NC Free Trader Agreement Definition
What is an NC Free Trader Agreement or NC FTA?
In the simplest of terms, North Carolina as a state provides tax savings for anyone who would set up a business in the state in the form of the NC Free Trader Agreement or NC FTA. In order to take advantage of these tax savings, you can file a form D which will basically save your business from paying taxes in the state of North Carolina.
Now, the kicker with all of this is that you don’t get to file a form D for free. You have to pay fees along with submitting your form D. And while those fees would be considered savings even in the state of California, they are absolutely nothing compared to the fees and taxes North Carolina residents had to pay back in the day before the NC FTA was established.
Let’s take a closer look at it:
What is NCFTA?
NCFTA stands for North Carolina Free Trader Agreement. It’s basically a document created by the state of North Carolina that allows businesses within the state to operate without being subject to state taxes . Such businesses include corporations, LLCs and limited partnerships.
Why is NCFTA Important?
It’s important because such entities are going to be taxed differently than a non-North Carolina entity. In other words, the state is saying, "Look, if you were located outside of our state, we wouldn’t care about how much you made. We wouldn’t even care about taxing you. We’d be happy to have you in our state."
They are hoping that this makes you happy. That now you want to do business in their state. Without paying this tax, you have more money for reinvestment, for payroll, for projects…the excitement keeps coming.
Why Wouldn’t I Want to Set Up an NCFTA?
A free trade agreement simply means that you will have to give something in return for this agreement. In this case, you will have to be subject to the law in North Carolina. This means court systems, court procedures, court fees and so on. So while there are benefits to setting up in North Carolina, it can also mean that you are subject to more regulations.
Advantages of a Free Trader Agreement in NC
The NC Free Trader Agreement allows spouses to circumvent the state’s elective share statutes and property division statutes, freeing them from the likely burden and cost of litigation to determine whether pre-marital property, separate property brought into the marriage or gifted property remains separately owned. The benefits of a NC Free Trader Agreement are many. It protects property that an individual acquired prior to the marriage or gifted to him during the marriage or purchased with the proceeds of such property. Where a spouse would be awarded all or some portion of a predecessor’s decent estate in order to arrive at 1/3 (or 50%) of the fair market value of those assets as of decedent’s death, the free trader agreement releases those rights. It also protects property that becomes part of the estate of the late spouse. It protects property acquired during the marriage. The separate property of an individual, which can include gifts and inheritances received by one spouse during the marriage is, unlike marital property, unable to be awarded, or subject to, equitable distribution. It protects the prospect of alimony. The court is not required to consider the financial needs of the payor spouse. It releases the estate of the testator from the elective share statutes. For those who have previously been awarded alimony or child support from a former spouse or payor spouse, the free trader agreement releases his or her estate from the right to seek reimbursement for those monies. The surviving spouse will not be required to return money received under a prior order when their marriage is terminated. The NC Free Trader Agreement is also a part of many prenuptial and separation agreements entered into by couples as they embark on their relationship.
How to Create a Free Trader Agreement in North Carolina
To properly create a NC Free Trader Agreement, there must be a written agreement signed by both spouses allowing the spouse doing business to operate as a "free trader" and thereby undertake business activities without the consent of the legally married spouse. The free trader spouse must then file a Free Trader Agreement and Certificate of Free Trader Agreement with the office of the Register of Deeds in the county (or one of the counties) in which the spouse is either residing or more likely conducting business. It is important to point out that according to one of the most recent cases re-explaining the NC Free Trader Agreement, if the free trader does not then file the Free Trader Agreement and Certificate of Free Trader Agreement with the county Register of Deeds, the agreement is not valid.
Therefore, the following steps should be followed to properly draft and then execute a Free Trader Agreement in NC:
- The Free Trader Agreement and Certificate of Free Trader Agreement is drafted either by one of the parties or their attorneys.
- The document is then signed by both spouses.
- Next, the spouse doing business must then take the Free Trader Agreement and Certificate of Free Trader Agreement to the County Register of Deeds Office, pay the requisite filing fee and have the document recorded.
