Choosing to incorporate represents a milestone in the development of a business. If you’re considering incorporation, congratulations on that milestone! The different aspects of incorporation can be pretty involved and as with most things in establishing a business, there is a lot of room for mistakes. An attorney can help you avoid them.
An experienced business law attorney is familiar with the ins and outs of incorporating and can make the process much smoother. Some mistakes we’ve seen by DIY-ers include selecting the wrong type of entity, incorporating in the wrong state, not obtaining the correct and necessary business licenses, not creating or maintaining necessary corporate agreements, and forgetting about annual reports.
All of those mistakes can have enormous legal and tax consequences and sometimes those mistakes can even result in having a business shut down. While hiring an attorney to help you incorporate will require an investment up front, the choice to use counsel often saves business owners money and heartache in the end.
If you’re considering incorporating, here are some things to consider:
Choose the correct business entity
There are many different types of entities that can be selected for the business. Should you form an LLC, an S Corp or a C Corp, a Limited Partnerships, or a Limited Liability Partnership?
An attorney will educate you on the pros and cons of each type and help you select the type of corporate entity that best fits your needs and that is the most cost-effective. Having the advice of an attorney in selecting the proper corporate entity will actually save you money in the long run.
Make sure corporate formalities are met and maintained
Proper incorporation does not simply constitute filing articles of incorporation with the Secretary of State. If your corporation 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.
Incorporation comes with benefits, like liability protection and tax savings. But, those protections are only valid if a business has followed proper corporate procedure. If not, those benefits could be found to be void in a lawsuit or an audit.
Get registered with the required government agencies
When forming a corporation, some governmental agencies require you to register your business with those governmental entities. Failure to do so could result in fines. Be sure that you know which entities expect you to register and follow through.
File the proper tax documentation
In addition to incorporating on the Secretary of State level, you can make elections with the IRS which will significantly reduce your tax liability. An attorney can work with your tax professional to ensure that you are taking full advantage of corporate tax law and file the necessary paperwork.
Build a relationship for your future business needs
Business owners have frequent legal needs. Things like contracts, leases, contractor agreements, employee issues, exit strategies, or disputes often need an experienced legal eye. Establishing a relationship with an attorney at the outset of your business allows business owners to plan for their legal future and provide you with an invaluable resource going forward.
Are you considering incorporation? We’d love to talk to you. Contact us here!