FORMING CORPORATIONS AND LIMITED
LIABILITY COMPANIES-WHY USING A CORPORATE ATTORNEY IS IMPORTANT
One can hardly fail to notice the increasing number of advertisements for cut-rate corporation and limited liability formation services, without the use of an attorney. These services generally provide basic forms and instructions for those documents that are filed with the state in which the entity is formed. At times these companies also provide sample legal forms for certain internal documentation for the formed entity, such as a corporate Minute Book. Legal advice concerning the advantages/disadvantages of different types of legal entities (i.e. corporations, limited liability companies, etc.) is generally not included, nor is any assistance or counsel provided concerning the structure of the business and the contractual relationships involving the owners of the newly formed company.
While these low cost formation companies can provide the bare minimum necessary to form a corporation or limited liability company, these services do not address some of the most important questions that arise in putting such an entity together in the first place. These considerations include items such as the manner in which the new company will be managed, how the business operations will be funded (both initially and later if additional capital is then needed to promote the goals of the business), how the benefits and risks of ownership will be allocated between the individual owners, and how the business might be continued when changes in ownership occur from time to time in the future.
Given that considerations such as these are often critical to the success of the business entity, and further considering that cut-rate formation services generally do not address questions such as these, the counsel of an
experienced corporate attorney can be extremely important in terms of making sure that the business is both set-up properly and that its on-going operations are conducted in uniformity with applicable on-going legal requirements. The failure to obtain proper legal advice for questions such as these can have catastrophic consequences to the owners involved, ranging from internal battles that jeopardize the very existence of the business to deficiencies that put its limited liability status in question. For example, if the legally required procedures to insure limited liability status are not complied with, individual owners of the company may find that their personal non-business assets are subject to creditor claims and other liabilities generated by the business entity itself. Or, a situation may develop in which the business cannot continue upon the departure of one of the owners because contractual arrangements covering an orderly buy-out were not put into place. In addressing concerns such as these, there is no substitute for the counsel and guidance that a competent experienced corporate attorney can provide.
In conclusion, although the low cost corporation and limited liability services can provide basic help in forming a business entity, this is only the beginning of the considerations that should be addressed so the business is structured in a fashion that promotes stable and harmonious on-going operations. For this reason, it is generally advisable to consult and obtain the assistance of an experienced corporate attorney when forming a limited liability business entity.
