Organizational Form

Choice of Organizational Form
North Carolina Charter (Corporations Only)
Partnerships & Proprietorship Formations

Choice of Organizational Form

Among the myriad of decisions that new businesses must make is that of the choice of form for the organization. There are three classic organizational forms; corporations, partnerships, and proprietorships. Recent legal recognition of LLC's (limited liability companies) and LLP's (limited liability partnerships) add to the variety, flexibility, and complexity of available organizational forms. Each organizational form has unique tax, legal, and economic attributes.

Comment: The choice of form most often requires prioritizing operational matters that the particular business will undertake, and then selecting the best overall organizational form.

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North Carolina Charter (Corporations Only)

If the choice of organizational form is a corporation, then the next step is to become chartered (i.e. authorized) to do business in the State of North Carolina. The process of becoming chartered requires filing of Articles of Incorporation with the North Carolina Secretary of State. This document must comply with North Carolina's General Statute 55-2-01.

The Secretary's office issues a free publication entitled A Guide To Incorporating Your Business. This brochure presents information on various corporate matters including:

Filing procedures and fees
Trademark and service mark registration
Business licensing
Draft forms

At each calendar year-end an Annual report must be filed. This filing discloses the registered agent, officers and directors of the corporation, and their respective addresses, and is integrated into the corporate income tax return. An annual minimum fee of $20 is required with the report.

Subsequent to obtaining the approved Articles of Incorporation, certain legal matters must be addressed and certain optional legal matters should be considered. For instance,

Drafting and approval of ByLaws
Capitalization and issuance of stock
Approval of Minutes of Board of Directors meetings
Minutes of Shareholders' meetings
are all required legal items. Optional legal items include;
Buy-Sell Agreements
Stock Option Agreements
Other Contract and/or Agreements
It is strongly advised that the assistance of an attorney practicing corporate law be engaged to address these matters.

Any corporation engaged in business in North Carolina using a name other than its legal name must file a Certificate Of Assumed Name For A Corporation in the county or counties where business is being conducted.

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Partnership & Proprietorship Formation

Unlike the formality required for corporate formation, partnership and proprietorship formation can be significantly less rigid. Partnerships and proprietorships can come into existence by any action that could be described as that of "doing business". For instance, establishment of a business checking account would constitute a business act.

It is considered prudent for a Partnership Agreement to be drafted and agreed upon by all the partners. This document addresses various matters, such as:

Business purpose and objective
Ownership percentages
Operational responsiblities and duties
Limitations on actions of partners or officers
Profit & loss sharing percentages
When and how dissolution will be handled
Obviously this document requires the assistance of an attorney.

For both partnerships and proprietorships it is required that a document titled Certificate Of Assumed Name For Sole Proprietorship Or Partnership be filed at the Register of Deeds office in the county or counties in which it is doing business. A fee of $8.00 is charged in Catawba County.

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