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Buying or Selling a Business in North Carolina

| John M. McCormick | ,

Quick Answer

Buying or selling a business in North Carolina follows the familiar path of letter of intent, due diligence, purchase agreement, financing, and closing, with North Carolina-specific steps along the way. Entity status and UCC liens are checked with the Secretary of State, land records and judgments are kept at the county level, buyers must withhold for the seller's unpaid sales and use taxes under N.C. Gen. Stat. § 105-164.38, and North Carolina's strict blue pencil rule means an overbroad non-compete can fail entirely.

This article is part of our Legal Guide to Buying or Selling a Business.

Our Raleigh office handles transactions across North Carolina, from the Triangle to Charlotte, the Triad, and the coast. This guide covers the North Carolina issues we see most often. For the general process, start with our asset purchase vs. stock purchase and due diligence guides.

Where Do You Check a North Carolina Company's Status?

The North Carolina Secretary of State maintains corporation and LLC records, annual reports, and registered agent information, and issues a Certificate of Existence showing a company is in good standing. The Secretary of State also maintains UCC filings. Real property records are kept by the register of deeds in each county, and judgments are filed with the clerk of superior court, so searches should cover every county where the business operates or owns property. A corporation or LLC that falls behind on its annual reports can be administratively dissolved after notice from the Secretary of State and a 60-day cure period (N.C. Gen. Stat. §§ 55-14-20, 57D-6-06). Reinstatement generally relates back to the date of dissolution, but it does not cure every defect and is subject to the rights of anyone who reasonably relied on the dissolution, so any lapse should be fixed before closing.

Who Has to Approve the Sale?

For a North Carolina corporation, a sale of all or substantially all of its property outside the usual and regular course of business requires a board proposal and shareholder approval, by default a majority of all votes entitled to be cast (N.C. Gen. Stat. § 55-12-02). North Carolina's safe harbor is 25%: a corporation that keeps a business representing at least 25% of its total assets and at least 25% of either its pretax income or its revenues from continuing operations is not treated as selling substantially all of its property. Unlike Virginia, North Carolina generally gives shareholders appraisal rights in a qualifying asset sale, subject to statutory exceptions. LLCs deserve special attention: if the operating agreement is silent, selling all or substantially all of an LLC's assets outside the ordinary course requires the approval of every member (N.C. Gen. Stat. § 57D-3-03). Shareholder and operating agreements may also contain transfer restrictions, buy-sell provisions, or rights of first refusal that affect an equity sale. Review them before signing a letter of intent.

How Should Buyers Handle North Carolina Taxes?

North Carolina imposes successor liability for unpaid sales and use taxes. When a business or its stock of goods is transferred, the seller must file its sales and use tax return within 30 days, and the buyer must withhold enough of the purchase price to cover the taxes due until the seller produces a statement from the Secretary of Revenue showing the taxes have been paid or that none are due. A buyer who does not withhold can become personally liable for the unpaid taxes (N.C. Gen. Stat. § 105-164.38). Because North Carolina protects taxpayer information, the practical approach is to require the seller to request and deliver that statement before the holdback is released. This rule covers sales and use tax only, so buyers should still run state tax lien searches and address other tax exposure, such as withholding taxes, through the purchase agreement, a holdback, or an escrow. The seller should close or transfer its tax accounts after closing, and the buyer typically registers its own. If real estate is included, North Carolina's excise tax on deeds applies and should be allocated in the agreement.

What Licenses and Permits Apply?

