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How To Start A Business In North Carolina

How To Start A Business In North Carolina

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How To Start A Business In North Carolina

How To Start A Business In North Carolina

Want to kick-start a small business in North Carolina but not sure where to begin? We’ve put together a straightforward guide to help you get started.

Our checklist breaks down the process into manageable steps by covering important steps like deciding your business’s structure, registering the name, handling licenses and permits, and more. With this guide, you’ll have everything you need to get your business up and running in no time.

Steps To Start A Business In North Carolina

Step 1: Choose a Business Idea

Starting a business in North Carolina begins with a big idea and figuring out what your business will do.

Do you already have an idea in mind, or are you still exploring options? Either way, we’ve got a helpful collection of business ideas for you to look at, where you’ll find information about different industries, how much it might cost to start, and helpful tips.

Step 2: Write a Business Plan

Once you’ve settled on a business idea, it’s time to create a business plan. Think of this plan as your personal roadmap. It helps you refine your business idea and guides you step by step as you make your dream a reality. This plan is also vital for working out how much money you’ll need to start and to check if your business idea is feasible.

Also, if you are going to need funding, a lender or investor will typically require you to submit one before they will consider providing funding.

Related: How to write a business plan

Step 3: Find the Money

After going through the business plan process, you should have an understanding of how much money it will take to make your dream a reality. It’s a good idea to know this number because funding a small business can be difficult.

Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs. Given the number of choices, it’s important to understand the various funding options available for new businesses.

One of the most common sources is by using personal funds. This could include savings, investments, or other financial resources. If personal savings isn’t enough, outside sources will be needed.

A common source of funding for businesses in North Carolina is traditional bank loans. These loans typically require a personal investment of 15%-25%, sufficient collateral, and pretty strict repayment terms and conditions.

The Small Business Administration (SBA) also offers loan guarantees for businesses in North Carolina. This program helps small businesses secure financing from traditional lenders by providing a government-backed guarantee on the loan amount.

In addition, microloan programs are available through organizations such as the Carolina Small Business Development Fund that provide small loans with fewer restrictions and flexible repayment terms to help entrepreneurs start their businesses.

Finally, investors are a source of funding for some businesses in North Carolina. Investors may provide capital in exchange for equity or debt securities or offer guidance and advice on running the business in exchange for a share of profits or an equity stake in the company.

Related: Understanding the different types of business funding

Step 4: Select a Business Structure

The next step to starting a business in North Carolina is selecting a business structure. The business structure is sometimes referred to as a business entity, which refers to how a business is legally organized to operate. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

sole proprietorship is an individual that decides to go into business. This is the easiest and least expensive of the four entities to set up, as there is no state filing. The ease of startup is a big selling point; however, a major downside to the sole proprietorship is that the owner is personally responsible for all debts and actions of the company. If the business is sued, the owner’s personal assets are potentially at risk. Another potential downside is that the owner will pay self-employment tax on all business profits, which may be more costly than some of the other business structures.

Related: How to start a North Carolina sole proprietorship

General partnerships consist of two or more people conducting a business together. Like the sole proprietorship, there is no formal state filing. Also, like the sole proprietorship, the partnership has unlimited liability. If the partnership were to be sued, the partner’s personal assets would be equally at risk. The partnership itself does not pay tax from business income. Instead, profits and losses are passed through to the owner’s personal tax return.

Related: What is a partnership?

corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners should the corporation be sued. The downside is the compliance requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, appointing a registered agent, filing the annual report, and more.

There are multiple ways a corporation can elect to be taxed, which include the C-corporation and S-corporation. Electing how the entity should be taxed is complicated, so be sure to talk with your CPA to make the right choice, as there is the potential of double taxation where profits and dividends are both taxed.

Related: How to form a North Carolina corporation

The Limited Liability Company (LLC) is a popular business structure because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have many of the same burdens a corporation has, plus it also has the greatest tax flexibility of the four entities.

Related: How to form a North Carolina LLC

Step 5: Register the Business

After setting up the business structure, the next phase is registering the business. Registration requirements in North Carolina vary depending on where the business is located in the state and what it does. Some common registrations include:

Business licenses: The state of North Carolina doesn’t have a general business license; however, many cities will require a business license to operate. 

Employer Identification Number (EIN): An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) for tax purposes. Partnerships, corporations, and most LLCs OR sole proprietorships with employees MUST register for an EIN. You can apply for an EIN at no cost through the IRS.

Sole proprietorships or single-member LLCs with no employees are NOT required to get an EIN. In these instances, the owner’s social security number is used to identify the business.

