What to Ask: Incorporation and Hiring an Attorney | Patrick M. Jones, Esq.
Starting a new business? UpCounsel attorney Patrick M. Jones explains what every startup should be asking their legal team about incorporation and hiring an attorney3 min read
What corporate form is right for my business?
A company can take several forms, including limited liability companies, corporations, partnerships, and professional limited liability companies, among others.
What steps are required before my company is ready to open a bank account, enter into contracts, etc.?
You will need to file the Articles of Organization with the state where the company will be formed. This is a very basic one-page filing that can be completed online. Then, you will need an Operating Agreement, which explains how the company operates internally, i.e., not how it relates to customers or vendors, but how the company's officers or managers make decisions for the company, and how investors can come in and out of the company. Then you will need a Federal Employment Identification Number, which again is a one-page application that you can submit online. That's it.
How much will this cost?
I typically charge a flat fee, depending on the complexity of the organization being formed, but typically between $500 and $1,000. I will not charge you more for this service. Filing fees with the state typically run between $500 and $750 to file the Articles of Organization. That amount is in addition to my flat fee.
What is the best way a small business owner can protect personal wealth and assets from business risks?
The best way to protect your personal wealth and assets from business risks is to form an LLC or a corporation. General partnerships do not have to be filed with the state, but they do not limit the partner's personal liability for business losses.
What specifically are small business owners most confused about when you first meet with them?
They don't understand the "corporate fiction" – that the company is its own entity separate from the individual founders.
How can quality legal services help a small business grow?
Quality legal services can help a small business grow by anticipating needs and avoiding future disputes.
How can quality legal services help small businesses save money?
Quality legal services can (a) help you avoid penalties and unnecessary fees and expenses, and (b) connect you to other professionals, including funding sources, financial advisors, accountants, etc., who are familiar with the special financial concerns of a startup.
How can small businesses maximize the value of their legal team’s services?
I recommend finding counsel who you are comfortable with (and who won't charge you every time you call), and rely on them as your "general outside counsel," going to them when you have legal and non-legal questions. A lawyer or law firm experienced in dealing with start-ups can help you avoid "re-inventing the wheel."
Should business partners have the same amount of equity in a company? Why or why not?
Not necessarily. That is why you have an Operating Agreement. It sets out the "balance of power" between majority and minority "shareholders," which can help avoid disputes down the road.
What are the top three things a small business owner should be aware of when purchasing an existing business?
Review the business's tax returns to determine profitability and if there is outstanding tax liability. How long have the employees been there? Are there any key employees who would be hard to replace? Carefully review the company's financial books and records with its accountant, so that you are aware of all liabilities.
Do you have any other essential legal guidance for startups that you haven't already included in this survey?
Ask the prospective attorney for examples of other startups that they have help form, and whether they continue to work with them.