It’s Business, And It’s Personal

Avoid risks by properly setting up business entities in North Carolina


There are many risks associated with failing to properly set up a business entity and compliance is easy with legal assistance.

Buying or setting up a business in North Carolina can be quite fulfilling and financially rewarding. However, most people know that business ownership can come with risks. Addressing and taking steps to avoid those potential risks can be accomplished through the creation of a formal entity.

Risks to avoid

Properly executing the necessary paperwork and filing the correct documents with all the right governmental agencies are crucial steps, which must be taken to create your entity legal. Additionally, some types of entities require annual filings and regular meetings in order to avoid appearing like a front for personal dealings only.

  • Personal liability: The most common reason for creating a formal entity is protection from personal liability. If a corporation or LLC is properly created and a business dispute arises, creditors or litigants may only pursue the assets of the entity, not the personal assets of the owners or operators. Personal assets can include residences, retirement accounts, personal income and savings accounts.
  • Internal disputes: Initial set-up documents – such as buy-sell, shareholder and partnership agreements – often determine how internal disputes will be handled and can help you set the tone of business operations.
  • Failure of continuity: In the event a co-owner or partner leaves the business – maybe due to retirement, illness or death -, the formal structure of the entity and the associated documents created at the time of set-up can allow the business to continue without a hiccup.
  • No separation: Failure to distinguish the business from the individuals who own or operate it can create confusion with marketing, branding and decision-making. A lack of separation may also negate the formal structure created and expose individual owners to personal liability.

Common types of business entities

When starting a business in North Carolina, it is important to choose the type of entity that best serves your business needs. There are varieties of business structures available in the state and a number of factors determine which form is best to use. Following are brief descriptions of common entity types:

  • A sole proprietorship is the easiest form to use, as it does not require formal documentation. However, the owner is personally liable in the event of a lawsuit against the business.
  • A corporation offers a high level of personal protection in most instances but is a more formal entity, subject to restrictions, varying tax treatments and sizes depending on the type of corporation formed.
  • A limited liability corporation (LLC) is a more flexible type of entity than is a corporation, but still provides protection from personal liability.
  • There are various types of partnership forms available in North Carolina – such as general, limited and limited liability partnerships -, each offering differing levels of liability protection and control of business operations.

The steps required with setting up a business entity in North Carolina far outweigh the risks associated with failing to do so. When deciding which type of entity you should create, consult an experienced business attorney. A lawyer knowledgeable about entity creation and risk avoidance can help.

Keywords: business law, business entities, setting up businesses