North Carolina has the best conditions for entrepreneurs planning to launch business in the Southeastern United States, offering the perfect balance of a favorable business tax climate, an affordable cost of living, and bustling urban areas.
In the interest of aiding budding entrepreneurs based in the Tarheel State, we’ve put together the ultimate guide to starting a business in North Carolina. We’ll guide you through each step in the process of launching a company, including drafting a business plan, choosing the right business entity, and registering your company with the state.
North Carolina small business statistics at-a-glance
- 890,398 small businesses are active in North Carolina, accounting for 99.6% of the total businesses in the state.
- 1.6 million North Carolina residents are employed by small businesses, which is 44.3% of the state’s workforce.
- 183,333 North Carolina small businesses are minority-owned.
- Healthcare and social assistance is the leading small business employer industry in the state, followed by accommodation and food services, and retail trade.
- Tax Foundation ranked North Carolina 15th in its 2020 State Business Tax Climate Index. The state achieved its high placing on the strength of its low corporate and unemployment insurance tax rates.
- 81.20% of North Carolina businesses are still active after their first year, which is the 4th highest rate in the United States.
- North Carolina startups generate an average of 4.61 jobs in their first year of existence.
Sources: Tax Foundation, Kauffman, U.S. Census: Statistics of U.S. Businesses
Starting a business in North Carolina in 12 steps
1. Develop an idea
Every successful business starts with a good idea. Ask yourself these questions:
Determine your personal strengths and interests: developing an idea that suits your personality and positive traits will provide motivation to put in the long hours necessary in addressing the myriad challenges you’ll face in getting your business off the ground.
Figure out how to market your expertise: if your business idea is not something you totally believe in and can sell effectively, it will be much harder to succeed.
- Which product or service can your business provide that doesn’t already exist on the market?
- How does your business idea refine an existing product or service?
2. Do the research
Once you have an idea, it’s time to put it through the wringer and decide if it’s viable in the market. Conduct market research to arrive at answers to these key questions:
Coming up with satisfactory answers may require refinement, or even a total overhaul, of your original idea. Be patient: you’ll only want to proceed with the next steps after determining that a niche exists in the North Carolina market for your business idea.
- Is there a demand for your product/service in North Carolina?
- Who is your target market?
- Do existing businesses in North Carolina offer a similar product/service?
- What makes your business unique compared to the competition?
3. Draft a business plan
Now it’s time to write the blueprint of your business. A great business plan should chart the path of your company from infancy to success while being able to attract investors to provide financing.
Your business plan ought to include the following sections:
- Executive summary – An overview of your business and why it will be successful
- Description of business – Explain the advantages of your business and the problems it solves
- Market research – Provide research on your industry, target market, and potential competitors
- Organization and staff – Detail the nuts and bolts of your business; how it’s structured and who will run it
- Product or service description – State what you are selling or offering
- Marketing plan – Explain your strategy for attracting customers
- Fundraising – The money you’ll need in the next five years to grow your business and how you’ll spend it
- Financial forecast – Data and balance sheets providing a financial forecast for your business
- Appendix – An optional section with supporting and/or requested documents like resumes, letters of reference, permits, etc.
4. Secure funding
Every business needs money to get off the ground. In fact 82% of businesses that fail do so because of a lack of cash flow, U.S. Bank found in a recent study. Your business plan should include a detailed estimate of the funds you’ll need to cover expenses for at least a year, so now it’s time to acquire the money.
If you aren’t wealthy enough to self-fund your business, you can choose from a number of other funding options. These include a loan from the U.S. Small Business Administration, taking out a loan from a commercial bank, launching an equity crowdfunding campaign, or securing funding from an angel investor or venture capitalist group active in North Carolina.
An angel investor is a wealthy individual who invests their personal finances in a startup, typically in the beginning stages, whereas a VC is a group of investors that will fund a business throughout its existence.
Which route you choose depends on the specifics of your business: angel investors typically invest smaller sums to help get a startup off the ground, while VCs invest larger sums of money in exchange for a greater say in the operations of a business. Smaller startups usually opt to pursue funding from angel investors. Plenty of both types of investors are operating in North Carolina.
North Carolina Angel Investors and VCs
- Carolina Angel Network – A highly active angel network with a team comprising University of North Carolina alumni. Applicants must have some affiliation with the university.
- Piedmont Angel Network – An angel network managing three funds with a focus on early-stage companies in the fields of software, tech, life science with high growth potential.
- Triangle Angel Partners – Takes a more hands-on approach than most angel groups, providing counseling, mentoring and investment connections to portfolio companies.
- Wilmington Investor Network – A member-led private equity fund focused on investing in high growth companies in the eastern part of the state.
- Idea Fund Partners – A reputed early-stage investor based in Durham, North Carolina. Initial investments range from $250K to $1 million and could add up to $2 million in a company’s existence.
Additional Investor Resources
5. Decide on a legal business entity
The form of business entity you choose will affect many factors going forward. There are 3 main options to decide from:
Nowadays, LLCs are the option of choice for small business owners as they are easy to manage and provide the benefits of a corporation while lacking their complex structure. Taxwise, they operate more like a sole proprietorship.
You may want to consult with an attorney to help decide which entity works best for your business.
- Sole proprietorship – The name for running a business by yourself. Legally, you and your business are one and the same, with no separate legal entity for your business. A partnership is legally identical to a sole proprietorship, except that it comprises two or more people.