Legal Aspects and Considerations
The NC Free Trader Agreement is a common business formation document in North Carolina but it is important that the document comply with certain legal requirements to avoid mistakes and pitfalls which could trigger additional costs and potential liability. The requirements for a Free Seller Agreement are as follows: North Carolina General Statute § 66-71.2 provides that "Any person or entity intending to conduct business under any name other than the real name of the person or entity shall file a registration with the Secretary of State…." The only exception to this requirement is for an individual using his or her full name as the name of the company in which he or she is conducting business. In order for a Free Trader Agreement to be binding on the named parties, the Agreement must be in writing and signed by two witnesses (G.S. § 47-14.2 and G.S. § 47-22). In addition, the document must also be notarized and filed in order to fully comply with the Statute and afford the parties the legal protections which the Statute provides. It is important to avoid mistakes since a poorly executed Free Trader Agreement will not provide third parties undertaking business with a company which fails to properly register. In addition, if the company then fails to register within 60 days and a viable lien is filed (UCC1), then the company may also become subject to additional penalties including a fine of $1000 and increased liability for unpaid taxes, litigation and collection costs. The following are some common pitfalls and mistakes to avoid when preparing a NC Free Trader Agreement: Remember, proper execution and filing of a NC Free Trader Agreement is a simple procedure which can avoid costly mistakes and pitfalls.
Free Trader Agreement v. Prenuptial Agreement
The Free Trader Agreement is not a Prenuptial Agreement
NC Free Trader Agreements and Prenuptial Agreements are often confused for one another and thought to be the same thing. But as you will see below, they are absolutely not the same. As a family law practitioner in North Carolina for well over 10 years, I can assure you the 2 are NOT the same. A Free Trader Agreement allows a spouse to conduct appropriate transactions relative to their business during the marriage without the approval of the other spouse. The parties cannot have any intent on divorcing when entering into this marital agreement. Prenuptial Agreements are agreements entered prior to the marriage that govern what will happen during the marriage if the parties divorce, die, or if there is a separation in which an agreement for separation or divorce is made. The agreement can say virtually anything the parties see fit to agree upon, with a few minor exceptions. But a Prenuptial Agreement can NEVER serve the purpose to protect one’s business during the marriage. A Free Trader Agreement protects a spouse in a marriage who would like to operate a business by themselves while having the other spouse involved in the business but without the approval of the non-owner spouse for business transactions that the owner deems appropriate. For example, my client is a business owner and has a spouse who may be involved in the business to some extent but doesn’t have ownership . In a situation like this, my client does not want to be delayed in making business decision relative to the business without having the approval of the spouse. An example of a relationship where a Free Trader Agreement is appropriate is with the owner of an S Corporation or sole proprietorship. If the spouse of the business owner has no ownership stake in the business, there is no need for a Prenuptial Agreement. That is where a Free Trader Agreement is the appropriate vehicle to assure that the owner of the business can properly and legally operate the business without the approval of the spouse. A business owner should not enter into a Prenuptial Agreement because it may have the unintended consequence of making the other spouse an owner of the business and therefore subject to alimony. There are exceptions as to why a business owner should never enter the Fair Trader Agreement to protect their business and in those cases a Prenuptial Agreement should be entered. The NC Fair Trader Agreement and Prenuptial Agreement should always be discussed with a family law attorney prior to entering into either document. Whether a Free Trader Agreement is necessary or not or whether to enter a Prenuptial Agreement is something a family law attorney should discuss with the client so that proper planning can be made to preserve the assets should the marriage end in divorce.
Free Trader Agreement Misconceptions
The following section will include information in the series of posts about the NC Free Trader Agreement "Common Misconceptions About NC Free Trader Agreements":
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When there’s a myth going around, sometimes it can be hard to make heads or tails of the situation because so many people are repeating the same wrong information. This is a similar situation with the North Carolina Free Trader Agreement. There are a few common misconceptions about the agreements that help homeowners gain insight on how they work and what it means if you’re offered one.
Maybe the most common myth that we hear is that a Free Trader Agreement is a deed—a transfer of the house the homeowner gives to the bank. However, this is false. The NC Free Trader Agreement gives homeowners the right to give collateral to the bank that wasn’t covered under the original agreement for the mortgage and home loan. It’s extremely important that a homeowner fully understands what a Free Trader Agreement entails. This agreement essentially means that the homeowner is not entitled to certain interests, but the bank is. The NC Free Trader Agreement helps to guarantee the bank will receive the funds it needs, especially if the homeowner drops the loan payment completely.
