By Attorney Edward A. Jesson

The North Carolina Constitution, and North Carolina statutes, give contractors the right to file mechanic’s liens if they are owed money for completing “improvements” on real property. Improvements are defined in a statute, but generally speaking, anyone who performs work on real property, be it renovations, grading, architectural work, or otherwise, can file a mechanic’s lien in North Carolina.
 
The purpose of filing a mechanic’s lien is to have the debt owed to the contractor paid by the responsible party (often, the owner of the real property). A contractor has 120 days from the “date of last furnishing” to file the lien. The “date of last furnishing” is simply the last date that the contractor (or architect, etc.) performed work on the real property. It is best to be conservative with this date as courts have ruled in the past that punch list items performed after the date of last furnishing do not push that date out further. The mechanic’s lien has to be filed with the clerk of court in the county where the real property is located and formally served (like a lawsuit) on the property owner and any other contractors that may be affected by the lien. It is important that the lien be properly drafted when it is filed—if there is a mistake and the 120-day deadline passes, you cannot simply amend a lien. Instead, the lien must be released and a new lien filed in its place.
 
The contractor then has 180 days (again, from the date of last furnishing) to “enforce” the lien. To enforce a lien, you file a lawsuit and ask the court declare that your lien is valid and confirm the debt amount. Oftentimes, a lien enforcement lawsuit will also include other claims, such as a claim for breach of contract. If the contractor is successful, he/she can then request that the court order what is essentially a foreclosure sale on the property to satisfy the debt. If there are other liens attached to the property, like a mortgage, the contractor will have to get in line.  The existence of other liens is something to take into account when evaluating the benefits of moving forwards with a lien enforcement action.
 
In reality, most lien situations are resolved prior to a foreclosure sale, because (1) property owners don’t want their property sold and (2) attorney’s fees may be awarded in the lien enforcement lawsuit. North Carolina’s mechanic’s lien statute contains an attorney’s fee provision that awards attorney’s fees to the prevailing party. That is very rarely the case in the United States (normally, parties are responsible for their respective fees, regardless of whether they win or lose), so it can be a powerful negotiating tool.
 
If a contractor loses, they may have to pay the other side’s attorney’s fees, which can often total more than the debt owed itself, so it is important to seek the advice of a construction lawyer when evaluating whether you should file a mechanic’s lien.
 
There are many other factors to consider when getting ready to file a lien, and there are other types of liens that can be filed by subcontractors and others involved in the construction process. Should you have an issue with collecting money from a client or have had a lien filed against your property, please give us a call to help with your issue.

By Attorney Kelly Rains Jesson and Associate Attorney Danielle Nodar

​Forming a corporation in the state of North Carolina is pretty easy to do yourself, but that may get business owners into trouble.  Numerous corporations exist without any bylaws and without issuing any shares (especially those who do-it-themselves).  Failing to complete all the steps can have negative consequences. 
 
A corporation is owned by its shareholders.  Shortly after a business is incorporated, it should issue shares to the owner(s).  If there are no shares issued, there are no shareholders, and thus no owners.  Why do so many business owners fail to complete this step?  Probably for two reasons: (1) they don’t know this is the way it works and (2) in order to incorporate, all the Secretary of State’s office requires is that Articles of Incorporation be filed with its office.  It does not require proof of bylaws or shares.
 
Shareholders do not manage the business just because they are shareholders. The Board of Directors manages the business.  For small, family businesses, the shareholders and the directors are often the same people.  However, these are still two distinct roles.  Most business owners that have not issued themselves shares are simply acting like directors of the corporation. 
 
To incorporate, the incorporator (could be a future director, shareholder, or third party, like an attorney) files Articles of Incorporation.  North Carolina law states that if no directors are named in the Articles of Incorporation, the incorporator shall hold a “meeting” (can be informal) to name the initial directors.  “The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.” N.C.G.S. § 55-2-06 (emphasis added). The law states that there SHALL be bylaws, not that there MAY be bylaws.  The bylaws govern the management and affairs of the corporation. The bylaws state how shares will be issued, how directors will be named/replaced, and how the company is managed. 
 
So why should you care?
 
First, the liability protection corporation owners enjoy is at risk if you do not follow the corporate formalities required by North Carolina law. You risk having a creditor ask a court to “pierce the corporate veil,” making you personally liable for debts and judgments of the corporation. When a court “pierces the corporate veil,” it determines that the corporation and owner are basically the same, with the corporation serving as merely a shell for the owner to act. If this finding occurs, your personal assets can be used to satisfy corporate debts, which defeats one of main purposes of owning a corporation in the first place.
 
Second, you will probably not be able to obtain an SBA loan if you do not have bylaws.  These loans are backed by government guarantees.  The government wants to make sure it is not lending to an entity that has not been set up properly. The SBA wants to make sure the bylaws do not contain provisions that make the loan risky.
 
Finally, another reason why we talk to our clients about shares and bylaws is for estate planning purposes.  When a person passes away, they leave their property to beneficiaries.  Shares of corporations are personal property.  If a business owner has not issued himself or herself shares of the corporation, what is there to pass to their beneficiaries? 
 
Further, as we explained above, corporations are managed by the board of directors and not the shareholders.  Therefore, even if a shareholder owner passes their shares to their beneficiaries, that does not mean that the beneficiary now suddenly starts managing the company as a new director.  If you are the sole director of your corporation, who will take over management when you pass away or are sick?  The bylaws of a corporation will govern what happens when a director passes away or otherwise becomes unable to act.
 
We can do some pretty creative estate planning with owners of corporations.  We can help them restrict management or ownership of shares to family members.  We can ensure that their shares stay out of probate through using trusts, saving their families money.
 
For assistance with drafting bylaws, issuing shares, and implementing an estate plan, give Jesson & Rains a call!