Sales & use tax number: Businesses selling products and certain services will need to register for a sales & use tax number from the North Carolina Department of Revenue.

Occupational licenses: Some occupations and professions, such as commercial fishermen, firearms trainers, fur dealers, barbers, and others, must be licensed by their respective boards before operating legally in North Carolina.

Business name registration: If you are a sole proprietorship or general partnership in North Carolina and doing business under your full first and last name, like John Smith, for example, there is no filing, but if the business will operate under a fictitious business name or DBA (Doing Business As) like John Smith’s Handyman Service, Mr. Handyman, etc., you will need to file for a Certificate of Assumed Business Name Registration, with the County Register of Deeds office in the county where the business is located. The business name must be different from other names in the county, and name availability can verified at the County Register of Deeds office.

Zoning: Before starting to operate a business (even if it’s home-based), be sure to check local zoning regulations before starting to operate out of a location.

Related: What business licenses and permits are needed in North Carolina?

Step 6: Open a Business Bank Account

When you start a business in North Carolina, opening a separate bank account for your business is the next step to cover. This helps keep your business money separate from your personal funds, making it easier to manage your business finances. It also simplifies things like tracking expenses, managing cash flow, and preparing for taxes. Most banks offer business checking accounts, but comparing the different options and understanding any fees involved is important.

Step 7: Hire Employees

As we are winding down our steps, you now may be wondering what steps you need to take to hire your first employee. The process of becoming an employer requires registering with several agencies. hiring an employee requires several steps, but with the right preparation, anyone can do it.

First, you should register with the North Carolina Department of Revenue and get your withholding tax number, which is used for deducting state income tax from your employee’s paychecks. Next, you’ll need to sign up with the North Carolina Division of Employment Security. This is important for handling unemployment insurance for your employees. Last, you’ll register with the Internal Revenue Service (IRS) to get your Employer Identification Number (EIN). The EIN is used for payroll tax reporting and other official documents you’ll need to handle as an employer.

Related: Steps to hiring your first employee in North Carolina

Step 8: Obtain Business Insurance

Another important step for small business owners in North Carolina is understanding the importance of having the right insurance coverage. Without it, they could be exposed to a variety of risks that could have devastating financial consequences. From property damage to liability claims, having the right insurance can help protect the owners, the business, and its assets.

Most types of business insurance are optional, except for workers’ compensation insurance in most states. In North Carolina, the state’s Workers’ Compensation Act requires that all businesses that employ three or more employees obtain coverage. This coverage provides financial assistance to employees who are injured or become ill due to work-related activities.

Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket damages and legal fees. Home-based businesses and side businesses may also want to consider business insurance as personal home and vehicle policies may not cover a business-related loss.

Related: Types of insurance your business may need

Step 9: Track Income and Expenses

The last step in our guide is tracking income and expenses. There are specific federal and state requirements regarding how businesses must handle their finances. For example, businesses must maintain accurate records of all transactions and keep them for at least three years after the end of the tax year in which they occurred.

It doesn’t matter if you prefer the old-school method with pen and paper, a simple spreadsheet, fancy accounting software, or even if you decide to hire someone to handle your books. The main thing is to have a clear and accurate way to keep track of all the money your business makes and spends. If your financial records are messy or wrong, you could face trouble like penalties or extra attention from tax folks. Keeping everything in order from the start helps you avoid these problems so your business runs smoothly.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in North Carolina

What are the steps to starting an LLC in North Carolina?

There are three main steps to starting an LLC in North Carolina. These include:

1. Making sure the LLC name is available
2. Appointing a North Carolina Registered Agent
3. Filing the Articles of Organization

For more details, check out our guide on how to start an LLC in North Carolina.

How much does it cost to start an LLC in North Carolina?

The cost to start an LLC in North Carolina is $125 to file the Articles of Organization with the North Carolina Secretary of State.

Does a sole proprietor need a business license in North Carolina?

In North Carolina, whether a sole proprietor needs a business license depends on the type of business and where it’s located, not on the business structure.

There isn’t a statewide general business license for sole proprietors, but certain businesses may require specific permits or licenses. These requirements can vary based on the industry, such as for food services, healthcare, or construction.

North Carolina Small Business Resources

There are 1 million small businesses in North Carolina, which is 99.6% of all businesses in the state,1 and 44.5% of North Carolina employees work for a small business.2 Because of the economic impact of small businesses, there are a number of small business resources to help North Carolina businesses start and grow. Some of these include:

Sources

  1. Small Business Administration ↩︎
  2. Census Bureau ↩︎

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Business In North Carolina

How To Start A Business In North Carolina

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