By Associate Attorney Danielle Nodar
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After completing the numerous steps to form a business, business owners sometimes forget that they have to file annual reports with the North Carolina Secretary of State to keep their business active.

Each Business Corporation, Limited Liability Company (LLC), Limited Liability Partnership (LLP), and Limited Liability Limited Partnership (LLLP) must file an Annual Report. Limited Partnerships, Professional Corporations (PCs), and
Professional Limited Liability Companies (PLLC’s) do not have to file an Annual Report.

The due date for your business’s annual report depends upon the type of business. For corporations and partnerships (LLP and LLLP), the annual report is due to the Secretary of State’s Office the 15th day of the fourth month following the entity’s fiscal year’s end. For example, if your fiscal year ends on December 31, your annual report for that year is due on April 15th. The due date for LLC’s Annual Reports is April 15 each year after the date of creation. There is also a fee due each year when filing the Annual Report. For LLC’s and partnerships, the fee is $200 and for corporations, the fee is $25.

Businesses can file their Annual Report to the Secretary of State’s Office by mail, or they can file their Annual Report and pay the fee online via the Secretary of State’s website.

The Annual Report is used to keep the business records on file with the North Carolina Secretary of State up to date. On the Annual Report, you will provide basic information about your business, such as the nature of the business, the name and address of the registered agent, the principal address of the business, and the names and signatures of company officials.

The consequence for not filing an Annual Report and/or paying the fee is that the Secretary of State can administratively dissolve your business for failing to file the Annual Report. This means that you will lose the liability protection you enjoy by being a formal business, and a creditor can come after your personal assets.

It is important for business owners to make sure their registered agent information and email address is current throughout the year because the Secretary of State sends notices related to the Annual Report to the registered agent and the email it has on file for the business. We see a lot of businesses get dissolved and the owner does not even know because they have not updated their registered agent’s information in years (or paid their professional registered agent’s fee, who promptly drops them as a client).

If you are a business owner and have questions about filing your Annual Report or reinstating a business that has been dissolved for failure to file an Annual Report, contact Jesson & Rains.

By Associate Attorney Danielle Nodar

The California Consumer Privacy Act (CCPA), the strictest U.S. law regulating consumer data privacy, became effective on January 1, 2020. Even though the CCPA protects California consumers only, North Carolina business owners with E-Commerce businesses should take note because the law may apply to their business. The law applies to a business “doing business in California,” which includes selling goods or services to California residents even if the business is not physically located in California.

The CCPA gives California consumers certain rights to their data privacy, including the right to know what kinds of personal data a business collects, uses, shares, or sells to third-parties. Consumers will also have a right to request that a business delete any personal data kept on the consumer or prohibit the sale of personal data to third parties. The CCPA also protects a consumer with guarantees that a business will not penalize the customer with higher prices or lower levels of service if they request information regarding their data or data deletion.
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A business must comply with the CCPA’s data privacy requirements if it collects and sells consumer personal information of a California resident or discloses personal data for a business purpose. “Personal information” is broadly described as “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular California resident or household.” This includes many identifiers such as name, address, social security number, email address, IP address, and geolocation data.

Since CCPA doesn’t just apply if a company sells data, it is important to understand how “business purpose” is interpreted under the statute. The CCPA defines “business purpose” as “the use of personal information for the business’ or a service provider’s operational purposes, or other notified purposes, provided that the use of personal information shall be reasonably necessary and proportionate to achieve the operational purpose for which the personal information was collected or processed or for another operational purpose that is compatible with the context in which the personal information was collected.” Some examples include 1) to fulfill the reason the information was provided (i.e. to provide the requested product or service); 2) administer websites; 3) perform market research; 4) advertise products and determine effectiveness of such marketing; 5) internal research for technological and business development; 6) debugging and repairing errors on websites; and 7) detecting against security incidents, including fraudulent or illegal activity.

Luckily, there is an exception for small businesses. For CCPA to apply, businesses must meet at least one of the following requirements: 1) Businesses with a gross annual revenue of $25 million or more; or 2) Businesses that possess personal data from 50,000 or more individuals, households, or devices; or 3) Businesses with at least 50% of their annual revenue earned from the sale of personal data.

If a business is subject to the requirements of CCPA, there are some steps that can be taken to ensure compliance. Prior to collecting data from consumers, businesses must inform the consumers of the categories of personal information the company collects and for what purposes the company uses the information. Companies must also provide consumers with at least two designated methods for submitting requests for information, including a toll-free telephone number and, if the business has a website, a website address. The business also must ensure it has protocols in place to respond to such requests free and within 45 days of receiving a verifiable request. The company must also maintain records of all requests made and how the company responded. A business can provide this type of information to consumers with an updated, comprehensive privacy policy that is easily accessible to consumers on the company’s website.
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If you believe that you may need to make your business CCPA compliant, contact Jesson and Rains for help with understanding and complying with these new data privacy regulations.

President Trump signed a new law in December that has taken effect this month called the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). It includes a wide array of changes to retirement accounts that both individuals and business owners should know.

