Business Law

An LLC is a limited liability company that allows a business to operate with a flexible structure and with fewer requirements than a corporation. Additionally, it provides protection to the individual operating the business and potentially offers tax savings. However, as an organization grows and changes so does its legal structure. 

Knowing when it makes sense to move from a single-member LLC to filing as an S corporation can aid you when the time comes to make this important change to the way your business is structured.

Company Growth

The size of the organization is a key factor in determining when it is time to move from an LLC to an S Corporation. An LLC is perfect for an individual who wants to flexibly manage their business without a board of directors. As the company grows then moving to an S Corporation should be considered.

An S Corporation allows room for a maximum of 100 shareholders. When your organization shifts from being operated by a single member or a small group of members to a large number of shareholders then it may be time to consider filing as an S Corporation.

Tax Benefits

When operating as a single-member LLC or a sole proprietorship, all profits from the business flow through as Schedule C income, and are taxed fully as self-employment income at a high rate. If the profitability of the business is high enough, moving to an S corporation can allow the owner(s) to take a salary, and then pay out additional profits as a distribution to save taxes. Profitability of the business as an S corporation will flow through to the owner(s) on a Schedule K-1.

Tax Preferred Retirement Savings

Establishing an S Corporation gives the taxpayer additional options and opportunities when it comes to saving for retirement. Once a taxpayer has an S Corporation they are able to set up a Solo 401(k). A Solo 401(k) is a 401(k) that is designed for a business with no employees. There are no age or income limitations or restrictions with the only requirement for establishing a Solo 401(k) being that you are a business owner with no employees. After the Solo 401(k) is set up an individual can contribute up to $61,000 with an additional $6,500 catch-up contribution if an individual is 50 years of age or older.

Desire For Shareholders

As a business grows and decides to expand it may decide to offer stock options. Once they begin selling stock the individuals who purchase equity in the company in this manner become known as the shareholders. An LLC does not have shareholders only members who share the profits of the business. An S Corporation can have shareholders who own stock in the business. An S corporation is permitted to have 100 shareholders at any given time.

Need to Complete Ownership Transfers

After it is established there are no restrictions on ownership transfers within an S corporation. Stakeholders are able to sell their shares of the company at any time. They have the option of using their shares to raise capital or to potentially attract new investors. There is no ability to offer stock as an LLC meaning there is no easy method of transferring shares of the company. An S Corporation allows for smooth transfers of ownership shares to multiple individuals over an extended period of time.

Ready to Establish a Board of Directors

The shareholders of an S corporation are not responsible for overseeing all of the activities of that corporation. The body responsible for that task is referred to as the board of directors. This board is elected by the shareholders so if an organization believes it is ready to establish its own board of directors it will need the shareholders of an S corporation to do so. These board members appoint officers and executives for the corporation, determine the mission of the corporation and decide the policies regarding the overall management of the corporation.

Our Raleigh Business Startup Attorneys Can Help

The shift from operating a single-member LLC to managing an S corporation can be a major one. Preparing to establish a board of directors, accommodating shareholders, and completing ownership transfers are all large steps that are vastly different from running a business as an LLC.

Knowing when you are ready to begin filing as an S corporation can make the change in filing easier for you to manage. The team at Wilson Ratledge has the experience and expertise to help your business grow the right way – contact us today to schedule a consultation!

Funding is always a challenge for small and growing businesses. There are a number of government grants and other forms of support for small businesses that can help you expand. Most of these programs are specific to the type of business and the business’s goals for expansion. Some of them are also directed toward specific demographic groups. This is certainly not a comprehensive list of government funding opportunities for small businesses, but it will provide an overview of the type of funding that might be available.

Small Business Administration Programs

The U.S. Small Business Administration (SBA) is a go-to resource for many small business owners. The SBA offers several different ways to get funding, though most are loans rather than grants.

Small Business Innovation Research (SBIR)

This is a competitive program that gives small businesses grant funding to participate in federal research projects with commercial potential. If your business deals with research and innovation, this could be a good way to expand that function. To qualify, businesses need to be based in the U.S., for profit, run by a U.S. citizen or permanent resident, and have fewer than 500 employees.

