A Brief Guide to North Carolina Business Classifications

As you look at expanding the boundaries of your professional life, you could be looking at merging enterprises or outright purchasing another company. Before making any moves, it is advisable to have a solid understanding of the types of business entities at your disposal. This blog lays out some common classifications you may encounter in North Carolina. 

Sole Proprietorship

If you plan on owning and operating your business alone, a sole proprietorship may be the easiest and most convenient option for you. You and the business are essentially the same entity—the money you bring in belongs exclusively to you and the business’s debts and liabilities are your full responsibility.

General Partnership

When two or more people decide to open a business, they may opt to establish a general partnership. Profits, losses, and obligations are distributed equally among all parties. Each party is liable for their own actions, as well as those of their partners. A general partnership is a pass-through entity, so the business itself does not pay income tax; partners pay tax on their income.

Limited Partnership

This option is similar to a general partnership. In this type of business, at least one partner does not have any management control and is only in the business for investment purposes. They are entitled to income from the business and limited liability.

Limited Liability Partnership

All partners have management control in the business and have limited liability if the business is sued. Limited liability partnerships must register with the Secretary of State.

Corporation

If you establish a corporation, your business is an entity that is completely separate from you, your partners, and stockholders. This business option protects you from personal liability for the company’s lawsuits. Depending on the structure of your business and your goals, you may create an S-corporation or a C-corporation. While S-corporations are not held to corporate tax rates, shareholders who work for the company must pay themselves reasonable compensation. In a C-corporation, the company has its own tax rate and dividends paid to shareholders are taxed as income at the personal level.

Limited Liability Company

Many choose to go the route of an LLC, or a limited liability company. An LLC is legally separate from its owners. Those who create a limited liability company have limited personal liability for the actions of the company and receive special tax treatments that prevents the double taxation experienced by corporation owners.

Conclusion

Knowing the right business classification for your startup, second business, or target company is crucial for your success 5, 10, and 20 years down the road. If you ever need professional guidance for your next business venture, don’t hesitate to reach out to Soterian today! Get in touch with us here, and don’t forget to get your Value Builder Score before you call.

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At Soterian, our goal is to help business owners like you think bigger. Bigger than today, bigger than your business, bigger than yourself.

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