Starting a Business? Why Working With an Attorney is an Essential Step
When entrepreneurs start a business, their CPA is often the first person they contact. And rightly so. Starting a business will have complicated tax implications and the penalties for failing to pay appropriate taxes can bankrupt a new business before it starts.
When meeting with a CPA, the entrepreneur is likely to be told three things: 1) incorporate, 2) how to incorporate in a way that has the greatest tax advantage, and 3) discuss incorporation with an attorney before actually doing it. Unfortunately, many people skip the third point of advice and in so doing unknowingly place their personal assets at risk.
Many are aware of the two major reasons to incorporate: to save taxes and to obtain limited liability protection which relieves the owner of liability by making the company legally responsible to pay its own debts and liabilities. Limited liability is created by incorporation, which takes only a few moments and can be done online. Maintaining limited liability, however, is much more difficult and is one of the major reasons an entrepreneur should seek the help of an attorney to incorporate.
Many business owners assume that because they have incorporated, they will not be held liable if they are sued or if their creditors attempt to otherwise collect on the debts the business owes. Many business owners also assume that because they own the company, they can operate it any way they want. Both are dangerous assumptions.
The law that gives the right to obtain limited liability by incorporating also gives specific instructions about the way the business must be run in order to maintain it. These laws tell you, among other things, what records must be kept, how decisions must be made, when owners can pay themselves, and who has a right to examine company books.
Often times, business owners aren't aware of these laws or experience frustration in trying to comply with them. They often find that their management style simply doesn't fit with the way the law says the business must be operated.
The key to alleviating this stress and keeping the protections of limited liability is to choose the corporate form that most closely matches the management style of the owner. And a business law attorney can not only assist in helping choose the right corporate form for your management style, he can also custom draft an operating agreement (for an LLC) or bylaws (for a corporation) that can override some of the provisions in the law that don't match your management plans.
In the end, working with a business Law attorney may be the thing that makes it possible for you to preserve your limited liability status and keeps you from having to file for bankruptcy if the business venture turns sour. A business law attorney will also help you understand some of the other legal implications of your business that are not so obvious to the do-it-yourselfer. Given the protection and comfort involved, consulting with an attorney and allowing him to help you set your company in the right direction is a step no budding entrepreneur should overlook.