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I am a business lawyer. 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.

Not everyone realizes that business owners are able to file Articles with the North Carolina Secretary of State on their own without an attorney. In addition, there are many services around that can help entrepreneurs form corporations or limited liability companies (LLC). These include online services, forms from books/guides sold in office supply stores, and online forms available from the Secretary of State.

So, do you really need a lawyer to form your corporation?

Yes. Well … maybe…

Let me ask you some questions: Should you form a C-corporation, an S-corporation or an LLC? What do you do after you file your articles? What assets should be transferred into the company and how do you do it? What do you need to do to maintain your limited liability? If you don’t know, or you don’t understand the differences between the available entities, you probably shouldn’t form your own corporation.

If you don’t know, none of these cost-saving services are going to be able to tell you; that’s unauthorized practice of law. They can tell you what’s on the menu, but they can’t recommend what to order. And the problem with a bad choice is not mere indigestion. Setting up your 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 works best for single-member entities that don’t expect to bring in additional owners or outside capital, hire employees or set up multiple locations (particularly multi-state locations). It may also make sense to set up your own entity if you had an attorney set up a prior entity, and you are following a similar business model, with the same people as before, and nothing has changed in any of their lives. In reality, of course, every deal is different, people change, laws change, and the structure that you used last year may not be the best structure this year for this situation.

What an attorney adds.

While many people have used these services and are happy with the results, almost every business lawyer I know has a story (or two or three) about incomplete, incorrect or ill-conceived formations done by clients “going commando.”

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 the online route.

In addition to being able to help you select the proper entity and place of filing (Nevada, Wyoming, Florida, Delaware or the Old North State), 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. We 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.” As they said in Ghostbusters, “Who ya gonna call?!”

If you have decided to form your own entity, particularly using an online service such as Legal Zoom, The Company Corporation, BizFilings, etc., a couple caveats:

1. As with any significant online purchase, research the vendor. Find people you know who have used these services personally (ask around on Facebook, LinkedIn, or Twitter) and ask about their experience. Check with the Better Business Bureau and the NC Department of Justice for complaints on file. What are your options if things go bad? Can you get your money back?

2. This may not be the time to go with the cheapest alternative. The low rates advertised are often “teaser” rates and the companies will try to upsell you at every turn. Make sure you know what you are getting, and most importantly what you are not getting. Understand what you need to have a complete formation, and what comes in each price-point package. How long does it take and how much does it cost to get it faster? By the time you add express services and ala cart documents (shareholders agreement, DBA, tax filing documents), the price may not be that different from an attorney’s fee.

I realize that every profession has its “princes” and its “toads” and the legal profession is no different. There is no shortage of bad experiences with attorneys, and a quick internet search shows no shortage of bad experiences with do-it-yourself strategies. I’d love to hear what has worked and hasn’t worked for you.

Tags: attorney, corporation, entities, entity, formation, incorporation, lawyer, LLC

This entry was posted on Wednesday, January 14th, 2009 at 11:04 am and is filed under formation, incorporation, LLC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.