LLC vs. S Corp in North Carolina 2024: A Comprehensive Comparison

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LLC vs. S Corp in North Carolina: Understanding the Differences

Embarking on the entrepreneurial journey in North Carolina, also known as The Tar Heel State, is an exciting and transformative experience. North Carolina LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in North Carolina and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in North Carolina.

Compare LLC and S-Corp

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In North Carolina, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in North Carolina are required to pay an annual fee of $200 to maintain their legal status and stay compliant with the state regulations.

An LLC in North Carolina offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in North Carolina  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In North Carolina, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in North Carolina. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in North Carolina

One of the main differences between LLCs and S-Corporations in North Carolina lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in North Carolina, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in North Carolina benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in North Carolina are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in North Carolina opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in North Carolina with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in North Carolina, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • North Carolina State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in North Carolina, it costs $200, which can be paid to the ND Secretary of State. Additionally, before forming the LLC, you must pay $125.

On the other hand, if you form an S-Corporation in North Carolina, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the ND Secretary of State to make these payments.

2. Liability Protection

LLCs and S-Corporations in North Carolina provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in North Carolina:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in North Carolina is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your North Carolina LLC or North Carolina S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in North Carolina have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

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

While filing an LLC or S-Corporation in North Carolina requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the North Carolina Registered Agent.

To start an LLC in North Carolina, you must submit the Articles of Organization to the North Carolina Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your North Carolina LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in North Carolina to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in North Carolina

Forming an LLC in North Carolina involves several crucial steps. To start, you must file Articles of Organization with the North Carolina Secretary of State and pay the associated filing fee of $125. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In North Carolina, the S-Corporation filing fee is $125 for filing online, or by mail..

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The LLC formation and S-Corporation election processes can be completed through three methods that are online, by mail and in-person. Online incorporation is available at Create a wizard on the SOS site, fill out the online form and submit online. Or download the PDF form, fill it up offline and upload it back to the SOS site. , while offline incorporation can be done at Send the form by mail or drop it off in person at The Secretary of State, Business Registration Division, P.O. Box 29622, Raleigh, NC 27626.. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in North Carolina varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in North Carolina.

