As a corporate transactional attorney for the last 12 years, I have seen a lot of documents from LegalZoom and other online corporate formation services. I have also had to do a lot of work to fix these documents. This led to a discussion amongst the attorneys in my offices about how to clarify for a client why alternative legal providers may not the best route. Here are some examples of why utilizing an attorney is better:
- We review with the client whether an LLC or corporation is the better way to go. An individual can search online for hours and get different responses to this. Having formed over 400 entities, and converted a lot of entities from LLCs to corporations or corporations to LLC’s (at considerable cost to the client, and after the tax impact has hit), I can give good advice on which one to start with.
- Should a company make an S election? I generally review this along with input from the CPA whether an entity should be an S corporation or a C Corporation. There are many factors that go into this decision.
- There are deadlines involved in forming a legal entity. For example, the Statement of Information must be filed within a certain period of time, and the S election must be filed within a certain period of time. If these deadlines are not met there are potential penalties. We track these deadlines to ensure the client is in compliance.
- Who should own the entity, and how should they own it? Just on the question of ownership alone I have billed a significant amount of money to people that utilized online corporate formation services. For example, initiating a legal entity to be owned 50-50 by two partners. I speak with the clients’ about how to minimize the potential impact of a deadlock, how to work around it, or how to better align ownership with decision-making. If these discussions aren’t had at the beginning, it can lead to significant problems with running the business or handling a deadlock down the road. These online corporate formation services will not provide guidance or provide any provisions that will assist with breaking deadlocks.
- I will review with the client how the entity should be owned. For example, should husband and wife own it together? Should husband own part, and wife own part? Should a trust be an owner? If so, will that trust qualify to be an owner in an S corporation, etc.?
- I can provide guidance as to who the responsible party should be when applying for a taxpayer ID number. I can also provide guidance on the impact and requirements of such an individual.
- We include any entity that we form in our annual contact list. We will remind companies on an annual basis to prepare their minutes, and to file appropriate documents with the Secretary of State’s office. We will also prepare those minutes and file those documents for fee.
- We let the client know what is not being included in a formation, and what should be. For example, whether a buy sell agreement or shareholders agreement is necessary, or appropriate.
- TLD Law will act as the agent for service of process for any legal entity that it forms for free. I am told that these online corporate formation services charge $300 to $400 per year for this service.
TLD law is a full-service law firm. For all of the services referenced above, and preparation of all documents needed to form a legal entity, you will not be charged much more than these online corporate formation services. Doesn’t that seem worth it?
Written by partner Brooke Pollard, Esq.
Questions? Contact Brooke Pollard at 949-756-0684