaws of the Corporation.
- Shareholder liability is limited to capital contribution
- Corporations pay taxes on business income. Shareholders then pay taxes on the dividends and distributions they receive. Because the company and the shareholders both pay taxes, corporations endure double taxation.
S Corporation Pros and Cons
An S corporation offers more protection than a sole proprietorship or partnership, but it is also more complex and expensive to set up. However, it is less complicated than setting up a C corporation.
- Create by filing Articles of Incorporation and elect S Corporation status
- Shareholders generally own S Corporations, and they are managed by a board of directors elected and acting under the authority of the Articles of Incorporation and Bylaws of the Corporation. (However, some S corporations are an LLC or partnership that elects S corporation taxation status.)
- Limited Liability Characteristics: The liability of shareholders is limited to their capital contribution.
- The S corporation does not pay taxes on its income. The shareholders pay taxes on the S Corporation income.
A corporation in NC is by default a “C” Corporation. An S Corporation is a tax designation you can apply for with the IRS.
Register Your Business
Once you have chosen how to structure your business, if it’s a sole proprietorship or general partnership, you’re not required to register with the North Carolina Secretary of State (unless you operate under an assumed name.)
However, with other business structures, you will need to register with the Secretary of State and pay a small fee. Depending on how you structure your business, you may also need to register with other state or local agencies.
If you plan to “Do Business As” (DBA) another name, you’ll need to check for availability of the desired business name. You’ll then complete the DBA Form with the Register of Deeds in the county where your business is located.
Obtain Business Licenses and Permits
Depending on the type of business you’re planning to run, you may need to obtain specific licenses and permits from the North Carolina Department of Commerce. For example, if you’re opening a restaurant or retail store, you will need a business license and other permits from the state’s office.
Some businesses, such as food services, daycare centers, construction companies, and retail stores, will likely require special licensing or permits.
You may also need to comply with local zoning laws and obtain additional licenses specific to your industry.
Taxes and Your Legal Business Entity Type
Once your business is up and running, you’ll need to pay taxes on both the state and federal level. You may also be required to register with the North Carolina Department of Revenue for an employer tax ID number or sales tax permit.
You’ll need to register your business at the federal level by getting a tax ID called an EIN (Employer Identification Number). An EIN is like a business social security number so that the IRS recognizes your business for tax purposes.
Applying for an EIN is simple and free. You can go to the IRS.gov site to apply online. After the IRS finishes validating your application, you’ll receive your EIN immediately.
If you hire employees, you’ll need to give them a W-4 and do your payroll through the Secretary of State site.
According to the Small Business Association, you may also need to file for licenses and permits with the Feds and the state. Find a list of what you may need in North Carolina:
Secure Funding and Open Your Business Bank Account
Starting a new business requires start-up capital – money to cover expenses such as office space rental and supplies, product inventories, licensing fees, staff salaries, and other costs associated with opening a business.
Consider these questions:
- How much money will you need for startup costs?
- How you will finance your business expenses?
- How much you can realistically expect to make in the first year?
- How much you will set aside for taxes and other expenses?
- How long it will take to break even?
Many business entities also need general liability insurance, professional liability insurance, commercial property insurance, or other umbrella business insurance to cover potential losses.
You may consider using credit accounts, family loans, and other types of financial assistance to get started. Or you can apply for small business loans or grants through local banks, credit unions, or the Small Business Association. Make sure to compare rates between different institutions and review their terms carefully.
Once you have secured funding, opening a business bank account is essential. This will help you keep track of your expenses and make it easier to manage your business’s finances. When setting up a business bank account, make sure to bring along all the required documents, such as the Articles of Incorporation and other forms of identification.
Also, get a business credit card if you plan to use it and build your credibility and reputation. With these steps completed and all your paperwork, licenses, and permits in order, you are now ready to start your business in North Carolina!
Get Started Now
Starting a business in North Carolina can be an exciting and rewarding experience. So if you’re ready to implement your business idea, talk with our experienced business attorneys at Hopler, Wilms, and Hanna.
We can help you consider everything, from choosing the right structure for your company to obtaining the necessary licenses and permits. So whether you’re just starting out or ready to take your business to the next level, get in touch to start building your own business!