What Exactly is a Business Formation Attorney?
As an entrepreneur or the director of a company, starting or structuring your business is a crucial part of building a foundation for your company’s future success. Forming a business involves many types of important decisions, including choosing the right structure, location, and tax classification. Business formation attorneys provide invaluable assistance to companies looking to start off right.
A business formation attorney often specializes in a wide variety of business law. Their most common clients are small- to medium-sized businesses. They will assist clients when they form a new business, go through mergers, expand their businesses, and make formal agreements. Other common areas attorneys help with are financial securities and venture capital.
In terms of starting a business, there’s quite a bit of planning that goes into knowing the structure of new business. Different structures can include partnerships, LLC companies, and corporations. What the most beneficial structure is will depend on what the company expects its future to be . If the company plans to become a large business with many employees, the choice would be different than if it planned to be a small business with minimal employees.
A business formation lawyer also may assist with the strategic planning of what the company is going to do. Whether they’ll manage accounts or real estate, it’s important to know the right approach from the beginning. Business formation lawyers even assist in corporate governance-related issues. They’ll be knowledgeable about shareholders, directors, and officers, so that they can help you determine the right structure for your situation.
Business formation attorneys may also assist with securing finances, as well as preparing the necessary documents and filling out applications. They’re valuable when dealing with government organizations like the IRS as well as federal and state regulatory agencies. In addition, they can help with acquiring trademarks, branding, and copyrights.
When you’re forming a new business, there are many things to consider, including how to handle any liabilities and the tax structure. Business formation attorneys are essential for helping to navigate the planning and execution.
Services Provided by Business Formation Attorneys
The spectrum of services provided by business formation lawyers begins with legal advice on the most suitable business entity for the unique circumstances of each client. Lawyers can assist clients in deciding on the right answers to questions such as: will your business make more profits as a corporation or an LLC? Does a partnership or a C-corporation provide better tax benefits for shareholders or members? Will a sole proprietorship or a general partnership be sufficient for the intended scope and complexity of the business? Are there any specific state or federal regulatory requirements applicable to your business entity submission?
These basic business structuring considerations are an important start to the process of setting up a business management or investment structure. However, the analysis of how to begin business formation goes well beyond entity type and structure. Business formation lawyers also assess how clients anticipate their need for funding over time, their expectations regarding the need for further changes in structure, management and operating policies, and, later, how they see their exit from the business.
Business formation lawyers seek to minimize the risk of business friction and disagreements among the initial founders by discussing each shareholder’s understanding of the terms of the venture. This means providing careful planning on every aspect of initial appointment of key personnel and how terms of service for key managers and employees will need to be changed over time as business circumstances change. Both contract terms and corporate bylaws address such issues.
Business formation lawyers also help start-ups understand what stock options and other incentives benefit their type of business, whether family-owned, start-up, non-profit, or local in nature. Both state and federal securities law considerations are involved in these decisions. Business formation attorneys will explain how to take advantage of exceptions for small securities offerings. Small offerings are allowed under the small offering exemption.
For some companies, obtaining approvals from regulatory agencies such as the SEC is a priority. This is particularly relevant to start-ups planning an initial public offering. Early legal and financial advice helps companies avoid the mistakes that are sometimes made by start-ups that offer tokens or other digital assets in a token sale or by raising money in an ICO (Initial Coin Offering).
Business formation lawyers also provide advice on who may manage the initial formation of a business. Many closely held corporations and limited liability companies allow management by all shareholders with no substantial distinction in powers over key operational issues. For example, an LLC that has seven members may allow each member to insist upon a vote of all members if there is a disagreement about key business operational issues. If the intent is to limit participation in major decisions by several shareholders, it may be essential to designate particular managers and restrict the terms of their powers.
How to Select the Most Suitable Business Formation Attorney for You
Choosing the right business formation lawyer is a critical aspect of becoming an entrepreneur. Not only do you want to be assured that your new corporate entity is properly formed, you also need help determining whether an LLC, S Corp, or C Corp is the best structure for your business. Selecting the right lawyer to guide you through this process is key.
Experience
When researching potential business formation attorneys, the first thing you want to consider is their experience with forming corporate entities. What is their track record on these types of matters? Have they previously handled the type of corporate entity that you are interested in starting, or have they primarily dealt with different types of matters? You want to make sure that the lawyer who is hired to form your corporation is experienced and knows the rules and regulations for a corporation and any other factors that may apply.
Expertise in Your Industry
The next factor to look at is whether or not the lawyer you are considering has any expertise in the field in which your business will operate. Perhaps they have been part of a corporate merger or other corporate deal that is similar in nature to what you will be doing. Or maybe they are specialized in working with certain types of businesses, because they have worked with them extensively in the past. Sometimes, this type of knowledge can save a lot of time and trouble for the client.