Small Business Technology Transfer (STTR)

STTR is similar to SBIR, with the major difference being that businesses participating in STTR will need to partner with a nonprofit research organization. This can be a college or university, private research nonprofit, or a federally funded research center. The program’s goal is to strengthen the connection between basic scientific research and businesses that can take advantage of research products’ innovations.

State Trade Expansion Program (STEP)

If you want to expand your business by exporting your product, STEP can help provide access to foreign markets. Businesses can also receive support for developing international marketing campaigns and access to foreign trade shows. This is a federal program that uses state agencies to distribute funding, so you’ll work with the Economic Development Partnership of North Carolina to apply for STEP.

Small Business Investment Company (SBIC) Funding

SBICs are private investors licensed by the SBA. The SBA matches the private investment 2:1, and this money can be given as a loan, equity in the company or a combination of the two. SBIC funding can range from $250,000 to $10 million. To qualify, businesses need to be U.S.-based, meet the SBA’s size standards to qualify as a small business, and be part of certain approved industries.

SBA-Backed Loans

SBA-guaranteed loans usually come with lower interest rates and lower down payments than private business loans. They can range from $500 to $5.5 million depending on the size, nature and needs of your business.

Department of Commerce Programs

The federal Department of Commerce is another good source for business funding. These grants tend to be more specific, so you’ll want to be sure you qualify before applying.

Minority Business Development Agency (MBDA)

The Minority Business Development Agency offers specific grants and loans for minority-owned businesses. These will vary, so you’ll need to watch the agency’s website for opportunities that apply to you and your business. This is another federal program that operates through state agencies, so you’ll want to get in touch with the North Carolina MBDA Business Center.

Economic Development Administration (EDA)

This agency provides competitive grants to either specific demographic groups, regions of the country, or industries. These will vary based on the needs the agency sees throughout the year. Recent examples include indigenous communities and travel and tourism businesses. Businesses can apply for these grants through grants.gov.

U.S. Department of Agriculture Programs

The USDA offers several funding programs both for businesses directly involved in agriculture and those operating in rural areas.

Farmers Market Promotion Program (FMPP)

Farmers Market Promotion Program grants support farmers’ markets and similar arrangements that support direct producer to consumer sales, with the additional goal of improving consumer access to locally farmed products. Agricultural businesses, as well as related trade groups and nonprofits, can apply for these grants.

Rural Innovation Stronger Economy (RISE)

The RISE program is designed to create high-paying jobs and promote business growth in low-income rural areas. While for-profit businesses are not eligible to apply for these grants, they do support building and growing businesses in rural areas.

North Carolina State Programs

In addition to federal programs, North Carolina offers funding opportunities for small businesses as well, mostly run through the state Commerce Department. These include cash grants and tax exemptions that can improve your cash flow.

A factor you’ll see mentioned in many North Carolina state programs is the County Distress Rankings system. This system sorts the state’s counties into three tiers based on their economic well-being, with Tier 1 being the best off and Tier 3 being the most economically strained. This calculation is based on the counties’ average unemployment rate, median household income, property taxes and population growth. Businesses will receive the most credit for investing in Tier 3 counties.

Job Development Investment Grant (JDIG)

The JDIG program provides cash grants to companies that invest and create jobs in North Carolina. The grants are awarded based on the number of jobs created, the wage those jobs pay, the county’s economic tier and the industry the business is in. They are paid annually for up to 12 years.

One North Carolina Fund (OneNC)

This is another cash grant program that is designed to allow the governor, through the North Carolina Department of Commerce, to support job creation quickly. To calculate grant amounts, the department considers the number of jobs a business creates, the location, the economic impact, the overall importance to the state and the level of investment in the state.

Business Tax Exemptions

North Carolina offers a few different ways for businesses to reduce their tax burdens. For example, manufacturing machinery and raw materials are exempt from sales tax. There are several other goods and services that are exempt from state sales and use taxes, detailed here.

