As a business attorney, I help people form corporations and LLCs to protect their assets and increase their net worth. Today, we are bombarded by ads on the radio and television telling us how easy it is to “Form your own LLC or Corporation, and save expensive legal fees!” These ads suggest that attorneys are unnecessary at best, and greedy at worst. With this in mind, you may be asking…
Do I need an attorney to form my corporation?
To often, the answer is “Yes”, well….”maybe” depending on your experience and legal competency.
Let’s start with a few questions:
- I am forming a new company, should I form an LLC, LLP, a C-Corp or an S-corp?
- Once I file the articles of incorporation, what is the next step?
- Should I transfer assets to the company or use personal funds?
- What is the best way to transfer funds into a new corporation?
- Do I need By-laws or an operating agreement or both?
- How do I issue shares?
- What is my title, am I a board member, chairman, or president?
- What type of company is the best for my business’s taxes?
If you don’t understand the difference between the corporate structures listed above and can not quickly answer the following questions, you might need a little legal help!
But what if I look it up online, or ask some of the online document companies for help?
This is a great question, but what most individuals don’t understand is that cost-saving services can not provide you with legal answers to these questions. “But why?” The answer is simple, It is the unauthorized practice of law, and these sites are not attorneys. They can tell what is on the form, but they can’t answer the really important questions necessary to make your business safe from liability. Setting up a business entity incorrectly or incompletely can lead to tax penalties, unprotected personal assets, no limited liability, and lost peace of mind.
Forming an entity without legal counsel may work for you if you are setting up a single-member entity and don’t expect to add employees, set up multiple locations, or plan to significantly build the profitability of your business, but what if you see the potential growth of your company?
Okay, Okay, so what benefit does an attorney add?
For every person I meet that has told me that they have had no problems with forming their company themselves, I have at least one client who tells me, I wish I would have used an attorney when I started.
If you plan to raise money from outside investors, hire employees, open multiple business locations, pay only those taxes that you really owe, or if your business is in a highly regulated field, you absolutely need the services of a competent business attorney. By the time you fill your online shopping cart with your best guesses, you are getting close to what you’d pay for an attorney…and you are getting a lot less for your money.
In addition to being able to help you select the proper entity and place of filing, good business attorneys will connect you to other reputable professional service providers — bankers, accountants, insurance agents, financial planners and web designers. We know where to send you for free or low-cost business services to make sure your business plan is sound, or to get training on Quick Books, marketing, sales or hiring employees. Attorneys will make sure your ongoing filings with the Secretary of State are current and that the corporation is holding requisite annual meetings. In short, we take an ongoing professional interest in your success.
Bottom-line: if the initial organization is not done correctly and completely, or if you choose the wrong form of entity or state of incorporation, the costs to unravel the errors greatly exceed the savings of “doing-it-yourself.”
Have you every gone into a store to get that Red-Hot deal and found out it wasn’t exactly what you expected or didn’t include an important component?
Remember, those initial low costs posted on the first page of the website are the dreaded teaser rate. Would you go to legal zoom if they told you at the homepage that you were going to spend $500-$800 for fill-in-the-blank forms, and that they aren’t providing you any legal advice, even though “legal” is the first part of the corporate name.
And if you are anything like me, I can’t stand unnecessary services that really have no connection with what I want, they are simply selling them because the company has an affiliated advertising agreement.
Remember, doing it yourself is always an option, but so is doing your taxes, cooking gourmet food, remodeling your home, changing your oil, and selling your home. Do it yourself always seems like a great idea that will save you a few hundred dollars; however, the issue is when it is done incorrectly.
If you are starting a business because you are great at something or have an revolutionary idea, focus on building that dream. If you are serious about running a successful business, make choices that reflect that desire. Most business owners want to be a success and more importantly want to make a profit. I have found many business owners who had set up their companies by themselves only to discover that they misses something crucial or formed an LLC when they should have formed an S Corp. Missing key issues at the start can cost thousands to correct.
If you are serious about being a business owner, develop a relationship with an attorney and accountant from the start. If you want things done right, do them right, and build a team of professionals that can help you set up your business and assist you personally in the future growth and profitability of your business. Online document companies charge 200-500 dollars for LLC paperwork, for a few hundred dollars more, you can have a professional who is on your team and is watching out for your company and investment from the start, and you can rest assured things have been done right. A few hundred dollars today often save you thousands later.