LLC vs S-Corp in North Carolina


Steve Bennett
Steve Bennett
Business Formation Expert
Steve runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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LLC vs. S Corp in North Carolina

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in North Carolina. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in North Carolina. Before you start North Carolina LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with North Carolina LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in North Carolina.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in North Carolina?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in North Carolina gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in North Carolina?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in North Carolina?

In North Carolina, forming a business is crucial since you need to be adequate in your decision, especially when you think if North Carolina LLC or an S-Corporation in North Carolina is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in North Carolina doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

LLCBuddy Editorial Team

Tax Difference Between North Carolina LLC and S-Corp in North Carolina

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in North Carolina is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in North Carolina. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in North Carolina are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in North Carolina are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in North Carolina to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in North Carolina with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a North Carolina S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

North Carolina State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in North Carolina, it costs $200 that can be paid to the ND Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $125.

On the other hand, you also need to pay taxes if you form an S-Corporation in North Carolina; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the ND Secretary of State to pay this.

How do North Carolina LLCs and S-Corporations Handle Liability Protection?

In North Carolina, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in North Carolina. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in North Carolina.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your North Carolina LLC or North Carolina S-Corp.

Which is Easier to File in North Carolina: LLCs or S-Corporations?

Filing an LLC or S-Corporation in North Carolina takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by North Carolina Registered Agent. However, in order to establish an LLC in North Carolina, you must submit a Articles of Organization to the North Carolina Secretary of State. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the North Carolina S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in North Carolina because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in North Carolina, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In North Carolina, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

FAQs

What is the difference between an LLC and an S-Corp in North Carolina?
An LLC in North Carolina is a business structure that provides limited liability to its members, meaning the members cannot be held personally liable for the debts of the LLC. An S-Corp is a tax designation that allows the business to be taxed as a corporation for federal tax purposes, but the business itself is not considered a distinct legal entity.
Is an LLC in North Carolina required to pay taxes?
Yes, an LLC in North Carolina is required to pay taxes on any income earned within the state. The specific taxes and filing requirements will vary depending on the type of business structure and the number of members of the LLC.
Are there any additional fees associated with setting up an LLC in North Carolina?
Yes, an LLC in North Carolina must pay a filing fee when filing Articles of Organization with the Secretary of State. The fee is based on the number of members of the LLC.
What is the minimum number of members required to form an LLC in North Carolina?
The minimum number of members required to form an LLC in North Carolina is one.
Is an S-Corp in North Carolina required to pay taxes?
Yes, an S-Corp in North Carolina is required to pay taxes on any income earned within the state. The specific taxes and filing requirements will vary depending on the type of business structure and the number of members of the S-Corp.
Are there any additional fees associated with setting up an S-Corp in North Carolina?
Yes, an S-Corp in North Carolina must pay a filing fee when filing Articles of Incorporation with the Secretary of State. The fee is based on the amount of authorized capital stock.
What is the minimum number of members required to form an S-Corp in North Carolina?
The minimum number of members required to form an S-Corp in North Carolina is one.
Can an LLC in North Carolina elect to be taxed as an S-Corp?
Yes, an LLC in North Carolina can elect to be taxed as an S-Corp by filing an election with the Internal Revenue Service.
What are the tax benefits of an LLC vs an S-Corp in North Carolina?
An LLC in North Carolina offers members the advantage of pass-through taxation, meaning the profits and losses of the business are passed through to the members and taxed at the individual level. An S-Corp in North Carolina offers members the advantage of being taxed as a corporation for federal tax purposes, allowing the business to pay taxes at a lower rate than individual members.
Are there any special requirements to form an LLC or an S-Corp in North Carolina?
Yes, an LLC or an S-Corp in North Carolina must comply with the state’s filing and registration requirements. The specific requirements will vary depending on the type of business structure and the number of members.
Are there any restrictions on the type of business an LLC or S-Corp can operate in North Carolina?
No, there are no restrictions on the type of business an LLC or S-Corp can operate in North Carolina. However, some businesses may require additional licenses or permits in order to operate legally in the state.
Are there any advantages to forming an LLC over an S-Corp in North Carolina?
An LLC in North Carolina offers members the advantage of pass-through taxation, meaning the profits and losses of the business are passed through to the members and taxed at the individual level. An S-Corp in North Carolina offers members the advantage of being taxed as a corporation for federal tax purposes, allowing the business to pay taxes at a lower rate than individual members.
What are the differences between an LLC and an S-Corp in North Carolina?
The primary differences between an LLC and an S-Corp in North Carolina are taxation, ownership, and paperwork. LLCs are taxed as pass-through entities, while S-Corps are subject to double taxation, where the business is taxed as a separate entity and then the shareholders are taxed on their dividend income. LLCs also have fewer ownership restrictions than S-Corps, which have stricter rules on ownership and require formalities such as holding annual meetings and keeping meeting minutes. Lastly, LLCs require less paperwork than S-Corps, which must file articles of organization, adopt bylaws, and submit an annual report to the Secretary of State.
What are the advantages of forming an LLC in North Carolina?
The advantages of forming an LLC in North Carolina include
What taxes does an LLC in North Carolina have to pay?
An LLC in North Carolina is subject to federal and state income taxes, as well as self-employment taxes. The LLC may also be liable for other taxes, such as sales and use taxes, depending on the type of business.
What paperwork is required to form an LLC in North Carolina?
To form an LLC in North Carolina, you must file a Certificate of Formation with the North Carolina Secretary of State. The Certificate must include the LLC’s name, address, purpose, and the name and address of a registered agent. You must also submit an initial report to the Secretary of State, and you will be required to file an annual report each year.
What are the requirements for forming an S-Corp in North Carolina?
To form an S-Corp in North Carolina, you must file articles of organization with the North Carolina Secretary of State. Additionally, you must hold and document annual meetings, adopt bylaws, and submit an annual report to the Secretary of State. Additionally, S-Corps must have at least one shareholder and cannot have more than 100 shareholders, and all shareholders must be individuals and not other corporations or LLCs.
Does North Carolina require an LLC to have a registered agent?
Yes, North Carolina requires LLCs to have a registered agent. The registered agent must be a resident of North Carolina and must have a physical address in the state.
What are the filing requirements for an LLC in North Carolina?
LLCs in North Carolina must file Articles of Organization with the North Carolina Secretary of State. The LLC is also required to pay an annual registration fee.
What are the advantages of forming an S-Corp in North Carolina?
An S-Corp in North Carolina offers limited liability protection, pass-through taxation, and the ability to pay salaries to owners.
Does North Carolina require an S-Corp to have a registered agent?
Yes, North Carolina requires S-Corps to have a registered agent. The registered agent must be a resident of North Carolina and must have a physical address in the state.
What are the filing requirements for an S-Corp in North Carolina?
S-Corps in North Carolina must file Articles of Incorporation with the North Carolina Secretary of State. The S-Corp is also required to pay an annual registration fee.
Are LLCs taxed differently in North Carolina than S-Corps?
Yes, LLCs are taxed differently than S-Corps in North Carolina. LLCs are typically taxed as pass-through entities, while S-Corps are taxed as separate entities.
Are LLCs required to have formal meetings in North Carolina?
No, LLCs are not required to have formal meetings in North Carolina. However, the LLC may choose to hold regular meetings to discuss business matters.
Can an LLC in North Carolina issue stock?
No, LLCs in North Carolina cannot issue stock. LLCs are pass-through entities and profits and losses are reported on the individual owners’ personal income tax returns.
Are LLCs in North Carolina required to have bylaws?
No, LLCs in North Carolina are not required to have bylaws. However, an LLC may choose to adopt bylaws to establish procedures for important business decisions.
Are LLCs in North Carolina required to have an operating agreement?
Yes, LLCs in North Carolina are required to have an operating agreement. The operating agreement sets forth the rights and responsibilities of each member of the LLC.
Does North Carolina require LLCs to pay an annual franchise tax?
Yes, North Carolina requires LLCs to pay an annual franchise tax. The franchise tax must be paid by March 15th of each year.
Can an S-Corp in North Carolina issue stock?
Yes, S-Corps in North Carolina can issue stock. S-Corps are separate legal entities and can issue shares of stock to shareholders.
Are S-Corps required to have formal meetings in North Carolina?
Yes, S-Corps in North Carolina are required to have formal meetings. These meetings must be held at least once a year and must be attended by the corporation’s directors.
Are S-Corps in North Carolina required to have bylaws?
Yes, S-Corps in North Carolina are required to have bylaws. The bylaws must be approved by the corporation’s directors and must outline the procedures for important business decisions.
Is an S-Corp in North Carolina required to have an operating agreement?
No, an S-Corp in North Carolina is not required to have an operating agreement. However, the corporation may choose to adopt an operating agreement to establish procedures for important business decisions.
Does North Carolina require S-Corps to pay an annual franchise tax?
Yes, North Carolina requires S-Corps to pay an annual franchise tax. The franchise tax must be paid by March 15th of each year.