Also, because the Free Trader Agreement takes some interest away from the homeowner, this agreement doesn’t have the intent of allowing the homeowner to take out a second mortgage to obtain funds. In actuality, he or she is taking equity away from their home. It’s important to understand that the existence of this agreement means that the homeowner doesn’t have the required collateral available to secure a second mortgage or a home equity line of credit—because they already loaned their rights away. But, gaining access to the equity without the agreement is still a likelihood in some situations.
Homeowners can get into trouble if they don’t comprehend what they’re signing before taking out a second mortgage or home equity line of credit. If the homeowner takes out a second mortgage or home equity line of credit while they have the NC Free Trader Agreement, they could end up losing money or face legal actions. That’s why it’s extremely important to speak with a trusted attorney before making any decisions about how to handle your mortgage, especially when a Free Trader Agreement is involved.
Case Studies and Examples
The effectiveness of a Free Trader Agreement in NC can be illustrated through a real-life scenario: the acquisition of a commercial property for a new office building. A local firm decided to purchase a three-acre plot in a developing district, and because this was a business purchase (as well as a real estate transaction) the agreement was deemed necessary by the lender. An NC Free Trader Agreement was executed following the legal procedures, and their clean financial history resulted in a free trader certificate being granted. Subsequent to the purchase, the company applied to expand into a neighboring, empty parcel of land. They were met with the request of a new agreement, but upon showing the certificate filed previously they were once again approved thanks to the Free Trader Agreement. In another case study, a woman and her adult daughter both owned a small catering company. The business was headed for an expansion, including a full restaurant location, and therefore both were seeking a business loan. Prior to applying for the loan, they executed a FREE TRADER AGREEMENT with their attorney as specified above; when presented to the bank it was accepted and they received the funds without delay. This would not have been the case for either of them had they not had a Free Trader Agreement in place. Without one, the bank would have viewed them as either two owners of the same business (which would be an unacceptable risk) or two separate business persons (making the loan principal too high to be accepted). Both of these are solid examples of what a NC Free Trader Agreement is for. It can protect a business from many of the problems of liability and negative perception, while also reinforcing your trustworthy nature. These real-life scenarios are perfect examples for those who are about to go through the process or are on the fence. Those who have to use the free trader agreement will likely find peace of mind and opportunity waiting for them.
Free Trader Agreement Legal Help
It is not uncommon for clients to ask me if they can draft their own Free Trader Agreement. I do not recommend it even though it is entirely legal. The NC Free Trader Statute was revised in 1999 but I regularly see estates still using the old statute to draft their Free Trader Agreements. I have even seen Free Trader Agreements that fail to give the trader the authority to sell inventory and certain types of collateral. Lastly, when the Court looks at the language of a Free Trader Agreement, they will interpret them very narrowly. I always encourage my clients to get a professional involved when they are drafting a Free Trader Agreement. It is important that you hire an attorney who has experience with Free Trader Agreements. I have clients give me an Estate Plan Questionnaire that they prepare themselves and then come to my office to have me draft a Free Trader Agreement. I always tell my clients that I prefer to use their Questionnaire to draft an Estate Plan but that there are certain vital documents that require me to be involved in order to be effective . There are several things you want to look for when hiring an attorney to draft your Free Trader Agreement. You want to make sure that the attorney is familiar with the NC Free Trader Agreement (I suggest books and/or courses). You want to make sure that the attorney has a substantial familiarity with estate planning in NC. If the attorney is also familiar with business law, real estate, and/or mediation that is a plus. You want to make sure that you actually meet with the attorney who is going to draft your Free Trader Agreement. You do not want to give this job to an associate who has no history with your case. You want to find an attorney who will consent to a limited representation agreement. I do not believe in drafting the Free Trader Agreement and then having you and your spouse execute the agreement without review of the final product. My type of representation costs more but it reduces the risk of litigation after the signing of the Free Trader Agreement.