I get the call all the time. I would like to form a corporation to start a business or I want to incorporate my existing business, “how much do you charge”. Well, the truth is that the actual charges to incorporate are around $350 here in Connecticut. That is the state fees of $250 plus $100 for the incorporation service. And you can do it yourself on the internet.
So what is the reason you should pay me a fee for 2 hours of my time?
Well, here are the reasons.
Its About the Initial Decisions
Incorporating a business is not about filing a piece of paper with the Secretary of State (which is what the incorporation services do), it is about making the correct initial decisions. These decisions have substantial ramifications and potentially large costs.
Choice of Entity
So tell me, how do you decide which is the correct entity for you? The choices are a Limited Liability Corporation, C corporation, S Corporation or Partnership? The wrong choice can cost you hundreds to millions of current tax or tax when you sell.
State of Incorporation
And, how do you decide in what State you should incorporate? Another common comment I get is, “my friend told me I should incorporate in Delaware and it saves me lots of taxes.” Guess what, your friend is wrong.
Are you going to operate in Danbury CT or Bedford NY?
This is a big, big issue. The primary purpose of using a corporation is to get “limited liability” which means creditors can only get to the assets in the corporation and cannot get to your personal assets like your house or brokerage account. However, most do it yourself incorporators do not complete the initial documentation properly (shareholders meeting, election of officers, shareholders agreement). Guess what, chances are their corporation will not withstand scrutiny and you don’t have limited liability which means they can take your house.
Other Incorporation Issues
Do you know the tax elections you need to make or other licenses that might be required or how to protect your intellectual property?
If you have a partner or other owners, your shareholders agreement is like a business prenuptial. Would you draft a prenuptial without a lawyer or take one off the internet? Of course not, it requires special knowledge of the law, has innumerable nuances and mistakes are very costly. Remember, it is the “unknown unknown” that will get you.
Mistakes are Costly
If the initial organization is not done correctly and completely, if you choose the wrong form of entity, or if you choose the wrong state, trust me the legal and accounting costs to unravel or correct the errors will be substantial. The tax costs can be very, very significant.
As lawyers, we all have seen cases of clients “going commando”. We get paid quite well to correct the mistakes.
What does the Lawyer do
I spend a couple of hours getting to the right answers for the above questions. Plus I’ll talk you through the legal and business aspects of your business and get you off to the right start. In addition, I’ll make sure the proper documentation is in place and your liability is limited.
Bottom line, my fee is Cheap Insurance. Hey, it is your choice, pay me now or pay me later.
Connecticut and New York often have unique laws which require special planning.