- Corporation – A complex legal structure that is a separate entity (providing legal protection to owners) from the owner and comprises directors, officers, and shareholders.
- LLC – AKA “Limited Liability Company”, this is a hybrid entity between a sole proprietorship and a corporation that possesses advantages of both. An LLCs provides the liability protection of a corporation, yet isn’t subject to double taxation as the profits go through your personal tax return.
6. Register your business
By deciding on a business entity, you’re ready to register your business with the state of North Carolina. The process varies depending on the form your business will take.
For sole proprietorships
If you use your own name as a sole proprietor in North Carolina, there’s no need to file any documents with the state, but to use a business name separate from your legal name, you must submit a Certificate of Assumed Name with the local Office of the Register of Deeds.
First, run a business name search with the North Carolina Secretary of State to make sure that the business name you’ve selected is available for use in the state. Then, head to your county’s Office of the Register of Deeds and file an application for a Certificate of Assumed Name.
For LLCs and corporations
The process of forming either of these two entities in North Carolina is similar, yet with different legal documents that must be filed with the Secretary of State.
First, you must designate a registered agent to handle process notices and other government correspondence on behalf of your business. This is a required step in forming either a corporation or an LLC in North Carolina. Hiring a professional registered agent is inexpensive, costing between $50-$200 for a year’s service.
Next, run a search to verify that your business name is not already in use in North Carolina. After determining that it’s available, you can file the legal document to form your business:
- An LLC is created in North Carolina by filing Articles of Organization. The articles can be submitted online or through the mail. The filing fee is $125 and payment can be made by credit card or through a PayPal account.
- A corporation is created in North Carolina by filing Articles of Incorporation. They can be filed online, or through the mail, and the filing fee is $125. Payment can be made with a credit card or through a PayPal account.
7. Acquire federal and state tax IDs
Now you should obtain a Federal Employer Identification Number (EIN), which is like a social security number for a business and allows you to open bank accounts, handle payroll, and file taxes.
For sole proprietorships, an EIN is optional, although it is required for corporations and LLC’s. You can apply online for your EIN through the IRS website, or fill out and mail this form.
Each state has its own laws and taxes regarding businesses. Visit the North Carolina Department of Revenue website for a complete list of state-administered business taxes, and click here to register to pay these taxes online.
8. Open business banking and credit accounts
Opening a bank account for your business is crucial because it allows you to separate company assets from your personal assets, and makes filing taxes a lot easier. This is a recommended step, even if you are operating a sole proprietorship.
It’s also a wise idea to obtain a credit card for your business because it will help you isolate business expenses and build up credit for your company, which may help in securing investment in later stages.
Banks operating in North Carolina good for small businesses
9. Get the necessary licenses and permits
Depending on the type of business you are opening, you may need to apply for a number of permits and licenses to operate legally. For example, a restaurant will need a liquor license, and a pawn shop will need a reseller’s license. The paperwork may prove a hassle, but it’s a necessary ordeal that will protect you from fines, lawsuits, and other legal hazards.
While North Carolina may not issue a statewide general business license, many occupations are regulated in the state and require a license, permit or certification to operate, legally. The NC Department of Commerce hosts a portal where business owners can search all types of licenses issued by state agencies, and receive instruction on how to apply for them.
10. Choose a location
Whether you are running an online business or opening a restaurant, location is everything. Be aware of the demographics of the neighborhood or town that you are considering: Are the local residents likely to visit your business? Will nearby competitors take a share of your potential profits?
Charlotte is our choice for the best city in North Carolina to launch a business. As one of the fastest-growing cities in the U.S., Charlotte offers plenty of opportunities for aspiring entrepreneurs, while its affordable housing prices and cost of living make it an easy city in which to get your footing.
11. Get insured
No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a good idea. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged, or required at the state level, depending on your business type. Consult with a licensed insurance agent to find out which types of insurance you should get.
Required forms of insurance:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
12. Develop an internet presence
Establishing an identity on the web is an important investment in a business’s future development. Here are some key steps in the process:
- Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, Namecheap.com). Design the website and fill it with content.
- Create profiles on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile for your business
- Create accounts on review sites such as Yelp, Google Reviews, and TripAdvisor
North Carolina small business resources
- NC.GOV: Business Registration – Register your business with the state government.
- North Carolina Department of Revenue: Register a Business – Create a tax account with the state in order to pay state-administered business taxes.
- NCBOLD – An easy to use search tool for finding business licenses, certifications, and permits issued by the state of North Carolina.
- North Carolina Small Business and Technology Development Center – A statewide organization established in 1984 that aids small business owners through free consultation services and management training programs.
- NC Tech Association – The online nexus of the North Carolina tech startup community. Holds regular events that allow entrepreneurs to build connections with community members and gain access to funding sources.
- BD Technologies and Innovation – An organization based out of Research Triangle Park that helps tech startups develop their products through a variety of services.
- American Underground – One of 11 Google for Startups hubs in the country, American Underground has five locations in Durham and Raleigh and hosts workshops in addition to its incubation program.
- Bull City Startup Stampede – A unique Durham-based consumer product incubator that aids participating startups in every step of getting their product on the market.
- HQ Raleigh – A Raleigh-based incubator and coworking space providing services at a number of price points.
- SCORE North Carolina Chapters and Resources – A directory of the leading U.S. business mentoring network’s numerous North Carolina chapters.