Start Your Business Off Right With Our Business Startup Team

Applying for government grants can be complicated, but many agencies offer online resources like webinars and application guides to make it easier. Federal grants are usually processed through grants.gov.

Starting a business, applying for grants, and serving clients all at the same time can be a daunting task. Make sure you’re building your business the right way with the business law team at Wilson Ratledge by your side. Call us today at 919-787-7711 or fill out our online form to schedule a consultation!

Your organization could resort to downsizing for many reasons, including cost-cutting, restructuring, mergers, and other factors. When you consider laying off employees, you must examine the risks of violating various state and federal laws. Furthermore, in the event of a layoff, several common law claims may be strengthened, and a mass layoff may expose you to multiple claims from several employees in a class-action lawsuit.

Successfully executing a layoff is one of the most challenging problems your company may face. However, a considerable body of best practices has been developed to aid management in carrying out the downsizing in a planned, legally compliant, and humane approach.

Legal Implications of Layoffs

An organization’s choice to downsize may violate several federal and state laws. Almost half of the states have their own notice laws. Some even go so far as to demand that corporations pay a modest severance package or continue to provide health insurance to employees for a limited time following the layoff. 

North Carolina, however, does not fit into either of these categories. Because North Carolina lacks its own layoff or plant closure statute, workers are solely covered by the Federal WARN Act.

Worker Adjustment and Retraining Notification Act (WARN)

The purpose of this statute (and its state law equivalents) is to reduce the harm caused by layoffs to workers and communities. WARN requires you to offer at least 60 days’ notice of a downsizing to the affected employees.

A “mass layoff” happens when at least 500 full-time workers lose their jobs within 30 days, or when at least 33% of workers at a single site of employment are laid off in 30 days, unless the percentage amounts to fewer than 50 people. A site of employment is a physical area where you run your business operations and could include a building, an industrial complex, or a campus. Physically separate worksites that are utilized for the same function, are in reasonable proximity, and share the same personnel and equipment may also be considered a single employment site.

The Federal WARN act is limited to larger firms. A large business has:

• At least 100 full-time workers (those who work at least 20 hours a week and have been on the job for at least six of the previous 12 months prior to the notice) or,
• 100 employees who work a cumulative of 4,000 hours or more each week.

Determining whether WARN applies to a given layoff can be challenging. It is advisable to seek legal advice in all instances, even in what may seem to be the most straightforward cases.

Notice Required by WARN

Employees who will lose their jobs during downsizing are entitled to 60 days’ notice. Individual notice is not available to unionized workers. Instead, the employer must inform its union representatives, who in turn notify the impacted employees.

The notice must include specific details regarding the impending layoffs, including whether they will be temporary or permanent or whether the employee will be given bumping benefits. It should also state when the layoffs are slated to begin and when the employee will receive a termination letter.

In some cases, you are not required to give any notice at all or can give less than 60 days’ notice.

No Notice Required

An employer is not legally compelled to give early notice of a mass layoff in some instances. They include:

1. Temporary Projects: No notice is necessary if an employer releases personnel employed solely for a temporary project that has been completed or shuts down a facility that was only meant to be open for a limited time. This exception is only applicable if the employees were aware of the temporary situation during hiring.
2. Strikes and lockouts: WARN does not apply if a closure or downsizing results from a workers’ strike or an employee lockout.

Shorter Notice Allowed

In select circumstances, you may offer less than 60 days’ notice. You must clearly explain in a written notice why you were unable to provide the mandated 60 days’ notice.

1. Unforeseeable business conditions. A shorter notice period is permitted if the grounds for the downsizing or layoff were not reasonably foreseeable at the time, the employer should have given 60 days’ notice.
2. Natural calamities. If a natural disaster causes a layoff, you may give less than 60 days’ notice.
3. Faltering Enterprise: If your company is facing financial difficulties, it may give a shorter notice. You must, however, demonstrate that your business was actively seeking business or funding that would have enabled it to defer or avert the downsizing and that it reasonably believed that giving a 60-day notice would have gotten in the way of obtaining the necessary money or business. However, this provision is only applicable for plant closures, not mass layoffs.

What Happens With A WARN Violation?