FAQs

What is the difference between an LLC and an S corp?
An LLC is a type of business entity that provides limited liability protection to its owners and can be taxed as either a sole proprietorship, partnership, S corporation, or C corporation. An S corporation is a type of corporation that allows for pass-through taxation while maintaining limited liability for its shareholders.
Can an LLC be taxed as an S corporation in North Carolina?
Yes, an LLC can elect to be taxed as an S corporation in North Carolina.
Is there a limit to the number of owners that an S corp can have in North Carolina?
Yes, an S corporation in North Carolina can have no more than 100 shareholders.
Does North Carolina offer any tax benefits for forming an LLC?
North Carolina does not offer any specific tax benefits for forming an LLC, but LLCs have flexible tax options.
What are the filing requirements for an S corp in North Carolina?
An S corporation in North Carolina must file state income tax returns, as well as federal income tax returns.
Can an LLC have an unlimited number of owners in North Carolina?
There is no limit to the number of owners that an LLC can have in North Carolina.
How is an LLC taxed in North Carolina?
By default, an LLC will be taxed as a sole proprietorship or partnership, but it can elect to be taxed as an S corporation or C corporation.
Are there any residency requirements to form an LLC or an S corp in North Carolina?
There are no residency requirements for forming an LLC or an S corporation in North Carolina.
Can an LLC or S corp in North Carolina have an active business in multiple states?
Yes, an LLC or S corp in North Carolina can have an active business in multiple states.
What are the startup costs for forming an LLC or S corp in North Carolina?
The fees for forming an LLC or S corporation in North Carolina vary depending on the type of entity and complexity of the filing.
Can an LLC and an S corp merge in North Carolina?
Yes, an LLC and an S corporation can merge in North Carolina.
What are the liability protections offered by an LLC and an S corp in North Carolina?
Both LLCs and S corporations in North Carolina provide limited liability protection to their owners, meaning that the owners are not personally responsible for the company’s debts or obligations.
How do the management structures of LLCs and S corps differ in North Carolina?
LLCs in North Carolina have more flexibility in their management structure, while S corps have a more structured management system with a board of directors and officers.
Are there any annual reporting requirements for LLCs or S corps in North Carolina?
Both LLCs and S corporations in North Carolina must file annual reports with the Secretary of State.
Can an LLC or S corp receive outside investments in North Carolina?
Yes, both LLCs and S corporations in North Carolina can receive outside investments.
Is a shareholders’ agreement necessary for an S corporation in North Carolina?
A shareholders’ agreement is not legally required, but it is recommended for S corporations in North Carolina.
Can an LLC or S corp in North Carolina convert to another type of business entity?
Yes, both LLCs and S corporations in North Carolina can convert to another type of business entity.
Are there any specific industries or businesses that are restricted from forming an LLC or S corp in North Carolina?
There are no specific industries or businesses that are restricted from forming an LLC or S corporation in North Carolina.
Does forming an LLC or S corp in North Carolina require a business license?
In North Carolina, forming an LLC or S corporation does not require a business license, but operating a business may require licenses or permits depending on the type of business.
Can a nonresident alien form an LLC or S corp in North Carolina?
Yes, a nonresident alien can form an LLC or S corporation in North Carolina, but they may have to file additional paperwork with the IRS.
Are there any restrictions on the types of owners that an LLC or S corp can have in North Carolina?
There are no restrictions on the types of owners that an LLC or S corporation can have in North Carolina.
How do the names of LLCs and S corps differ in North Carolina?
LLC names in North Carolina must include the words “Limited Liability Company” or “LLC”, while S corporation names must include the words “Incorporated” or “Corporation” or an abbreviation of those words.
Can an LLC or S corp in North Carolina be formed online?
Yes, an LLC or S corporation in North Carolina can be formed online through the Secretary of State’s website.
Are owners of an LLC or S corp in North Carolina also considered employees?
Not necessarily. Owners of LLCs in North Carolina are not considered employees unless they actively participate in running the company, while shareholders of S corporations can be employees of the company.
How do the tax filing requirements of LLCs and S corps differ in North Carolina?
LLCs in North Carolina can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation, while S corporations are subject to pass-through taxation.
What are the tax implications of forming an S corporation in North Carolina?
The primary tax benefit of an S corporation in North Carolina is pass-through taxation, which allows the company’s income or losses to pass directly to the individual tax returns of the shareholders.
Can the owners of an LLC or S corp also be employees of the business in North Carolina?
Yes, the owners of an LLC or S corporation in North Carolina can also be employees of the business.
What is the process of dissolving an LLC or S corp in North Carolina?
The process of dissolving an LLC or S corporation in North Carolina includes filing the appropriate paperwork with the Secretary of State and settling any outstanding debts or obligations.
What are the requirements for setting up an LLC or S corp in North Carolina?
The requirements for setting up an LLC or S corporation in North Carolina include filing formation documents with the Secretary of State, appointing a registered agent, and obtaining any necessary licenses and permits.
What are LLCs and S Corps?
LLCs and S Corps are legal entities formed to conduct business and provide liability protection for their owners or shareholders.
What are the benefits of forming an LLC in North Carolina?
Benefits of forming an LLC in North Carolina include flexibility in management structure and taxation, limited liability protection, and no requirement for shareholders to be U.S. citizens or residents.
What are the benefits of forming an S Corp in North Carolina?
Benefits of forming an S Corp in North Carolina include limited liability protection, pass-through taxation, and potential tax savings through the ability to pay yourself a reasonable salary.
How are LLCs taxed in North Carolina?
LLCs in North Carolina are taxed as partnership, sole proprietorship, or disregarded entity. It means the LLC income is passed through to the members’ tax returns.
Can an LLC choose to be taxed as an S Corp in North Carolina?
Yes, an LLC can choose to be taxed as an S Corp in North Carolina if it meets the eligibility requirements and files the necessary paperwork with the IRS.
What are the eligibility requirements for an LLC to be taxed as an S Corp in North Carolina?
The eligibility requirements for an LLC to be taxed as an S Corp in North Carolina include having no more than 100 shareholders and meeting specific ownership and capital structure requirements.
Is there a corporate income tax in North Carolina for LLCs or S Corps?
Yes, both LLCs and S Corps in North Carolina are subject to a corporate income tax.
Can an S Corp be a single-member company in North Carolina?
No, an S Corp must have at least two shareholders in North Carolina.
What is the filing fee for an LLC in North Carolina?
The filing fee for an LLC in North Carolina is $125.
What is the filing fee for an S Corp in North Carolina?
The filing fee for an S Corp in North Carolina is $125.
What is the annual report fee for an LLC in North Carolina?
The annual report fee for an LLC in North Carolina is $200.
What is the annual report fee for an S Corp in North Carolina?
The annual report fee for an S Corp in North Carolina is $200.
Are owners of an LLC called shareholders?
No, owners of an LLC are called members, not shareholders.
Are owners of an S Corp referred to as members?
No, owners of an S Corp are referred to as shareholders.
How is a limited liability company formed in North Carolina?
A limited liability company is formed in North Carolina by filing Articles of Organization with the Secretary of State and paying a fee.
How is an S Corp formed in North Carolina?
An S Corp is formed in North Carolina by first forming a traditional corporation and then filing Form 2553 with the IRS to elect S Corp status.
Are LLCs or S Corps required to hold annual meetings in North Carolina?
Neither LLCs nor S Corps are required to hold annual meetings in North Carolina unless their operating agreement or bylaws state otherwise.
Can LLCs and S Corps in North Carolina participate in special business programs?
Yes, both LLCs and S Corps in North Carolina are eligible to participate in special business programs, such as the Historically Underutilized Business (HUB) program.
Can an LLC in North Carolina be managed by its members?
Yes, an LLC in North Carolina can be managed by its members or by managers selected by the members.
Can an S Corp be managed by its shareholders in North Carolina?
Yes, an S Corp in North Carolina can be managed by its shareholders or by directors selected by the shareholders.
Can an LLC have multiple classes of membership interests in North Carolina?
Yes, an LLC can have multiple classes of membership interests in North Carolina, but this can complicate the tax treatment of the LLC.
Can an S Corp have multiple classes of stock in North Carolina?
No, an S Corp cannot have multiple classes of stock in North Carolina.
Are there any restrictions on the types of businesses that can form an LLC or S Corp in North Carolina?
No, there are no restrictions on the types of businesses that can form an LLC or S Corp in North Carolina.
What are the steps to dissolve an LLC in North Carolina?
The steps to dissolve an LLC in North Carolina include filing Articles of Dissolution with the Secretary of State, paying a fee, and notifying all creditors and other interested parties.
What are the steps to dissolve an S Corp in North Carolina?
The steps to dissolve an S Corp in North Carolina include filing Articles of Dissolution with the Secretary of State, paying a fee, and distributing any remaining assets to shareholders according to their ownership percentages.
What are the requirements for an LLC operating agreement in North Carolina?
There are no specific requirements for an LLC operating agreement in North Carolina, but it is essential to accurately outline the management structure, ownership percentages, and members’ rights and responsibilities.
What are the requirements for an S Corp bylaws in North Carolina?
An S Corp’s bylaws in North Carolina must outline the management structure, shareholders’ rights and responsibilities, and the distribution of profits and losses.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in North Carolina.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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