When it comes to starting your own business, you don’t want to cut corners to save money. Some business owners choose not to work with an attorney because they believe that their business model is too simple to require legal counsel or that the up-front costs of an attorney are too expensive. However, even if you have a very simple business plan, there are numerous legal issues you still need to address with your business and tax attorney. If you choose not to work with an attorney, these legal issues can potentially become major problems for the success of your business. Here are three legal issues you should discuss with an attorney before forming your business.
First, you need to determine which business structure and tax structure best suit your business. There are multitudes of various business and tax structures with which you can operate your business. Choosing the right one can become difficult if you are unfamiliar with the different nuances of each structure. For example, you should not operate your business as an LLC or tax it as an S-corporation simply because another business owner that you know does the same. Your business’ industry, your individual financial situation, and the risk of exposure to personal liability are all factors that determine whether you should be a sole proprietorship, partnership, limited liability company, or corporation.
Second, depending on the industry your business is engaged in, you may need to get certain licenses or permits before you begin your operations. At a minimum, all businesses must obtain a Federal tax ID in order to open your bank account. If you are operating your business without the proper licenses or permits, you might be required to pay a penalty or be forced to suspend your operations until you get licensed.
Third, if your business has multiple partners or shareholders, you may want to consider having an operating agreement or corporate bylaws. Every owner of your business will not agree on every business decision that needs to be made. Having the proper documentation in place can ensure that business decisions will be made fairly and under the terms that all owners have agreed. These agreements can also specify what will happen to your business if you unexpectedly became sick, disabled, or passed away. In addition, if the owners are working in the business, their compensation needs to be determined among the owners.
In conclusion, unless you have extensive prior business experience and tax law knowledge, you probably should not form your business without attorney and CPA assistance. Your attorney and CPA can help you address legal and tax issues that you may not have thought about. If you are concerned about paying for a lawyer’s services up-front, just think of all the legal fees you could potentially spend in the future from mistakes associated with forming your business on your own.
Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.
(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)