An employer who breaches WARN may be held liable for all wages and benefits lost due to the violation, up to the full 60 days mandated by WARN. Any salaries or severance fees paid voluntarily by the employer are deducted from the sum. You may also be required to pay the legal fees and court costs of affected employees who win their lawsuits. 

Additionally, you may have to pay $500.00 in civil penalties for every day you fail to notify local authorities. However, if you deliver back pay to every affected worker within three weeks of parting, you can avoid the $500.00 civil penalty.

Because WARN stipulates that an employer’s maximum liability is limited to 60 days, providing your employees with full benefits eliminates any potential liability. However, no provision in WARN allows for payment in lieu of notice, and the laws do not recognize the concept.

Our North Carolina Business Attorneys Can Help

As seen from the above discussion, federal WARN and its state equivalents can be highly complex and technical legislation that should be considered whenever your business is having to downsize. 

If your company is considering layoffs or downsizing, the Wilson Ratledge North Carolina business attorneys can help you ensure compliance with all applicable state and federal labor regulations. Call them today at 919-787-7711 or fill out the form online to schedule a consultation!

Raising money for starting or growing a business is one of the most challenging parts of being an entrepreneur or a business owner. You might have that revolutionary idea for a product or a service, but your resources aren’t just enough. So, where do you turn to get the financing for your business idea?

Thankfully, there are many loan options for you and professionals to help you get the best terms.  Various options are available, including state grants, crowdfunding, regional loans, and state-based loans.

In this post, you’ll learn how to get the funds to start your business or keep it running. Here are ten ways to fund your start-up business or get resources to realize your business goals.

#1. Bank loans

Many small and medium businesses are eligible for a bank loan if they have a good credit rating. Banks will need to look at your business’ financial health and your income to determine your eligibility. In North Carolina, many banks have programs designed specifically for small businesses to get off the ground.

#2. SBA loans

If you don’t qualify for a regular bank loan, you may still be able to obtain a Small Business Administration (SBA) loan. The SBA Guarantee Program helps small and medium-sized businesses that may not be able to get funding elsewhere. Working capital loans can last up to 10 years and up to $ 5 million.

The SBA reduces the risk to lenders by guaranteeing repayment of loans. Businesses have a wide range of SBA loans to choose from. Each type has its own parameters and stipulations on using the money and when to repay it.

#3. Private equity

Private equity is a large industry that invests in businesses that are not publically listed. Private equity firms participate in your business and generate operating profit that you can use to build your business.

They usually stay in your company for around four years before leaving. Private equity entities typically make money by selling their position to another investor or back to you.

Some individual investors are focused on many types of businesses. For example, venture capitalists tend to focus on early tech companies, while some focus on late consumer companies.

#4. Strategic partnership

Suppose other companies or organizations are ready to contribute to your success. In that case, they are probably prepared to invest in helping you support yourself.  If you can create opportunities for them, they may be interested in supporting your growth by building strategic partnerships.

This mostly happens if your business is up and running and can offer opportunities to potential strategic partners. Strategic partners can be vendors, suppliers, and other people you have a common interest and benefit from the partnership.

#5. Crowdfunding

Crowdfunding is a novel way for small and medium businesses to fund their activities. These platforms use technology to connect the right entrepreneurs and investors. 

Crowdfunding can save time and effort by successfully creating a single business environment for all potential investors using profiles. The most popular funding platforms in the United States are Indiegogo and Kickstarter.

Remember that crowdfunding forums differ significantly in terms of performance, features, and requirements. Therefore, it is best to determine which one best suits your goals.

#6. Angel investors

Angel investors invest in promising business ventures that need quick funding for a piece of the business.

Angel investment is quite similar to private equity though it functions differently. It typically focuses on the earliest stage of technology start-ups. If you’re an innovative start-up with a bias to technology, this is one of the best options for funding your business.

One of the issues with this is that you will need to provide the angel investor with equity in your company and, most likely, some power in decision-making. Therefore, the angel investor approach must align with your vision and the company’s purpose.

