Forming a limited liability company (LLC) can bring you a host of benefits – it will establish a legal identity for your small business, separate you from your business’ legal and financial liabilities and simplify your taxes at year’s end.
Whether you are creating a new LLC or converting to an LLC from a sole proprietorship, the process requires knowledge of your state’s rules on how to form and operate an LLC, a lot of paperwork and legal agreements between you and the members of your LLC, if you do not intend to be the sole member.
Your best bet in forming an LLC is to consult with an attorney who has experience in forming LLCs in your particular state and municipality. Of course, you can try forming an LLC yourself, but mistakes on any of the required paperwork can leave you prone to significant delays in or, worse yet, legal liability and fines.
Your LLC attorney can help you:
- Determine if an LLC status is right for your business as opposed to staying a sole proprietorship or moving towards an L or C corporation structure;
- Draft and file your articles of incorporation, and make sure that they comply with your state’s regulations;
- Negotiate funding agreements with your investors, if you have any other than yourself;
- Draft and file the most important document of all – your LLC operating agreement, which specifies how you will operate your business, which includes how to invite or replace members of your LLC and bind the company to business loans. Without an attorney representing the interests of all of the LLC members, you are vulnerable to drafting an operating agreement that could present future conflicts and financial risks for your business, as well as potential future legal disputes between you and your partners, and
- Ensure that your LLC is compliant with business laws specific to your state and municipality.
How to Choose an LLC Lawyer
Of course, attorneys can be expensive, and if you’re just starting a business, you may not have the budget for one. If that’s the case, you may consider using one of the various online legal services out there such as LegalZoom and Rocket Lawyer. These types of services offer you legal advice as well as an on-call attorney for a low monthly fee.
However, if you are using one of these services, chances are you’re setting up an LLC yourself, which can still make you prone to errors in your paperwork. Additionally, you don’t know the experience level of the attorney you will be in contact with when using one of these services.
If you choose to hire an attorney and have the budget to do so but don’t know where to begin, you can always look in your local Yellow Pages, put out a request for local referrals to the community via social media platforms, or you may wish to use online services such as LegalMatch and UpCounsel – both of which can match you with a qualified local attorney after you answer an online questionnaire.
Another inexpensive way to go could be to consult with a law school near you. Most law schools such as Columbia University in New York and Northwestern University near Chicago have programs in which law students assist entrepreneurs with starting their businesses, and the services these students render typically are free. Note however, you will be getting advice from law students who are seeking experience, and not licensed attorneys.
Questions You Should Ask
If you have a list of attorneys that you are considering but don’t wish to end up inadvertently hiring the slick-talking title character from “Better Call Saul,” here are some questions you should ask:
- How many years of experience do you have in helping to form an LLC?
- Are you familiar with business law in my state and the state in which my LLC will conduct the most business?
- How much experience do you have with my specific industry?
- How much do you charge and what is your fee structure?
- How long will it take to finish setting up my LLC (this affects how much you’re going to pay)?
- Will paralegals or legal assistants handle part of my case? (This will also affect how much you pay)?
- Do you have experience with funding agreements for an LLC?
- Are you knowledgeable about tax options for LLCs?
- How much experience do you have in drafting articles of incorporation and operating agreements?
While all entrepreneurs have dreams and are determined to operate for themselves, if you’re forming an LLC, you would be well-advised not to go it alone. While state agencies can provide you with the necessary templates and forms to fill out to create an LLC, the law prevents them from giving you any sort of legal advice. Mistakes in drafting complex documents such as operating agreements, articles of incorporation and funding agreements can cost you in the long run, so you should at least use an online legal service, depending on your budget.