Reputation
The reputation of the attorney being considered is another important factor. Ask around in the local legal community, check the records of prior cases if they are available, and determine whether or not any disciplinary actions have ever been filed against the attorney. Meet with several different attorneys and ask them about their experience and what they can provide the client. The client should be able to get a good understanding of what they will receive from the relationship and whether it is something they are looking for.
Cost
Cost is always a factor that must be considered when hiring an attorney, but this is especially true for a corporation. You do not want to end up spending more money than you have to on legal fees. While you do not necessarily want to go with the least expensive law firm because they charge the lowest hourly rate, you want to find a number you are comfortable paying that is reasonable for the services provided. If you have been around any business people, you know that some of them have no limits when it comes to expending money. This is a mistake you need to avoid if you want to remain in business for very long.
Typical Legal Structures for Business Entities
Various legal structures are generally available for business entities. An individual may form a sole proprietorship, or he may choose to organize his business in a partnership, limited liability company or corporation.
Organizations that are not incorporated are generally subject to taxation at the owner or owners’ individual levels, and this can result in significant tax liabilities. Partnerships that consist of limited partners are "pass-through entities." The IRS does not tax the entity itself, but only the partners. However, a properly implemented limited liability company or limited liability partnership can protect its owners from liability associated with the actions of their Co-owners.
One of the main advantages of forming a corporation is the liability protection it provides its owners . Corporations survive the death of their shareholders and even the complete dissolution of ownership. While the founders may hold shares that they in turn can sell or pass on to others, ownerships’ separation from its shareholders shields it from its shareholders’ personal liabilities.
Forming a corporation also involves the problem of double taxation. This means that both the corporation’s profits and its dividends are taxed. For this reason, many small and mid-sized businesses deal with this disadvantage by organizing as substantially smaller entities such as limited liability companies and limited liability partnerships. These entities act more like corporations from a tax perspective than as partnerships, but with greater protection from double taxation.
Resolving Legal Issues with a Business Formation Attorney
In the process of establishing a new business, entrepreneurs are likely to encounter a variety of legal challenges relating to the formation of their company. From intellectual property issues to corporate and operations agreements to disputes with other stakeholders, understanding the potential legal pitfalls is imperative. In this section, we’ll take a closer look at some of the more common areas where legal issues arise during the early stages of a business, and how an experienced business formation lawyer can help address – and even mitigate – these threats.
As any entrepreneur knows, intellectual property is often at the center of their business’s competitive profile. Patents, trademarks, copyrights, trade secrets and other hard-fought intellectual property must be carefully considered prior to establishing a new business. Intellectual property issues can take many forms, including disputes with service providers, landlords or others who may unknowingly use or exploit an entrepreneur’s proprietary information and assets. A business formation lawyer can help develop a game plan to protect these elements of your organization, including pre-emptive actions like non-disclosure agreements, licensing agreements, or even directing the formation of a business entity to control or manage your intellectual property.
In addition to issues relating to intellectual property, entrepreneurs in the process of forming a new business are likely to encounter a number of situations that require legal documentation. Drafting of agreements and contracts is not an uncommon activity for business owners. From basic corporate documentation to papers related to the sale of the business or mergers and acquisitions, the legal formalities pertaining to establishing a new business can be formidable. A business formation lawyer can help draft these documents, working closely with clients to ensure that their needs are addressed completely.
Finally, disputes can occur during any stage of a business’s lifetime, and this is especially true during the establishment of a new company. From conflicts among owners to issues with potential or existing investors, the complexity of business formation, while exciting, can leave entrepreneurs vulnerable to conflicts. A business formation lawyer can serve as an advocate in any dispute, helping to settle matters before they escalate. In many cases, the experience of a business formation lawyer is invaluable to resolving a dispute fairly, in a way that benefits your business.
Advantages to Retaining a Business Formation Attorney Sooner Rather Than Later
Thinking about the formation of your business, it is safe to assume that the last thing you want to be doing is sifting through lawyers to find one to help you start your business. But does it make sense to leave the legality of the creation of a business for later? It pays to invest in a business formation lawyer early on in the life of your business. A representative can walk you through the process of registering your business with the state, dealing with its regulations, minimizing risks and getting a good start on taxes. If you should require incorporation , an experienced lawyer can help you honestly assess whether it is necessary for your business (and determine what type of incorporation is right for you) and can help you choose between the many different types of business entities out there. Assistance from a lawyer will often save you time and money in the long run. Hiring a business formation lawyer is an important step toward ensuring your business will run smoothly from the start. It affords you peace of mind that the legal aspects of your new business are in order, allowing you to focus on what’s really important: running your business and making it successful.
