A business formation attorney will help you get set up the right way the first time around. Here’s everything you need to know about what a business formation attorney does and how to find the right one.
Before we dive in, it seems like a “Congratulations” is in order! You’ve finally leaped and decided to start your own business. That’s HUGE! We are glad you are here.
But, do you know what else is huge?
You’ll have the relief and peace of mind knowing that you set your business up correctly and allow yourself to focus on the best part of being a business owner: operating your business!
Outside Help Is Important
Many decisions are involved in business formation, and it is entirely okay if you are not a tax or finance expert. But, unfortunately, most business owners aren’t. That’s where outside help can come in.
Whether you have a limited start-up budget or are swimming in the funds, you’ll want to make sure everything from tax designation to where to incorporate is situated just right. Trust us, not having these things in order can cause significant problems down the line.
Read on to find out if hiring a business formation attorney is the right move for you and, if so, what to look for in choosing one.
Choosing A Business Structure
So, you’ve decided to start a business, now what? One of the most crucial decisions a future business owner can face is choosing the proper business structure. This decision is complex and dependent upon the needs of the business. Hiring a business formation attorney can ensure you get your business set up the right way based on the type of market you are in and how you want to run things.
When forming your entity, you have several options from which to choose. Some of the most common structures include:
- Sole Proprietors
- Limited Partnerships
- General Partnerships
- Limited Liability Company (LLC)
- Corporations
- Limited Liability Partnership (LLP)
- Professional Corporation (CA)
Working with attorneys who have extensive knowledge of business owners’ common challenges will help you choose the proper structure for your business needs and goals. They’ve likely seen it all, and they can help you map out what would work best for your business’s type, size, and goals.
Business Structures and Tax Implications
Another thing to remember is that each formation structure is a different designation for tax purposes. Most business formation attorneys will be very well-versed in tax law, or they’ll probably have a tax attorney on staff to assist in making the right call. In most cases, the type of tax designation you choose for your business will depend on how much revenue you think you’ll be making each year and how much money in costs and expenses operating your business will run you.
The number of employees you’ll need on hand will impact your taxes each year. Making these estimations can be difficult or, in some cases, even impossible to predict for a new business, especially in niche markets. (It’s all fun and games being a trailblazer until you realize that means you have no idea what to expect finance-wise!) There is nothing wrong with letting a business formation attorney help you navigate these uncertain projections. However, it could cost you unnecessary fees and payments in the long run if you don’t make the right tax designation choices initially.
Now, a little bit more into the nitty-gritty.
Factors to Consider When Choosing a Business Structure
As we just mentioned, business formation attorneys will help you consider key factors when choosing your business structure. Common questions that arise for future business owners may look like:
- Who will own the business?
- What are the limits of liability for owners and members?
- (What do “limits of liability” even mean?)
- How will business income be distributed?
- Will you hire employees or independent contractors?
- Will you give equity to employees?
- How do I want my business to be taxed?
- Are there any federal, state, and local regulations I must comply with?
- Do the different structures alter how I am allowed to advertise?
Notice there are a LOT of legal questions mixed in there. The funny thing about that is that even lawyers and business owners who have gone to law school tend to hire business formation attorneys. With laws constantly changing, business formation attorneys are the most up-to-date with what business owners should know without diving into hours of additional research.
The answers to these questions will dictate and serve as a guide to choosing your desired business structure. Working with a business formation attorney relieves you of unnecessary stress and costly errors when filing for your business license. For example, do you need a business structure that provides liability protection for its owners? A business formation attorney will advise you towards a corporation or an LLC because both act as a shield for liability to the owner to some degree.
Yet, this is not the only thing a business formation attorney can do for you.
Setting Up The Business
So, let’s say you went ahead and hired a business formation attorney. Now you have help choosing a structure that best suits your business goals and needs. What’s next? Are you on your own? Are you all good to go? Not quite. After that first step, the attorney won’t just drop you like a hot cake. Instead, a business formation attorney will stick with you and help with the next steps. This can involve:
- Applying for licenses
- Creating crucial employment agreements and other agreements
- Reviewing contracts
- File other required documents with the state and IRS.
Importance of Internal Documents
As mentioned, a business formation attorney will make you aware of any internal documents that you must have in place as the business owner.
In addition, they will know if these documents need to be filed with any federal, state, local government, or agency, giving you the capacity to focus on other aspects of your life and getting ready to open the business. For example, should there be any requirements for annual filings and or corporate meetings, a business formation attorney will make sure these are met by the deadline and instruct you on what it means to comply with these types of requirements.
Getting your business up and running can be stressful if you are not already a tax-savvy person or don’t have any prior experience starting a business, which will be the case most of the time.
Working with a business formation attorney is more than just choosing the proper structure for your business and filing documents with the state. It’s a comprehensive set of assurances that you have not only made the right choices but have checked all the boxes, met all the requirements, and quite literally: dotted all of your I’s and crossed all of your T’s.
What to Look for When Choosing a Business Formation Attorney
Now that we know how they can work for you, how do you know if you should even let them? We’ve made it pretty clear that a lot can be at stake when starting a new business. So what should you look for when choosing a business formation attorney? There seem to be a lot of them out there, and many might even be start-ups themselves.
So, how do you know who you can and should trust?
Your Business Must Feel Valued
Your business formation attorney must have your best interests at heart.
It can be super nerve-wracking to present your new ideas to a stranger, and you’ve likely already put a lot of blood, sweat, tears, and heart into what you’re about to undertake. So you need someone who will respect your hustle and be just as excited about your new adventure as you are.
Therefore, a few things to look for when picking the right attorney for your business may include:
- Does the business formation attorney have experience setting up businesses in my industry?
- How long have they been doing this?
- Do they focus on my business’s goals, concerns, and preferences?
- Do they dominate the conversation during our first meeting, or are they actively listening?
- Can they support my needs once the business is structured, and do they have the proper staff or capacity to handle my business right now? This might include:
- Creating initial employments contracts
- Implementing non-compete agreements
- Ensuring restrictive covenants are included in contracts
- Can the business formation attorney support me with succession planning and business dissolution?
Other Factors to Consider
Most attorneys and law firms have informative “about us” sections on their websites. Read through them to find preliminary and background information about the people behind the scenes.
There are also other ways to find a great attorney, such as through word of mouth. But, primarily, you want to know what previous clients have said about working with this attorney.
For instance, do they have reviews (for example, you can find reviews for Counsel for Creators here)? Are they on social media?
We’ve given you a lot to consider, but the bottom line is this: a good business formation attorney will be the best friend you didn’t know you needed when starting your new business. Even after you get going, many of them will be available to you down the line for consulting and advice as you navigate the first few years as a new business owner. Ultimately, an excellent business formation attorney will want you to succeed and will work to ensure that is possible.
