Online Incorporation and LLC Form Services – Pros and Con

Similar services are also offered by virtual and storefront paralegal services like We the People or those located in the legal section of local craigslist. According to their websites and television sales pitches, forming a corporation/LLC is quick, simple, and affordable. You just need to fill out an online questionnaire, pay $100-150 for the paperwork, and then file the documents with the secretary (plus any filing fees). This article will review the benefits and drawbacks of these services. However, for detailed reviews of particular providers, it is best to look elsewhere (preferably to people who have used the service for at least one year).

No legal counsel

Many document tweak your biz llc setup guide preparation services claim they are not law firms and cannot give legal advice. They recommend that you contact an attorney to get legal advice. This is a direct quote from one website: “This site does not replace legal counsel ….. You should consult legal counsel to determine the applicable law in your particular situation.” Another site says that “[Our document-preparation service] cannot be substituted for an attorney or law company.” Only licensed lawyers can practice law and give legal advice to clients. These firms are smartly protecting themselves by stating that they are not in business to provide legal advice. They are only in business to prepare whatever forms or file you ask them to. Garbage In, Garbage Out is the old computer programmer’s adage. Although they may form a Nevada LLC for you, if you have a California S corp, they will most likely produce an adequate LLC. However, it won’t be able to meet your business legal requirements. If you don’t elect S-corporation status and end up paying more taxes than a C-corporation for the same reason, they are not responsible. They are counting on you to be able to understand what you need or to have consulted an accountant and/or lawyer before you make this decision.

Although many incorporation services may claim to have the solution by providing detailed FAQs and learning centres, it is impossible to replace a lawyer’s college education, three years of law school, additional on-the job training, and ongoing legal education. Paralegals and incorporation services that provide legal advice are guilty of the unethical practice without a license. Their advice should be treated with caution, even if it is for one reason. You can also terminate any relationship with such people immediately.

Another way to make incorporation seem like a cookie-cutter purchase is to present it as one-size fits all. Your circumstances and needs do not match those of your neighbors, friends, or customers who have created online entities.

Other Legal Matters

Attorneys are not only going to form the entity you ordered, they will also take a look at your overall business plan and goals and ensure that the legal structure is tailored to your specific circumstances. This is in contrast to assuming your business and business are the same. They can also suggest solutions to legal problems that may arise in connection with forming a corporation, LLC, or other entities. These issues are not usually known to the average customer of an incorporation service. They include compliance with securities laws, trademark and service marks issues, employee and independent contractor law, and promissory notes. Tax issues can also arise when incorporating. I recommend that clients consult a CPA before and after incorporation. For new companies or established businesses that are expanding and have made the decision to incorporate, agreements include employee agreements, independent contractor agreements and supplier agreements. They also include terms of use for web sites, privacy policies and shareholder buy-sell arrangements. These should all be tailored to your specific needs and not just fill out the forms. Just like corporate bylaws or LLC operating agreements, they should be custom-made, not one-size fits all.

No Follow-Through

An experienced business attorney can help you with the process of forming your LLC or corporation. This means that the meeting minutes should be tailored to your needs. The corp. or LLC’s documents must also be signed and completed. Shares are issued to shareholders and all necessary federal, state and local filings must be made. I have seen many companies that were incorporating service providers. These are usually reviewed a year later, after problems have occurred, and sometimes during transactions such as the sale of the company or part thereof to a new shareholder, member or partner. However, I have yet see one that was properly set up. Do-it-yourself incorporations are similar, except that the owners didn’t hire anyone to do it. Most cases have the articles of incorporation, or articles of organization, filed in a proper, if not perfect, manner. The bylaws and operating agreement are also present. These documents, however, are not executed. They just sit on a shelf in a binder since they were mailed by the incorporation agency and have no force or effect. They often contain many blanks that the owner wasn’t supposed to fill out, or they just didn’t have time.

These are not defects of incorporation services per se. However, they show the difference in service offered by these companies to attorneys. This lack of completion can cause problems later. However, the company’s limited liability status, good standing with the government, and good standing with it can be compromised by the failure to file annual minuets or initial and annual state filings. Disputes between partners or co-owners can also cause problems. After reviewing the operating agreement or bylaws, they discover that the documents have not been signed (and may not control), lack buyout procedures, or are unclear or silent about how to resolve disputes. These disputes can be more expensive to resolve once the horse of incorrect documentation and agreements is gone.

Hidden fees

Cost savings are the main advantage of incorporation services. They charge less than lawyers. The actual fees for incorporation services can be up to two- or three times more than the advertised rates. This is because they charge additional fees such as name reservations, corporate minutes books, expedited service, EIN numbers and S-corp election. Once these add-ons (which are often required in many cases to achieve your legal goals) are added, they may end up costing as much as double or triple what they advertise. When comparing the costs of different providers and law firm fees, make sure you check out what a complete package is worth. I have seen some services on craigslist.org that offer low rates, but they don’t even consider the minimal costs required to set up a company properly. E.g. $125 includes costs for California incorporation. The government fees are almost as high as any third-party service fee. Many law firms that offer flat-fee incorporations don’t charge hidden fees, but they do in some cases.

The important thing to remember is that incorporation services prices do not include any legal advice or other legal issues. They also don’t include hand-holding, referrals to accountants or insurance agents or follow-up to ensure that the business entity is implemented correctly. My clients often say that it was not easy to incorporate or create LLC organizations. Instead, they tell me, “That was hard!” It’s more like, “I can’t believe that some people attempt to do this all themselves!” When comparing prices, it is important to consider the differences in the services offered. Also, look out for hidden or additional fees. If you choose an attorney over an incorporation company, you will be paying for not only the attorney’s time and product but also for his education, experience and advice for your business.

Relationship to a lawyer

If you decide to do it yourself, keep in mind the fact that you will eventually need a business lawyer if your company grows. It is better to start a relationship with a business attorney now through incorporation. This will allow you to be prepared for the future and avoid the frustration of waiting until you have a legal issue.

Many customers who have used incorporation services are satisfied with their service. This is because many problems are not apparent until several months or even years later. You don’t have to regret what you didn’t get. Instead, focus on the money you saved.

My experience is that money spent on legal services does not always pay off in long-term savings. It’s more often the old, pay later or the old, pay today situation. Certain errors, like the wrong choice of entity, can’t be undone. They cannot be corrected. It’s often too late to make proper buy-sell clauses in your operating agreement or bylaws. You and your partners may want to consider borrowing money or using credit cards in order to finance additional funds. Entrepreneurs are confident in their company’s future success and profits. It is not surprising that many don’t follow the example of successful companies and allocate the appropriate funds for legal services. This is where the old saying, “Failing plan is planning for failure” applies.

A business lawyer will be able refer to trustworthy accountants and insurance agents to help new businesses.

 

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