North Carolina LLC or Corporation
Limited-liability companies and business corporations are the two most popular entity structures. This is because both business structures offer flexibility and several other benefits to their owners, members, and directors among others. The cost to form a North Carolina Corporation or LLC is also lower as compared to several other states such as New York, South Carolina, Texas, and Massachusetts among others.
Which business entity should I choose for my North Carolina business?
North Carolina has one of the best locations, transportation advantages, robust infrastructure, educational institutions, and an exceptional workforce among others. These factors play a key role in determining the growth of a new business just as much as the cost to form a North Carolina LLC or a corporation does. When choosing an entity structure, it is important to take into consideration the fact that each entity structure has advantages and disadvantages. Some of these benefits and drawbacks can have a significant impact on the annual maintenance cost of a North Carolina Corporation or even impact other aspects of the business like ownership control and legal liability. Let’s look at some of the decisive elements of a business structure:
- Taxation – One of the decisive factors in choosing a certain business structure is how the company will be taxed. If you look at the LLC vs Corporation in NC for a comparative analysis then you will find that the tax treatment is different for either entity structure. An LLC is considered a pass-through entity and hence the company doesn’t pay taxes on the business income. Corporations are subject to double taxation which includes Federal and state corporate income taxes as well as taxes on personal income like dividends and gains earned by shareholders.
- Funding – The cost to form a North Carolina Corporation is a small part of the total finances required by a new business to reach a sustainable stage. Every small business, startup, or medium enterprise requires funds to move from the initial formation stage to the brand-building and customer delivery phase. It is easier for corporations to get capital investment from VCs and other private funding sources vis-à-vis LLCs and other business structures.
- Limited Liability Protection – One of the most important aspects to consider when comparing an LLC vs a Corporation in NC, is limited liability protection. Liability protection helps with keeping the personal assets of owners and investors safe, thus avoiding any personal liability towards the debts of the said company.
- Complexity – There are several types of business structures that you can choose to form. For some, the formation and operational process is simple, and for others, it can be a complex process.
Pros and Cons of Forming an LLC or Corporation in North Carolina
The overall cost to form a North Carolina LLC or a corporation is dependent on several factors. These can be considered advantages for particular entity structures. If you are unable to choose between an LLC and a corporation, then the pros and cons of each structure may help you make the right decision. It is recommended to always recognize the various assets and liabilities of any given structure. Let’s look at a comparative analysis with a focus on a North Carolina LLC’s cost per year versus that of a corporation.
Pros of an LLC or Corporation
- Limited liability is applicable for all employees, members, directors, shareholders, and officers in either structure
- If you incorporate in North Carolina then you can benefit from an unlimited amount of shareholders
- The overall cost to form a North Carolina LLC is lower than a corporation as there are fewer regulations and less paperwork
- Both LLCs and C-Corporations can elect S-corporation tax status
- A Limited Liability Company does not have a rigid management structure
- A business corporation enjoys perpetual life
- The forming cost for a NC Corporation is lower than that of an LLC when it comes to filing annual reports.
Cons of an LLC or Corporation
- The cost to form a North Carolina Corporation is higher than that of an LLC
- When it comes to taxes, the annual maintenance cost of a North Carolina Corporation is higher as it undergoes double taxation
- In North Carolina, an LLC will be subjected to a self-employment tax
- In a corporation, shareholders will not be able to write off any business losses on their personal income statement
- The forming cost for a NC Corporation is higher as there is more paperwork involved and complex processes to make the company operational.