North Carolina LLC
Advantages Disadvantages

North Carolina LLC Advantages Disadvantages

North Carolina LLC:

Your North Carolina LLC formation shows a commitment to establishing a legal presence within the state, according to LLC formation filing guidelines. The next most important benefit when you form an LLC in North Carolina is that you and your
members will qualify under state and federal law for the protections associated with indemnification from corporate liability. A North Carolina LLC formation effectively separates your personal assets such as bank deposits, securities, auto, real property from the potential future LLC corporation creditor actions to lien, attach or liquidate assets in respect of a court order

North Carolina LLC Advantages Disadvantages

Should I form a North Carolina LLC

An North Carolina LLC satisfies a necessary condition of your business planning developement in that it meets the requirement that you establish a legal form of organization in order to gain the statutory benefits and protection available in North Carolina to your LLC. Your North Carolina LLC establishes a legal presence within the state, which you can use either as a platform for in-state operations or by registering your North Carolina LLC via your agent's physical address in order to meet the purely statutory requirement for tax and filing purposes absent an in state operation.

North Carolina LLC Advantages Disadvantages

Advantages of LLC

  • Pass through taxation - under the default tax classification, profits taxed at the member level, not at the LLC level - no double taxation.

  • Limited liability - the members (owners) of the LLC, are protected from liability for acts and debts of the LLC.

  • An LLC can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing the correct option for your business.

  • Can be set up with just one natural person involved or, in some states, one owner which may be an business itself.

  • No requirement of an annual general meeting for shareholders (in some states, such as Tennessee and Minnesota, this statement is not correct).

  • No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board).

  • LLCs are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death.

  • Much less administrative work and recordkeeping.

  • Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest.

North Carolina LLC Advantages Disadvantages

Disadvantages of LLC

  • Earnings of most members of an LLC are generally subject to self-employment tax. By contrast, earnings of an S corporation, after paying a salary to the shareholders working in the LLC, can be passed through as distributions of profits and are not subject to self-employment taxes.

  • Since an LLC is considered a partnership for Federal income tax purposes, if 50% or more of the capital and profit interests are sold or exchanged within a 12-month period, the LLC will terminate for federal tax purposes.

  • If more than 35% of losses can be allocated to nonmanagers, the LLC may lose its ability to use the cash method of accounting.

  • An LLC which is treated as a partnership cannot take advantage of incentive stock options, engage in tax-free reorganizations, or issue Section 1244 stock.

  • There is a lack of uniformity among LLC statutes. Businesses that operate in more than one state may not receive consistent treatment.

  • In order to be treated as a partnership, an LLC must have at least two members. An S corp can have one shareholder. Although all states allow single member LLCs, the business is not permitted to elect partnership classification for federal tax purposes. The business files Schedule C as a sole proprietor unless it elects to file as a corporation.

  • Some states do not tax partnerships but do tax LLCs.

  • Minority discounts for estate planning purposes may be lower in a limited liability company than a corporation. Since LLCs are easier to dissolve, there is greater access to the business assets. Some experts believe that LLC discounts may only be 15% compared to 25% to 40% for a closely-held corporation.

  • Conversion of an existing business to LLC status could result in tax recognition on appreciated assets

By North Carolina and other state law in order to proceed with forming a llc, you need to prepare a written abstract detailing your llc purpose, the names of your initial North Carolina LLC members, the name and address of your North Carolina registered agent, the details of which will be introduced into the body of your LLC operating agreement and related North Carolina LLC formation documents assembled for application to the state of North Carolina.

North Carolina LLC Advantages Disadvantages

North Carolina's 2011 Business Tax Climate Ranks 41st

North Carolina ranks 41st in the State Business Tax Climate Index. The Index compares the states in 5 areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property.

North Carolina's Individual Income Tax System

North Carolina's personal income tax system consists of three brackets, with a top rate of 7.75% kicking in at an income level of $60,000. Among states imposing personal income taxes, North Carolina's top rate ranks 12th highest nationally. North Carolina's 2006 income tax collections were $1,079 per person, which ranks 13th highest in the nation.

North Carolina's Corporate Income Tax System

North Carolina's corporate tax structure consists of a flat 6.9% rate. Among states levying corporate income taxes, North Carolina's top rate ranks 27th highest nationally. In 2008, state-level corporate tax collections (excluding local taxes) were $132 per capita, ranking the state the 26th highest nationally.

North Carolina Property Taxes: Comparatively Low

North Carolina's localities collected $796.12 per capita in property taxes in fiscal year 2006, which is the latest year the Census Bureau published state-by-state property tax collections. North Carolina is one of the 13 states that collect no state-level property taxes. Its per capita property tax collections in FY2006 rank 38th nationally.

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