#7. Grants

Government agencies and charities provide grants to businesses in various areas. A business grant is money given to companies in need when repayment is not expected. The money you’re given is not a loan, and therefore no interest is attached.

Generally, businesses that qualify for grants will have to offer some form of ‘public good.’ There are research and development grants programs, environmental companies, social services, child care, etc.

#8. Business credit card

If you’re short on cash, a business or personal credit card can be good to use to help your new venture get off the ground. Be careful with these, though, as interest rates can be high and terms can be onerous.

#9. Short-term loan

Not all companies (or business owners) have good credit scores, but funding options are still available. You can get the funding or capital you need with a short-term loan. Generally, the repayment period is only a few months, and interest rates can be higher than other options.

#10. Invoice financing

If you charge a customer, you may have to wait weeks or months for payment to be made. However, you can get your money earlier with one of the many programs which offer invoice financing, which borrows money based on the value of unpaid invoices.

Our Raleigh Business Lawyers Can Help With Your Startup

Starting a business is hard – the team at Wilson Ratledge can help your firm with legal and startup advice to put you in the best situation as you launch your new venture. Call them today at 919-787-7711 or fill out the online form to schedule a consultation today!

People use the terms mergers and acquisitions interchangeably, but they have different meanings. In an acquisition, a company takes over another one and becomes the new owner. A merger refers to two firms, roughly the same size, that come together to do business as one company or a merger of equals.

For example, Daimler-Benz and Chrysler merged to become Daimler Chrysler. They surrendered their stocks and issued new company stock for the new company. Asset acquisition refers to the purchase of a company’s assets instead of its stock

A business acquisition describes when your company buys most or all shares in another company to get control of the company. When you purchase over 50% of a firm’s stock and assets, you can decide what to do with the assets without waiting for approval from the other shareholders.

Benefits of Mergers and Acquisitions (M&A)

A merger or acquisition can have several benefits for your company:

Better Economies of Scale

If you join forces with another company, the new and larger company has higher material and supply needs. When you purchase the necessary materials or supplies in larger volumes, your business improves scales with lower costs, and you can pass the lower costs to your customers.

Lower Costs of Labor

Mergers or acquisitions mean eliminating extra staff that might be doing the same job. It means lower wage costs and the maintenance of a more dynamic workforce. You can review the worker’s performance doing similar roles and choose the best one for each position.

Enhanced Market Share

When you merge your company with another in the same industry, the new company enjoys a better market share. The company taps into the resources both companies bring to the table.

Improved Financial Resources

When you get into an M&A deal, you pool your finances, increasing your new company’s financial capacity.  You may encounter new investment opportunities, and you can now reach a bigger audience because you have a more significant budget for marketing and more inventory.

Potential Pitfalls of Mergers and Acquisitions

Mergers and acquisitions also can have their pitfalls despite their many benefits. Carefully consider the pros and cons of M&A. Some of the pitfalls include:

Increased Expenses

You have to pay all the professionals involved in the M&A logistics. If you acquire another company, you have to pay a lump sum for its assets. This cost may be a disadvantage to your business.

Loss of Potential Opportunities

The energy, financial resources, and time that go into a merger or acquisition might mean your company and the other company have to forego opportunities that may arise during the process.

The M&A Process

Mergers and acquisitions are complex processes that require the help of professionals like lawyers, accountants, and risk management professionals to guide you towards a successful deal conclusion.

In North Carolina, mergers and consolidations need:

• Agreement Notice
• Written Agreements
• Approval from the Commissioner of Insurance
• Agreement adoption
• You have to file the Certified Agreement with the Secretary of State
• You have to file the already filed Certified Agreement copy with the Register of Deed
• You must pay a filing fee of $125 paid to the NC Secretary of State. All fees needed by the Insurance Commissioner are on the fee schedule of the Department of insurance.

Contact An Experienced North Carolina M&A Attorney

This process is time-consuming and complex. You need experienced professionals who know how to navigate the process – Wilson Ratledge has the experience and expertise to guide you and your company through the challenging process of a merger or acquisition. Contact us today to schedule a consultation to talk more about your situation and how we may be able to help!