Business Formation FAQs
The documentation required for starting a business can be complex, so it’s useful to have a business lawyer in Raleigh NC assisting you.
1. What is an LLC?
A limited liability company (LLC) is an unincorporated entity that is a cross between a corporation and a partnership with certain advantages of each of them. The owners are referred to as “members” and the company can have from one to an unlimited number of members. Members can be natural persons, sole proprietorships, corporations or any other form of entity whether for-profit or nonprofit.
An LLC can also be defined by comparing it to other business entities. An LLC is similar to:
- a general partnership with limited liability;
- a limited partnership where all owners can participate in management and still retain their limited liability protections;
- an S-corporation without the ownership, distribution, voting and tax restrictions; or
- a sole proprietorship with owner’s liability protection.
All of these entities require business formation, and there are more LLCs formed than any other entity, as they are regularly used for estate and gift planning, real estate development and holding, asset protection, joint ventures and family businesses, among many other purposes.
2. How many people are required to form a limited partnership?
Two or more (one limited partner and one general partner).
3. Can I change my articles of organization after they have been filed?
Yes, the articles of organization can be amended by simply filing a form with the NC Secretary of State’s office. The articles of amendment must be signed by a company official, or if there are no company officials, by an organizer of the company. Only one signature is required and we do not require a company seal or notarization on articles of amendment. Hannah Sheridan & Cochran, LLP (HSC), is a business lawyer in Raleigh NC that can assist you in filing Articles of Amendment.
4. Who are the key parties to a corporation?
Corporations are comprised of shareholders, directors, and officers. Shareholders own the company. Directors guide the company by making long-term strategic decisions, while officers make certain that the day-to-day work of a corporation is properly completed.
5. Who are the key parties to a limited liability partnership?
Partners and those business owners who share in company profits and losses.
6. Does a limited liability company pay income tax?
Generally, no. A limited liability company is classified as a pass-through entity by default. Unless the owners elect otherwise, the LLC itself will not pay tax. Instead, the profits and/or losses of the company are “passed through” the company to the owner’s individual tax returns.
7. Am I personally liable as a business owner for the debts of a registered corporation?
Generally, no. The largest benefit of filing a business entity, such as a corporation, exists in the protection from personal liability for business owners from corporate debt. This concept is called the corporate veil. Business owners should be careful to arrange business dealings under their business entity and be cognizant that personal guarantees bypass the corporate veil.
8. Does the corporate veil provide a business owner absolute protection from corporate debts?
No. If a business owner operates his or her company improperly, a claim for piercing the corporate veil may exist. To pierce the corporate veil, North Carolina case law establishes that a business creditor may recover against a business owner by establishing three elements:
- Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked, so that the corporate entity has no separate mind, will or existence of its own;
- The control is used by the individual to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty or a dishonest and unjust act in contravention of plaintiff’s legal rights; and
- The control and breach of duty is the proximate cause of the plaintiff’s injury or unjust loss.
If you’re starting a business and need help with business formation requirements, please contact the lawyers at Hannah Sheridan & Cochran, LLP, at 919-859-6840.