Deciding to start a business is a major undertaking, ripe with plenty of opportunities for personal and professional growth. But it’s also a challenging time, considering that so many new companies fail in their first few years of operation. Proper business formation can set your organization on the path to success and ensure it is compliant with applicable laws and regulations. If you’re planning to start a company, turn to Patrick, Harper & Dixon’s trusted Business Transactions & Corporate Law team.
Common Business Formation Issues
Before you open your doors or begin selling goods and services, it’s essential to address a number of legal issues. Failure to do so at the initial stages could expose your company to liability and result in avoidable losses. Our attorneys regularly counsel new businesses on the following matters:
Legal entity selection
How will you organize your business: as a corporation, a partnership, or a limited liability company? These are among the most common legal entities that new companies choose, and each has its own advantages and drawbacks. For example:
Corporation
Advantages: shields its owners from personal liability; ability to raise capital by selling shares of stock; pass-through tax benefits with S corporations
Disadvantages: numerous record-keeping and reporting requirements; annual and ongoing fees; possible double taxation with C-corporations
Partnership
Advantages: shared responsibility with other partners; shared financial burdens in starting a new company; pass-through tax treatment; ability to limit personal liability
Disadvantages: possible liability for the actions of other partners; high risk of interpersonal conflict and conflicts of interest; reduced individual profits due to sharing with other partners
Limited Liability Company
Advantages: shields its owners from personal liability; pass-through tax benefits; fewer formalities than a corporation
Disadvantages: LLC members may be considered self-employed and pay self-employment tax on all profits; LLC funds must be kept separate from personal funds to maintain liability protection; required forms and filing fees
We help owners decide which of these (or other) entities are best, taking into consideration such factors as the nature of their business and their objectives.
Registration and structure of the business.
After the legal entity is chosen, the company will need to be prepared to operate. This generally means taking steps to register the business with the North Carolina Secretary of State and set up corporate governance documents.
Corporations, limited liability companies, and partnerships must register with the NC Secretary of State before conducting business. Certain forms must be filled out and submitted along with required attachments. Depending on the type of legal entity your business has, there may be annual reports to file.
Corporate governance documents determine how the company will be organized and run. These instruments help protect your rights as an owner and spell out who will be in charge of making important business decisions. Among the documents your business may need are:
- Articles of incorporation
- Corporate bylaws and amendments
- Operating agreements
- Partnership agreements
- Shareholder agreements
Our Business Transactions & Corporate Law attorneys are well-versed in the process of registering your business and in negotiating, drafting, and executing its corporate governance documents.
Tax issues
Setting up a business means following certain regulations set forth by the IRS and the North Carolina Department of Revenue. If your business has employees, it is required to withhold employment taxes (income taxes, Social Security, and Medicare). You can also expect to pay estimated taxes. More generally, it’s important to know the tax rates that apply to your business and how pass-through tax rules may affect it. Taxes are complicated, but you can count on our experienced lawyers to simplify them for your organization.
Insurance
Having insurance not only makes good business sense but some policies are also required by law. Every business is different, so the insurance policies a company should have, along with the suggested coverage amounts, will vary. These are a few policies to discuss with an attorney:
- Workers’ compensation insurance: this is required for North Carolina businesses employing at least three people
- Premises liability insurance: this will protect you against accidents that occur on your business property
- Commercial automobile insurance: this is necessary if your business owns and operates any company vehicles
- Business income insurance, also known as business interruption insurance: this covers lost income due to property damage
- Professional liability insurance, e.g. malpractice insurance, for certain professions
- Data breach insurance, especially for companies that handle large amounts of sensitive customer information
We can advise your company on the insurance coverages it must have, along with policies that are strongly recommended.
Contracts
Your company will inevitably form business relationships with third parties and individuals within your organization. Having effective and comprehensive contracts in place is essential to protect your rights and mitigate risks. There are numerous contracts you may need, depending on the type of company you are starting, such as:
- Manufacturing contracts
- Supplier and vendor contracts
- Bank loan and line of credit contracts
- Non-compete contracts
- Non-disclosure contracts
- Employment contracts
- Real estate purchase agreements
- Commercial property lease agreements
- Intellectual property licensing contracts
Our attorneys regularly negotiate, draft, and modify contracts for our business clients. We also defend businesses in contract litigation cases.
Regulations and compliance
Depending on which industry you’re in, specific state and federal regulations may apply to it. Compliance with these rules is essential to avoid civil penalties and potentially devastating lawsuits. We will walk you through the regulatory environment in which you operate and help ensure your business complies with the law.
Contact Our Hickory Business Formation Attorney
These are just some of the things you will need to do as you begin your business. At Patrick, Harper & Dixon, our priority is helping you take care of legal matters so you can focus on the operation of your business. Are you ready to start a new company? Talk to Patrick, Harper & Dixon’s business formation attorney today.