For individuals, here are a few highlights:

• Plan participants who did not already turn 70.5 in 2019 now do not have to take required minimum distributions (RMDs) until age 72.
• 529 accounts may now be use for qualified student loan repayments up to $10,000 total.
• Up to $5,000 may be withdrawn from 401(k) accounts without penalty in order to have or adopt a child. The distribution, which is still subject to tax, can be repaid to a retirement account.
• Plans may offer qualified disaster distributions without penalty to participants who lived in a presidentially declared disaster area if taken before age 59 1/2, and participants are permitted to spread taxes on the distribution or repay it over three years.
• The age limit (70.5) for traditional IRA contributions has been eliminated. However, it appears to require that Qualified Charitable Distributions come from pre-70.5 contributions.
• One potential downside to the law is that inherited IRAs must be spent within 10 years of inheritance (the government wants to hurry up and get those taxes) regardless of the age of the owner at time of death. If the IRA owner died in 2019, the new law does not apply to the beneficiary. We previously wrote about the old law and estate planning here.
  • There are exceptions to this rule: spouses, minors, disabled individuals, chronically ill individuals, or beneficiaries within ten years of age to the decedent.
  • It is unclear yet whether a trust for the benefit of spouse and children is an exempted beneficiary.
  • When a minor child reaches the age of majority (18), the ten-year clock starts. It is unclear how trusts will be treated where there are multiple children of different ages.
  • The definition of a disabled individual is a person who is “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” IRC §72(m)(7).
  • The definition of a chronically ill individual relates to the code section dealing with the deductibility of long-term care expenses. That section requires a licensed health care practitioner to certify that the individual’s limitation is indefinite but expected to be lengthy in nature, as well as one of three things:

                        (i) being unable to perform (without substantial assistance from another individual) at least 2 activities of
                        daily living for a period of at least 90 days due to a loss of functional capacity,

                        (ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in
                        consultation with the Secretary of Health and Human Services) to the level of disability described in
                        clause (i), or,

                        (iii) requiring substantial supervision to protect such individual from threats to health and safety due
                        to severe cognitive impairment.
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Business owners should be aware of the following:

• The business tax credit for plan startup costs will increase from $500 to up to $5,000 in certain circumstances. 

• There’s an additional $500 tax credit for three years for plans that add automatic enrollment of new hires.

• The cap on payroll contributions in automatic-enrollment safe harbor plans has increased from 10% to 15% of wages (employees can opt out of the increase). 

• Employers must now include long-term part-time workers as participants in defined-contribution plans if they have completed at least 500 hours of service each year for three consecutive years and are at least 21 years of age. However, these participants can be excluded from safe harbor contributions, nondiscrimination and top-heavy requirements. 
• Employers and plan sponsors are now more likely to include annuities as an option by reducing their liability if the insurer cannot meet its financial obligations.

A financial adviser would be the best person to contact if you have any questions about how the SECURE Act affects your retirement, and a CPA would be a good person to contact regarding business credits. However, if you want to discuss how eliminating the IRA lifetime stretch might affect your estate plan, give Jesson & Rains a call.

By Attorney Kelly Rains Jesson
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In addition to celebrating Christmas, Hanukkah, and Kwanzaa this month, December is National Write a Business Plan Month! The holidays are a time for reflection and a time to look forward to the future, and if you’re thinking of starting a business in 2020, you should consider spending some time during your holiday break writing a business plan. While a business plan is not a legal requirement for starting a business in North Carolina, there are some benefits:

Writing a business plan helps you figure out your ideal business structure. As we wrote here before, you have several choices of entity in North Carolina, and they each have their pros and cons.

Writing a business plan helps you attract investors, partners, and key employees because it helps them envision the future and it shows you are responsible, serious about the success of the business, and strategic. Some lenders will require a business plan before issuing a business loan.

Writing a business plan helps you create a budget by planning for expenses and estimating revenue.

Finally, you can include goals and milestones in your business plan and then celebrate when you reach them in 2021!

Everyone here at Jesson & Rains wishes you a Merry Christmas and a happy holiday!

​October is National Women’s Small Business Month.  Jesson & Rains is proud to represent and work for numerous women-owned businesses.  Charlotte is an exciting place for women entrepreneurs.  Last year, it was named the “#1 City in America For Female-Owned Business Growth.” 
 
According to Andrew Soergel, Senior Writer for U.S. News and World Report, “[t]he annual State of Women-Owned Businesses Report – which pools data from the Census Bureau and the Bureau of Economic Analysis in determining the financial impact of such ventures – estimates America's total number of businesses headed by women ballooned 21% between 2014 and 2019 . . . . Overall business growth clocked in at just 9% during the same period. Revenues generated by women-led companies, meanwhile, climbed 21% to nearly $2 trillion, while the jobs they created rose by 8% to 9.4 million. Both growth totals eclipse the national average for companies headed by executives of either gender.”
 
Our very own Jesson & Rains partner, Kelly Rains Jesson, is a board member of the National Association of Women Business Owners (NAWBO).  Founded in 1975, NAWBO is “the unified voice of over 10 million women-owned businesses in the United States representing the fastest growing segment of the economy.”  NAWBO propels women entrepreneurs into economic, social and political spheres of power worldwide.

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!