Also Read

Why North Carolina LLC Vs S Corp is So Important

One of the main reasons why the choice between an LLC and S Corp is so important is because it can have a significant impact on how your business is taxed. Both LLCs and S Corps offer pass-through taxation, meaning that profits and losses are passed through to the owners’ personal tax returns. However, there are some key differences in how these entities are taxed. For example, S Corps are required to pay salaries to their owners, while LLCs are not. This can result in different tax liabilities for owners of each type of entity.

In addition to tax considerations, the choice between an LLC and S Corp can also impact how your business is structured and operated. LLCs offer more flexibility in terms of management structure and the allocation of profits and losses. They are also generally easier and less costly to set up and maintain. S Corps, on the other hand, have more stringent rules and regulations that must be followed, such as holding regular board meetings and maintaining corporate minutes.

Another important factor to consider when choosing between an LLC and S Corp is liability protection. Both entities offer limited liability protection, meaning that owners are not personally responsible for the debts and obligations of the business. However, there are some differences in how this protection is applied. For example, in North Carolina, LLCs offer stronger protections against personal liability for certain types of claims, such as those related to negligence or wrongful acts committed by employees.

Finally, the choice between an LLC and S Corp can also have implications for the future growth and expansion of your business. S Corps have restrictions on who can be owners and shareholders, which can make it more challenging to raise capital or bring in new investors. LLCs, on the other hand, offer more flexibility in terms of ownership and can make it easier to bring in new members or transfer ownership interests.

In conclusion, the decision between forming an LLC or S Corp in North Carolina is a crucial one that can have long-lasting implications for your business. It is important to carefully consider the specific needs and goals of your company before making a final decision. Consulting with a qualified business attorney or accountant can also help you navigate the complexities of each entity and make an informed choice. Ultimately, choosing the right legal structure can help set your business up for success and growth in the future.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in North Carolina, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a North Carolina LLC and S-Corp in North Carolina, read our other business guides.

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