In a previous article, we discussed the benefits of incorporating. In this article we will discuss why it makes sense to hire an attorney to set up your corporation or LLC.
- Ensure that you are selecting the most advantageous and proper corporate entity: When incorporating, there are many different types of entities you can select for your business, such as LLCs, Corporations, Limited Partnerships, and Limited Liability Partnerships. An attorney will educate you on the benefits, drawbacks and costs of each type of entity, to make sure that you are selecting the type of corporate entity that best fits your needs and is most cost-effective. Secretary of State initial and annual filing fees can vary widely based on the type of entity you select. In addition, if you have multiple businesses, Series LLCs can save you a significant amount of money annually. Some professions require specific types of corporate entities, such as P.C.s or PLLCs. Having the advice of an attorney in selecting the proper corporate entity will actually save you money in the long run.
- Ensure that corporate formalities are maintained: Many business owners are not aware that proper incorporation does not simply constitute filing articles of incorporation with the Secretary of State. If your corporation or LLC does not follow required corporate formalities such as maintaining bylaws or operating agreements, formalizing initial and annual meetings of shareholders and directors, filing the proper DBA forms for names under which you do business, issuing stock certificates, and maintaining a corporate book, your articles of incorporation won't be worth the paper they are written on. One of the primary benefits of incorporation is liability protection. However, if you are ever sued and you have not followed proper corporate procedure, the person suing you will be able to easily "pierce the corporate veil" and hold you personally liable for your corporate debts. Similarly, if you have been reaping the benefits of self-employment tax savings due to your corporate status and you have not maintained corporate formalities, an audit will likely result in you paying back the full amount of self-employment tax that you would have paid had you been a sole proprietor.
- Ensure that you are registered with the required government agencies: When forming a corporation, you are required to register your business with several governmental entities. Failure to do so will result in fines. Most attorneys will handle these registrations for you as part of their corporate set-up service.
- Advise you on tax issues and file necessary paperwork: In addition to incorporating on the Secretary of State level, you can make elections, like the S-Corp election, with the IRS which will significantly reduce your tax liability. Your attorney will ensure that you are taking full advantage of corporate tax law and file the necessary paperwork on your behalf.
- Build a relationship for your future business needs: As a business owner, you will have frequent legal needs, be it contracts, leases, employee issues, exit strategies, or disputes. Establishing a relationship with an attorney at the outset of your business will allow you to plan for your legal future and provide you with an invaluable resource going forward. Check out this article regarding the 11 Situations in Which You Should Contact Your Business Attorney.