The time has come for your Charlotte-based business to become a fully fledged corporation. It’s a wonderful feeling knowing that you can go from being a sole proprietor to a corporation. But now you need to figure out which one is right for your business. Do you go with an LLC? S-corp? C-corp? It’s not easy determining which corporate structure you need because each has a different structure and operating rules that might be too much or not enough for the kind of business you operate. This is where you should turn to a Charlotte, NC business accountant and get help picking the right corporation for you.
A Brief Overview of the Corporate Structures in North Carolina
North Carolina recognizes the creation of several types of corporate structures. They include:
- Sole Proprietorship
- General Partnership
- S- and C-Corporation
- Limited Liability Company (LLC)
- Limited Partnership
Each of these corporation types have different income and tax structures. A sole proprietorship is one where the business income gets taxed at the personal income rate while a C-corporation taxes the income at a corporate rate, but any distributions to individuals are taxed again, creating a double taxation issue. An S-corporation has no such issue, but there may be a good reason to enter into a C-corporation. You should talk to a Charlotte, NC business accountant for help with determining which corporate structure is best for you and your business. What sounds good on the surface may not be so beneficial to your business once it’s put into practice.
Why Incorporating is a Good Idea
You may have been operating as a sole proprietor for some time and doing fine with it. But if your income or profits increase substantially, you’re going to wind up paying more in taxes. And you’re personally liable for any lawsuits that are filed against you which means someone could strip of your profits and assets if they prevail in court. When you incorporate, you minimize the impact of taxes on your profits and you can’t be held personally liable in a lawsuit.
There is also a removal from responsibility for debts incurred by the business. If the corporation gets into debt and it can’t pay it, the officers of the corporation can’t be held liable for their repayment. The creditor has to seek payment from the corporation, and if the corporation can’t pay, the creditor can’t go after the officers of the corporation on a personal level for repayment.
Incorporation offers other benefits in that you can get an employer identification number (EIN) which protects your Social Security number. It’s also used for reporting taxes to the IRS on behalf of the business and any employees you hire. And you can take advantage of better tax rates on the business income, depreciation for equipment, and deduct business expenses prior to distributing profits to shareholders.
Getting Help From an Accountant for Incorporating
An accountant can help you determine which corporate structure is the right one for your business needs and explain the differences between each type, how it affects income and profits, and what the IRS and state of North Carolina expect from you when you’re formally considered a corporation.
The act of incorporation is a little complex. You need to name the officers of the corporation, a registered agent who receives documents and papers on your behalf if you’re unavailable, and you have to determine who gets how many shares if you’re incorporating with more than one person. And all of the paperwork has to be filled out correctly, signed by all relevant parties, then submitted to the state and IRS for acceptance and registration. If any of the paperwork isn’t filled out correctly, it will be rejected and sent back to you for corrections. If time is of the essence, you need to get the papers filled out right the first time and that’s something a North Carolina business accountant does for you.