I can’t turn on my car radio these days without hearing an advertisement by one of the many companies selling what I will call "incorporation kits" to the masses at prices that are significantly less than the cost of a single hour charged by any self-respecting attorney. The advertisement almost always includes questions that go something like this: "But don’t I need to hire a lawyer to incorporate? Incorporating a business is difficult!" The advertiser quickly responds with: "Wrong! Incorporating is easy and you don’t need a lawyer. You only need the ready to use forms of (advertiser’s name)!" I always think to myself - how misleading is that? I only wish I could personally talk to every listener that forks over the money for one of the incorporation kits. I would tell them what they are missing by not hiring a lawyer to incorporate. The following are the topics I would discuss:
- choosing the name of the company – have they determined if the name is already being used?
- the share structure of the new entity – different classes of shares? par or no par value?
- selection of person/entity to serve as registered agent – importance of having an agent that is accessible to prevent a default judgment being entered against the new company in the event of litigation
- who will serve as directors? Description of their duties, including right to elect the officers - their compensation
- who will serve as officers? Description of their duties – their compensation
- initial shareholders – their right to elect the directors
- information needed to request employer identification number from IRS
- was the business previously organized as a sole proprietorship? If so, are any contractual rights to be assigned to the new entity? Publish notice to existing creditors?
- will the new entity need to file assumed name certificates?
- if more than a single shareholder, importance of a buy-sell agreement
- information to include in the organizational minutes of the board of directors
- information to include in the bylaws –explanation of the document
- possible election of Sub-S status?
- need for any employment agreements and discussion of non-compete provisions
- need to apply for Texas sales and use tax permits?
- need to apply for business and occupational licenses?
- officer/director liability for non-payment of FICA and federal withholding
- how to conduct business in the entity form and how that differs from the operation of a sole proprietorship
- explanation of all documents prepared and included in the corporate record book that is presented to the client at conclusion of the attorney’s services
The above are but a few of the many topics that are discussed with the client during the course of my representation. More expensive than the cost of the incorporation kit? Yes, but not cost prohibitive, and well worth the additional expense. Plus, your new business will almost certainly need the services of an attorney down the road. If you don’t use the services of an attorney at the organization stage, then you are going to have to shop for an attorney later. Whoever you select, that attorney is going to want to see your corporate records to understand your organization. That’s additional time you will pay for later, time the organizing attorney would not spend because of his familiarity with the very documents he prepared for you from the get-go.
Unfortunately, my involvement with many of these clients is on the back end, after they have tried the "do-it-yourself" approach with the use of the incorporation kit that was sold to them cheap. More often than not, I have to tell them why something they did is wrong and what it will cost to fix the problem. As with all things in life - and let’s say it together - "you get what you pay for."
Nothing in this post should be considered legal advice. Let’s face it. You don’t know me and I don’t know you. My aim is simple-to provide the reader with some useful, but general, information about the topic. You should not rely on any information in this post without some assurance that the material is still current and applicable at the time it is read. If you want a legal opinion that has teeth, consult your personal lawyer about your particular circumstances. If you don’t have a lawyer and like what you see here, then perhaps you should contact my law office to determine if we might be a good fit. To do so, simply click on my name above and you will be directed to my website, or you can reach me by telephone at (713) 626-2221. When responding, please refer to this Blog No. 41.