You are in good company if you are thinking about launching a new small business in North Carolina. According to the state’s Department of Commerce, 45% of companies meet the definition of a small business with 499 or fewer employees.
Of these businesses, 17.5% have 20 or fewer employees, the most common type of small business in North Carolina. Most small business owners in North Carolina choose to operate as a limited liability company (LLC) because it protects their personal assets in case of business failure or a lawsuit, while others choose to register as a corporation or other type of business entity.
As the name suggests, LLC owners have limited personal liability for their companies. Taxes can be much simpler to prepare and submit as well. However, while you have no legal requirement to form an LLC in North Carolina, you will have difficulty hiring employees, opening a bank account, and completing other essential functions until you do.
North Carolina Provides a Business-Friendly Climate
In 2021, more than 964,000 small business owners chose to set up shop in North Carolina. Collectively, they employ more than 1.7 million people and make up 99% of companies within the state. Knowing that you are operating in a business-friendly state helps to give you valuable peace of mind in the early days when you have so much to do to establish your business.
As of early 2023, North Carolina had an unemployment rate of 3.4%, which is slightly lower than the national rate of 3.6%. Roy Cooper, the current governor of North Carolina, indicated in March 2022 that the state had fully recovered from the coronavirus pandemic from an economic standpoint.
According to Cooper, North Carolina realized a financial recovery rate of 6.7% between 2021 and 2022, which is excellent news for people in all industries except hospitality and leisure. Those industries continue to struggle, and entrepreneurs would be wise to consider holding off starting a new business in either one for at least the next few years.
Low Cost Of Living And Doing Business Often Cited As Reason For Choosing North Carolina
Like most states in a post-pandemic world, North Carolina struggles with a tight labor market as employers compete to find people with the specific skillsets they need. However, personal and business expenses are low when compared to most other states. Although costs have risen in response to the labor shortage, they remain reasonable for most business owners and consumers.
North Carolina has a cost of living index of 91, making it one of the country's most affordable places to live. Other than healthcare, where the state scored 100, its affordability scores in the following areas were lower than average:
• Groceries
• Housing
• Median home cost
• Transportation
• Utilities
The average ranking for healthcare costs in North Carolina is 107.5. Employers putting together job offers for new employees should keep this in mind because it will play into whether new employees will accept the position or not. At the same time, employers cannot spend so much on employee healthcare that they cannot afford to pay other benefits or a living wage.
Low Corporate Income Tax Rate
North Carolina business owners pay a corporate income tax rate of just 2.5%, making it one of the lowest in the nation. The organization Tax Foundation ranks North Carolina 11th of the 50 states for reasonable taxes.
North Carolina caps individual income tax at 4.99%, which matters significantly to LLC members. The federal and state governments use a pass-through tax entity with LLCs, and the fact that the maximum they will pay as individual business owners is 4.99% makes it attractive to get an LLC in North Carolina and establish and operate the business in the state. Consumers are often willing to buy more when they don’t have to pay as much in sales tax too.
Top Industries In North Carolina
North Carolina is unique in that it attracts entire industries that wouldn’t thrive nearly as well in other parts of the country. If you are considering a move south, here are the industries that perform especially well in North Carolina:
• Aerospace And Defense: The Wright Brothers’ first commercial flight occurred at Kitty Hawk, North Carolina, on December 17, 1903, and the entire state has remained a world leader in flight ever since.
• Automotive, Truck, And Heavy Machinery: the automotive sector is the 10th-largest employer in the state.
• Biotechnology And Pharmaceuticals: North Carolina is proud to be home to the largest research park in the United States.
• Business And Financial Services: Some of the most noteworthy business organizations in the country make their home in North Carolina, including Wells Fargo and Microsoft.
• Corporate Headquarters: The state’s low cost of living and corporate taxes make it a good option for Fortune 500 and Fortune 1000 companies to establish headquarters offices here.
• Energy: Ranking within the Top 5 for smart grids, clean technology, and nuclear energy, North Carolina has attracted numerous energy companies looking to make a difference in society.
• Food Processing And Manufacturing: North Carolina has the second-largest number of food and animal processing plants in the country.
• Furniture: More assembled furniture and furniture parts ship from North Carolina than any other state or country.
• Information Technology: After having attracted Google and several other major players to North Carolina, the state is now the second-fastest growing in the field of information technology.
• Plastics And Chemicals: Only four other states have more plastic and chemical businesses than North Carolina.
• Textile: As home to the largest textile processing plant in the country, North Carolina always has room for more businesses that want to succeed in this industry.
Although hospitality and tourism in North Carolina are not yet at pre-pandemic levels, the state recovered much faster than most. To this day, it remains one of the 10 most visited states in the country. Perhaps the most important statistic to remember about North Carolina is that CNBC named it the #1 Top State for Business in 2022, among many other designations and accolades.
North Carolina Offers Numerous Options For Business Funding
There is no getting around the fact that you must have money to earn money. For most new small business owners, that means taking out a loan with a bank, relative, associate, credit union, or obtaining resources from the Small Business Administration. You can also obtain other resources from the SBA besides information about business loans, such as how to write a business plan.
When the lending criteria are too strict to get a loan or you prefer to work with a private party, you might want to consider an angel investor. Angel investors are high-net worth individuals looking to invest in startup organizations. Just keep in mind that angel investors also have a say in the day-to-day operations of your new company along with the major decisions. Here are some angel investor networks specific to North Carolina:
• AngelList: North Carolina Angel Investors
• Carolina Angel Network
• Idea Fund Partners
• Piedmont Angel Network
• Triangle Angel Partners
• Wilmington Investor Network
You Can Benefit From Choosing The LLC Business Structure In North Carolina
Before you officially launch your business, you need to select the type of entity under which you will operate. For example, independent contractors with no employees often choose to work as sole proprietors. Business partnerships, S-corporations, and C- corporations are additional options for new small business owners in the state.
The first official thing you must do as the owner or member of an LLC is name it. The name must meet state requirements and cannot currently be in use by anyone else.
You pay taxes as an individual when you operate as an LLC, not as a business. The percentage of profit you receive compared to your business partners coincides with the amount of funds you contributed to the startup. You can claim expenses and credits the same way. Single-member LLCs can choose to pay taxes as a sole proprietors, while multi-member LLCs pay as a business partnership. LLCs can always choose to file taxes as an S-corporation or C-corporation, regardless of size. You can consult with an accountant to better understand whether that’s the best move for you.
Since you do not answer to shareholders as an LLC, you don’t have as many paperwork reporting requirements to manage. A designated registered agent receives mail on behalf of your business, which includes responding to any legal filings.
Although the costs of forming an LLC can add up, many of the fees are tax-deductible. You also pay much less than you would as the owner of a corporation. People sometimes launch their LLCs because they don’t have the funds to operate as a corporation and then change the entity later when the new company is more profitable. Others are just as happy to keep their status as LLC for as long as they own and operate the business.
You worked hard to start your business and don’t want to lose your personal assets to a simple mistake if someone sues you. The ability to operate as a separate entity when you designate your business as an LLC also enables you to enjoy your time away from work better without that added worry.
