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Structuring a New Business? Understand Your Options:
by Charles H. McGirt, Attorney 
Before starting a new business or in reviewing your present one it is very important to choose the correct entity under which the business will operate. These include:
(1) A single proprietorship where a person operates the business under his name or doing business as a different name and he is solely responsible for all of the debts and obligations of the business and its operation.
(2) a general partnership where two or more people operate a business jointly as partners with each liable for all of the debts and liabilities of the partnership and either being able to execute contracts or incur obligations of the partnership
(3) a limited partnership where there is a general partner who operates the business and is personally liable for all of the debts and liabilities of the business but there are limited partners who own an interest and share in the profits, but are not liable to creditors
(4) A corporation owned by one or more individuals or other entities who receive shares of stock issued by the corporation for their investment and receive dividends payable from the profits of the corporation but the company is operated under the name of the corporation and is a separate legal entity, with the owners and officers not being personally liable for any contractual obligations of the company unless personally assumed or guaranteed by a person in writing
(5) a limited liability company which combines the best of both worlds, the freedom and flexibility of a single proprietorship or partnership and the limited liability of a corporation with the owners being members with a membership interest for their ownership who receive distributions from the profits of the business which is operated by managers elected by members.
With proper documentation, you can shield the membership interest from being sold to satisfy a judgment creditor or to some person other than the present owners, or disposed of in bankruptcy or divided in a marital split between an owner and ex-spouse. If a single proprietorship owner dies, the company must be liquidated or disposed of, and if a partner other than a limited partner in a limited partnership dies, the partnership must be dissolved and the same is true for a limited partnership unless there is another general partnership. However, with a corporation or limited liability company the entity would continue in existence uninterrupted. The proper entity is an important tool in estate planning and continuation of the business, and consideration should be given to having buy/sell agreements among the partners or owners and proper restrictions on shares of stock and membership interests for passing the business on to the other co-owner or to the next generation and minimizing federal estate tax (if any) that might be due at the death of an owner.
It is important that you consult with an attorney knowledgeable in business and corporate law as well as estate planning so that you can make the proper choice and he or she can prepare the proper paperwork and documents required to accomplish the result that is in your best interest, that of other investors, and your family. The 2010 North Carolina Legislature passed legislation allowing the formation of a low-profit limited liability company to accomplish a charitable or education purpose, and also for business purpose. This is designed primarily as an attractive investment for private foundation. North Carolina continues to have non-profit corporations and private foundations for charitable purposes as well, each offering certain tax advantages.
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