Understanding the Importance of Business Incorporation
When an entrepreneur initiates a new business, a main decision is the type of business entity to form. The four main types of business are sole proprietorship, partnership, corporation, and limited liability company (LLC). There are advantages and disadvantages to each type, and the entrepreneur must weigh these when deciding which type of business to form.
The Role of a Business Incorporation Lawyer
Time constraints will sometimes result in a small businessperson doing his or her own ‘informal’ research of the law. This can be very risky where it proceeds no further than the perusal of a statute, as there could be almost no case law interpreting that statute, thus leaving the statute unenforceable or irrelevant. Here is an example, many would-be corporation owners have read a statute about subchapter S corporations and have then proceeded to do an incorporation through that statute without realizing the tax implications of a subchapter S corporation vs a regular corporation. You cannot ‘learn’ all of the law on your own and thus this particular decision should have been accompanied by a qualified business incorporation attorney.
As a semi-independent function of the law, business law is largely applicable to all types of businesses, whether a partnership, sole proprietorship or corporation. Although the law affects a variety of aspects from start to finish in the life of your business, in this instance it has been designed to try to keep you from making critical mistakes as to the type of entity in which you choose to operate your business. Now more than ever, one must be aware of the advantages and more importantly the disadvantages of operating any particular business entity. The legal climate is a vastly changing entity of its own, and as seen in the recent spate of LLC statutes, a knee jerk reaction can have very negative effects. Thus, it is recommended that the small businessperson make an informed decision to the type of business entity to form, and then utilise said information by seeking the council of a qualified business lawyer.
Services Offered by a Business Incorporation Attorney
Perhaps the area most fraught with legal pitfalls for a small corporation is the issuance of shares to capitalize the corporation. This is because it is often the case that a corporation will want to bring in third parties to share in the business, and many small businesses fail to realize that the issuance of shares is a regulated activity. When shares are sold, the issuer is making a representation that the shares have a certain value and that said value stands in some reasonable relation to the price for which they are sold. This encompasses securities law, and the failure to comply with securities regulations can result in civil liability to the shareholders or even the criminal prosecution of the directors. Any small corporation seeking to raise capital through the issuance of stock is well advised to retain an attorney to draft the filings necessary to comply with federal and state securities laws.
Founding a business without sound legal counsel is a prescription for unnecessary future troubles. For a relatively small expense, a qualified attorney can provide invaluable assistance and protection. A business incorporation attorney can guide business owners as to the different types of entities available and the respective strengths and weaknesses of each. An attorney can serve as an incorporating agent, preparing and filing the required documents to establish a corporation or other entity. This can usually be done with minimal expense as compared to the value of the service. An attorney can also prepare the internal documents that will govern the corporation, such as the board of directors’ bylaws and shareholder buy-sell agreements. A business incorporation lawyer will most often provide materials designed to create and maintain a corporation’s minute book. The minute book is the official record of the corporation with usually bound copies of all documents filed with the state, the internal documents, and the minutes of all corporate meetings.
Key Considerations for Choosing the Right Lawyer
Cost is always an important factor for businesses, particularly considering the uncertain legal costs that lie ahead of them. It is essential to obtain a clear understanding of legal costs in order to weigh up the risks/benefits of legal action. Legal costs should be looked at in the context of the lawyer’s experience, the likely outcome, and its significance to the business. Often, keeping legal costs to a minimum is the aim, but this must not compromise the effectiveness of legal action when required.
What is the experience of the lawyer, and does it match the specific needs of the business? Lawyers are a diverse group in their own right, with varying specializations within the field. It is true that one could handle the complexities of a business’ legal needs, but it is always better to find a lawyer who has a good understanding of the business’ needs. This further ensures that a lawyer is proactive in addressing legal issues before they hinder the execution of a business’ strategy. Further to this, a lawyer who can provide connections to or advice on legal issues surrounding a business’ industry is invaluable.
Ensuring Legal Compliance and Protection for Your Business
When you start a business, it is important to understand and adhere to the legal formalities in order to ensure the most protection with the least personal liability. An important part of the legal compliance of a business is the documentation of the various parts of the business and the decision making within the business. Often times, small business owners do not realize that they are actually making important legal decisions when they informally decide on something over lunch or in a phone conversation. This is why it is important to document all major business decisions. The decisions made should be documented in the form of a consent form that is signed by all decision makers. This includes any decisions that involve entering a new line of business, acquiring or investing in other businesses, borrowing money, or any expense that requires a large sum of money. This is to ensure that if a dispute arises about a decision, the decision making involved, or the expenditure of money, the decision can be proven in a court of law. Another common way to protect a business is to obtain insurance, such as general liability insurance, so that the personal assets of the business owners are protected. An attorney should be consulted to make sure the business is well protected with the appropriate insurance. A business may also need to take certain precautions to protect the personal liability of the company’s directors and officers. This may involve forming a corporation or LLC, and requires legal consultation for the best advice.