• sole proprietorship:  If you operate a business with no co-owners and don't take any steps to formalize a different type of entity, this is by default what your business will be, even if you operate under a fictitious name.  Your assets can be more at risk of personal liability than if you utilize some of the other types of entities.

• partnership:  If you operate a business with co-owners and don't take any steps to formalize a different type of entity, by default your business will be a "general" partnership, even if you operate under a fictitious name.  Your assets can be more at risk of personal liability than if you utilize some of the other types of entities.  One of these options is a different type of partnership known as a "limited" partnership, which can afford asset protection to the "limited" partners.

• corporation:  You can take steps under North Carolina's corporation laws to create a separate legally-recognized entity for operating your for-profit business which can limit your personal liability.  (If it is intended to engage in an activity regulated by certain state licensing boards then it will have to created in conformance with North Carolina's "professional corporation" rules.)  Unlike a sole proprietorship or partnership, it is generally subject to taxation at both the corporate and shareholder levels unless an "S" election is made under federal income tax law.

• limited liability company:  This is a relatively new form of business entity allowed under North Carolina law.  It also requires that additional steps be taken and allows for limitation of personal liability like a corporation while providing for a single level of taxation like a sole proprietorship or partnership. 

• sole proprietorship: IRS Form 1040, Schedule C and NC Form D-400

• partnership: IRS Form 1065 and NC Form D-403.

• corporation: IRS Form 1120 Series and NC Form CD-405 or CD-401S

• limited liability company: Usually IRS Form 1065 and NC Form D-403, but can be IRS Form 1120 Series and NC Form CD-405 or CD-401S if the business elects to be taxed as a corporation

A corporation is a separate legal entity owned by its shareholders. The shareholders elect directors and the directors in turn elect officers such as a president and secretary. These officers will manage the operation of the corporation. The internal structure of the corporation is regulated by its articles of incorporation and bylaws. A small business shareholder will often also be an officer and director.

The limited liability company operates in similar fashion to a corporation. It is a separate legal entity owned by members rather than shareholders. It is managed by managers, with the internal structure regulated by its articles of organization and operating agreement. A small business limited liability company member will often be a manager.

An Employer Identification Number, like a Social Security Number, is issued by the Internal Revenue Service. It is required for a business that has any employees so that withheld taxes can be deposited and reported; it is also required for banking purposes.

Certain occupations and professions such as physicians, engineers and lawyers require a professional certification by the appropriate North Carolina licensing board, and if organized as a corporation, limited liability company or similar entity must be done so as a "professional corporation," "professional limited liability company," etc. Many other North Carolina businesses require one or more state-issued business licenses or permits. You can find a directory of business licenses and permits here.

If a business operates under any name under than its official legal name then it must file a certificate with the Register of Deeds in the county in which it does business in accordance with North Carolina General Statutes Section 66-68.

This can be a trap for the unwary. If a business owner sells or offers for sale an investment characterized as a "security," there must be either government registration or exemption from registration. Failure to do so can result in civil and sometimes criminal liability. For more information, visit the North Carolina Secretary of State's Securities Division webpage.

Although not required by law, a written shareholders' agreement is a good idea for a corporation, setting forth an understanding of how the business will be operated and addressing how a shareholder's interest will be transferred in the event of death, disability, divorce or if the shareholders just decide they want to part ways. Similarly, a limited liability company is well-served by having a written operating agreement covering the same topics.

Unless exempted, the corporation or limited liability company must file an annual report either on paper or electronically and pay the appropriate fee. For a corporation this annual fee is $25.00 (or $18.00 if filed electronically) while it is $200.00 for a limited liability company.

The name must be distinguishable on the records of the North Carolina Secretary of State from all other business entities of record there. It cannot state or imply that the business entity is organized for any reason not permitted by law or its articles of incorporation or organization. Certain words cannot be used in the name unless permission from the proper legal authority has been granted. Also, the name should not impermissibly infringe on the trade name of an established entity. See Article 3 of North Carolina General Statutes Chapter 55D.