Friday, October 30, 2015

Using Online Incorporation Service vs. Attorney Service

Quite frequently, clients request I fix errors made by the online incorporation services. People ask me is there a big difference between using the online service vs an attorney for something as unsophisticated as incorporation.

It’s best to use a competent attorney to help you form a company. If you don’t want to spend the money on a lawyer, it’s better to incorporate yourself than to use an online service. It’s okay to use those services if you already know exactly what type of company you want formed, where and why. But if you already know all that, then you might as well do it yourself anyway because filling in forms with the Secretary of State takes about the same amount of time as filling in forms provided by the online service.

So, why would you want spend more money on a lawyer?

1. Expert advice to ensure you file correctly right from the start. This is especially important if you envision issuing stock, attracting investors, hiring employees or assigning IP to your business. It’s illegal for incorporation services to provide tailored legal advice because it would constitute “unauthorized practice of law.” They can tell you about the general differences between business entity types but they cannot provide advice about your specific tax situation and business goals.

2. It often costs more to amend the filing than to file it right in the first place. That’s where the states can get you. Delaware filing fee is $89 but correction fee is $179. It also costs twice more to convert one entity type into another (e.g. corp to LLC and vice versa) than to form the right type of entity in the first place. You can’t save money by just abandoning the company with erroneous filing and file a new one. That’s because the old erroneous company still has to pay minimum yearly tax. So, even though an attorney may cost you more upfront, you might be saving time and money in the long run.

3. Amended filings can look unprofessional to investors or potential buyers of your company in the future. They might be thinking, “If the owners couldn’t even arrange to file a simple form with the state correctly, who knows what else they might have messed up?”

If you don’t want to pay for an attorney, you can take the risk of paying for your own mistakes down the road. Maybe you’ll end up saving money in the long run, maybe you won’t, depends on how good you are at educating yourself on legal and tax subjects.

If hiring a professional for incorporation is not an option, then I would say everybody is better off educating themselves on how to file themselves instead of using an online service. You need that basic education to run a business anyway. You need to know the legal/tax basics involved in forming and maintaining your company. Even if you make mistakes, at least they will be your own mistakes and you will learn something valuable along the way.

Read more:

Should We Incorporate in California, Delaware or Nevada?
US Companies and US Bank Accounts
Как зарегистрировать оффшорную компанию в Делавэр, США (How to Register a Delaware company)