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Starting a Business: Hiring an Attorney vs. Doing it Yourself or Online

Starting a new business can be very exciting, however, in order for an entrepreneur to succeed, among other things, they typically need to work hard and be diligent, service a need in the market, effectively marshal their resources, and have a little bit of luck.  Its often difficult to know where to begin, but the logical first step is to legally setup and organize your business.  However, most entrepreneurs are working with limited financial resources when starting their business, and looking to cut costs and save money wherever possible.  This is not only a wise decision, its often required to for a startup to get off the ground and succeed.  Initial costs can be cut in a number of ways, but its essential that entrepreneurs are making informed choices when doing so.lean startup

Often, entrepreneurs look to cut legal costs when getting off the ground, which may seem necessary due to financial constraints.  Operating in a “lean” manner and controlling the expenses of a startup is essential, however, it is just as important to invest money in the things a startup requires to succeed.  Some entrepreneurs recognize the need to legally organize their business and obtain legal documents and assistance, but in doing so, think they can save money by using non-attorney websites and online incorporation services instead of the services of an actual attorney.  While there are very limited instances where doing so can make sense, using an online incorporation services is often an uninformed, potentially disastrous decision.  

Incorporation Services From a Lawyer Probably Cost Less Than You Think

Obviously, the main reason entrepreneurs often use non-lawyer online incorporation services, or attempt to act as their own attorneys, is their perception that using attorneys is always expensive.  In many cases they’d be right, attorneys can be expensive.  However, when it comes to incorporation services, this perception may be somewhat inflated.  To help entrepreneurs get off the ground, The Eastman Law Firm is willing to offer flat fees for these types of services.  As those flat fees  illustrate, using an attorney to set your business up is typically not very expensive, often results in minimizing tax exposure, protects business owners from personal liability,  and ensures that your business is organized and operated to succeed.

One Size Doesn’t Fit Allone size

Choosing the Right Entity Can Be Tricky

When you’re forming your business, one of the first decisions that needs to be made is the type of entity your corporation should be organized as.  There are plenty of resources online detailing the difference between the various types of entity, including this website’s Entrepreneur Toolbox and posts like Choosing the Best Entity Type for Your Texas Business.  Despite all of the available information you can find online, the needs of each business and business owner are unique, and these needs must be carefully contemplated when making your choice of entity to use.  Some choice of entity considerations are easy, however, many issues, such as tax planning, often involve complex analysis.  Using an attorney experienced in these matters, particularly tax, can be essential in ensuring that your business is organized in a manner to best suit the specific needs of your business, and gives you peace of mind that its being done in the right way the first time.

State Filings Can Have Landmines

Once you have chosen the best type of entity for your business, it must be formed by making a filing with the Secretary of State.  These documents may be short and appear relatively straight forward.  However, sometimes simply checking the wrong box or one small miscalculation can have significant consequences.  For example, a corporation in Delaware issuing ten million shares of no-par stock could result in over $75,000 in annual franchise taxes, while using a very low par-value stock and issuing the same number can result in as little as $350 per year in Delaware franchise tax.  For an attorney who have filed many of these documents, it will get done quickly, and correctly the first time.

Advantages of Proper Incorporation

Protect Yourself From Unneeded Risks

As entrepreneurs are typically aware, a big reason for incorporation is to shield the owners from the liabilities and obligations of their business (obviously where names like limited liability company come from).  While most entity types offer their owners limited liability, if the entity is not organized or operated correctly, the owners could be personally accountable for the liabilities and obligations of their business.   For example, if a limited partnership does not have a general partner as one if its partners, it will not be properly organized, eliminating the intended protections for its limited partners.  The potential for disastrous consequences and peace of mind of having an attorney setup your business are worth the small investment to your company’s success.

Minimize Your Tax Exposurelow tax

In choosing the best entity type for your Texas business, the biggest differences between entities is typically how they are taxed.  Obviously, its important for entrepreneurs to organize their business in a way resulting in the smallest tax bill possible.  However, its also important that you are operating your business in a way to similarly minimize your tax liabilities.  For example, if an S-Corporation is used, sometimes business owners can pay them self salaries which minimize self-employment taxes.  However, this strategy involves proper payment of “reasonable compensation,” a legal concept that can be difficult to apply properly.  With proper tax planning, a business minimizes its taxes, however, trying to interpret and implement technical tax strategies on your own can often lead to problems with the IRS and state taxing authorities.   

Save Time and Focus on the Business

There are countless important decisions that an entrepreneur needs to make on a daily basis.  Reading up on being an amateur attorney will take up time better spent on doing whatever your company does best.  When you use an attorney, it allows you to focus on what matters, provides peace of mind, and helps you get up running to making money faster.  Experienced attorneys should be able to get you setup and doing business very quickly, often in a day or two.

Continued Support and Additional Resources are Important

Using an online incorporation services may cost less, but you won’t get real legal advice or access to any of an attorney’s resources.  Any good attorney will take the time to sit down with you to discuss the specific needs of your business, and the other potential legal issues  facing your business (e.g., things like employment issues, sales taxes, required licenses, etc.).  In contrast, an online incorporation service will at the very most give you an 800 number that can’t even give you legal advice.  In addition, most good business attorneys have connections with the local business and in their communities, which may provide additional, unintended benefits to your business.  Finally, as your business grows, so will your legal needs – having an attorney that you can trust and call upon when things come up is of immense value.

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