STARTING A COMPANY

The Nuts and Bolts of Forming a Business in North Carolina

Building a good legal foundation is a crucial part of starting a business. The major legal components include the following:

  • entity choice
  • filing with the Secretary of State
  • founding documents

Should I form my business as an LLC or a corporation?
One of the first legal decisions a business must make is choosing the right type of entity to form. LLCs, partnerships, S-corporations, and C-corporations all have various pros and cons.

Each entity type offers varying degrees of flexibility. Making the wrong choice could lead to unforeseen negative tax consequences or require a costly conversion to the right type of entity down the road. Selecting the wrong entity type for your company could even hamper your ability to raise capital down the road.

Spengler & Agans can help make sure your company selects an entity that fits your unique needs and vision.

What forms do I file with the NC Secretary of State?
The entity choice determines the specific document that you must file with the Secretary of State. For example, in North Carolina, you file “Articles of Organization” to form an LLC and “Articles of Incorporation” to form a corporation. It is critical that you file your organizational documents and receive notice back from the Secretary of State before your company begins operations, in order to enjoy limited liability protections.

Guidance from an experienced business attorney may be helpful if you have never formed a company before, or if you need to form a company quickly (i.e., on an “expedited” basis).

What legal documents are needed to start a company?
Each type of entity has a standard set of formation documents. An operating agreement and a buy-sell agreement are the main foundational documents for an LLC. For a corporation, the main documents include corporate bylaws, consent of sole incorporator, initial action by board of directors, and stock purchase agreements, among others. The process of drafting founding documents should facilitate difficult (but important) conversations among owners surrounding equity and decision-making authority.

These documents may not come into play when things are going smoothly, but they can be absolutely crucial in the event of any of what I call the 5 Ds:

  • Disagreement
  • Death
  • Divorce
  • Disability
  • Departure
  • ….and, Bankruptcy, but that doesn’t fit the 5 Ds rule!

Nobody wishes for the 5 Ds (or Bankruptcy), but strong formation documents are needed to help your company plan for the worst.

Additional Considerations
Depending on the location and type of business, you may need a license or permit to operate your new company. It’s also a good idea to talk to a CPA and insurance person as you begin the process of launching your new business.

At Spengler & Agans, we’re happy to help connect you with other professionals who can provide guidance in these areas.

A good business lawyer will make sure you cover all of you bases, not just the legal ones.

CONTINUE EXPLORING