  • Occupational licenses: North Carolina regulates many trades through separate licensing boards, such as the Licensing Board for General Contractors, and licenses are tied to the licensed entity and its qualifiers
  • Alcohol permits: North Carolina ABC permits cannot be transferred, and a change in ownership generally causes them to expire automatically (N.C. Gen. Stat. § 18B-903). That includes a new owner acquiring 25% or more of a corporate permittee's stock, so keeping the same entity does not necessarily preserve the permit. A qualifying buyer may be able to operate as successor to the prior permittee while its own application is pending, but it must notify the ABC Commission before operating and apply for a new permit within 60 days of the ownership change, among other conditions
  • Local requirements: zoning approvals, certificates of occupancy, and local permits should be confirmed with the city or county
  • Food and child care permits: food establishment permits are issued to the owner, operator, or lessee and are not transferable, so a new owner must obtain its own permit before operating (N.C. Gen. Stat. § 130A-248). Child care licenses also cannot be transferred, and a prospective new owner must apply for a new license at least 30 days before acquiring ownership
  • Environmental permits and health facility licenses: treatment varies by permit. Some can be transferred through a formal application or approval process rather than reissued, so each permit the seller holds should be identified and handled individually

Are Non-Competes Enforceable in North Carolina?

A non-compete in North Carolina must be in writing and signed by the person agreeing not to compete (N.C. Gen. Stat. § 75-4), and it must be reasonable in time and territory. In a sale, the purchase price can supply the required consideration when the covenant is part of the bargained-for deal, which is why it should be signed at closing and, ideally, have part of the price allocated to it. A covenant first signed after closing raises a past-consideration problem. Every owner who could compete should sign; a buyer should not assume that one seller's signature binds another. Courts have long applied a more relaxed standard to non-competes given in the sale of a business than to employee covenants. That treatment can extend to a restriction tied to the seller's continued work after closing when the documents form an integrated sale, though courts look at what each covenant actually protects rather than its label. However, North Carolina follows a strict blue pencil rule: a court can strike clearly separable unreasonable terms but cannot rewrite an overbroad restriction. In Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC (2016), the Supreme Court of North Carolina held that parties to a sale-of-business covenant cannot contract around this rule by authorizing the court to revise it. For more, see our article on non-competes in a business sale.

Financing a North Carolina Acquisition

Lenders will require a Certificate of Existence, lien searches, and often landlord consent and a minimum lease term. See our guide to buying a business with an SBA loan.

Attorney Insight

When a North Carolina business operates in multiple locations, I consider drafting the non-compete with severable tiers, such as separately stated territories for each market, so that if a court finds the broadest version unreasonable, it can strike that tier and enforce the rest. Under the strict blue pencil rule, a single all-or-nothing clause gives the buyer no fallback.

Frequently Asked Questions

Do I need a North Carolina attorney to buy a North Carolina business?

It is strongly recommended. North Carolina's filing, licensing, tax, and non-compete rules differ from other states, and the documents should be drafted with them in mind.

What is a Certificate of Existence?

It is the North Carolina Secretary of State's certificate confirming that a company exists and is current on its filings. Buyers and lenders typically require one at closing.

Can a North Carolina court fix an overbroad non-compete?

Only by striking clearly separable unreasonable provisions. It cannot rewrite the restriction, even if the agreement says it may.

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Buying or Selling a Business in North Carolina?

McCormick Law & Consulting represents buyers and sellers in business acquisitions, primarily in Virginia and North Carolina and in transactions that cross state lines. The transactions in which we have represented a party total hundreds of millions of dollars in combined deal value, a measure of the size of those deals, not of amounts recovered or earned for clients. We have formed roughly a thousand new business entities and currently represent hundreds of businesses, so we approach every deal from the operating side as well as the legal side. Every transaction is different, and the size or outcome of past deals does not predict the result in yours.

With offices in Norfolk, Virginia and Raleigh, North Carolina, we handle most of our transactions in those two states and also assist clients with multistate transactions. If you are buying or selling a business, a short call early in the process can save time, money, and leverage later. Learn more about our mergers and acquisitions practice.

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This article provides general information only. It is not legal, tax, or financial advice and does not create an attorney-client relationship. Laws differ by state and change over time. Our attorneys are licensed in Virginia and North Carolina. We assist clients with business transactions involving multiple states. For matters involving the law of a state where we are not licensed, we associate with appropriately licensed counsel or otherwise proceed only as permitted by applicable law.