North Carolina S Corp Rules: How To Keep Your Corporation Compliant
If your S corporation applied for an Economic Injury Disaster Loan or Paycheck Protection Program relief through the Small Business Administration, it may have come with a surprise: a request for a board resolution OKing the loan application.
You’re not alone if you were left scratching your head about the board resolution. S corps are governed by requirements at the federal and state levels, and it can be tough to get clarity on what’s needed.
If you’re operating an S corp in North Carolina, familiarize yourself with some of the requirements, so that you’re in compliance with state law.
Federal Requirements for S Corps
S corps are the small business segment of regular corporations, or C corps, that meet additional requirements. S corps benefit from a different taxation structure that prevents their income from being taxed twice.
The IRS provides straightforward guidance on the requirements for an S corp:
Run your corporation in the United States.
Operate with no more than 100 shareholders, who may only be individuals, certain trusts and estates.
Have only one class of stock.
Not be a certain type of financial institution, insurance company, domestic international sales corporation or other kind of ineligible corporation.
An important takeaway is the requirement for shareholders. Your shareholders are the owners, so they should establish corporate policy and activities, which protects your personal liability. You can get in hot water if you’re making business decisions in a silo.
North Carolina’s State Requirements for S Corps
State requirements are where the fun starts. All the other regulations you need to comply with as a small business corporation are set at the state level. The North Carolina Business Corporation Act – one of the state’s general statutes – covers most business types in the Tar Heel State.
1. Shareholders
We already know from the IRS that you’ve got to have shareholders for your S corp. Section 55, Article 7, of North Carolina’s business act, outlines parameters for shareholders. Along with requirements to keep meeting minutes and records of actions taken without a meeting, your corporation must:
Hold an annual shareholders meeting.
Give notice of shareholders meetings between 10 and 60 days beforehand.
Create an alphabetical list of shareholders, their addresses and their number of shares after a meeting date is set.
Give one vote per share.
Make decisions based on the majority’s vote, if a quorum is present.
Elect directors by a plurality of votes.
Check Article 7 to be sure that you’ve followed the right protocols, or put in place the correct exceptions to the state guidance. How your shareholders operate may differ based on your corporation’s bylaws.
2. Board of Directors
All 50 states have this requirement in place: An S corp must have a board of directors. You can find the requirement in Section 55, Article 8, of the business act – along with the procedure for dispensing with a board of directors if you want.
If you don’t have a formal board of directors in place, the good news is that the board can be made up of just one person. Your articles of incorporation or bylaws will clarify how many people are on your board, how long their terms are and how they’re elected to office.
Otherwise, the business act specifies that you may have initial directors in place until your first shareholder meeting, when shareholders will vote on the directors. Directors’ terms then expire at the next annual shareholders meeting.
When your board of directors gets together, keep meeting minutes. Also, maintain records of actions that the board takes without a meeting.
If you’re applying for a loan from a small business investment company (SBIC) or another funding source from the SBA, you might be asked to provide a resolution from your board of directors authorizing the loan request. The SBA provides a template your board can use to submit the corporate resolution.
3. Annual Report for the North Carolina Secretary of State
April 15 isn’t just tax day for individuals – it’s also the due date for your annual report to the North Carolina Secretary of State. Reports can be filed electronically for $20, or using a printed form and mailed in for $25.
Although it may sound daunting to file an annual report, the secretary of state’s office autofills much of the required information for you. The report can end up being as short as one page. In it, you’ll include:
Your ID number with the Secretary of State.
Your name and address.
Your corporation’s name and contact information.
A brief description of the nature of your business.
The names and information of company officials.
Other Requirements for S Corps
There are a few other common requirements you may not be aware of. If you haven’t filed your articles of incorporation with the North Carolina Secretary of State for $125, put that on your to-do list. If your shareholders update your articles of incorporation, be sure to file articles of amendment for $50.
State and federal labor law posters are required to be displayed in businesses with at least one employee. North Carolina provides a free order form for the posters, or you can download and print PDF versions of the posters to display.
If your corporation has more than 50 employees, you need to provide health coverage as a requirement of the Affordable Care Act. You’ll then need to confirm to the IRS that you’re providing coverage.
Find other requirements to look out for on the SBA’s website.
