by LawInc Staff
November 30, 2021
If you incorporate your business, you are taking an important step towards protecting yourself and saving money on taxes. However, the liability protection and tax savings are not absolute.
It’s critical that you incorporate your business the right way. This means, ensure that everything is initially done correctly and that all of the corporate records will withstand scrutiny in case of a lawsuit or audit. Unfortunately, business owners discover that their corporation was not properly formed after the fact.
Ensure you are protected by using an attorney when you incorporate your business.
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Here are some questions you should ask before you decide to incorporate your business:
(1) How much experience does the person that incorporates your business have?
Make sure the person you work with is an incorporation attorney. Too often, business owners look to “non-attorney” documentation services to incorporate their business. Given the gravity of being personally responsible in case of any lawsuits (due to an improperly formed corporation), make sure you work with an attorney who specializes in corporation and LLC formation and has at least a decade of experience.
(2) How accessible are they?
While experience is important when you incorporate your business, you should also look for someone that is accessible to you during and after the process. Incorporating your business is a big step and, inevitably, questions come up that might need an immediate response. It’s essential that you have someone on standby throughout the process to ensure you are on top of the process. Make sure you have a direct phone number and email to the attorney assisting you.
(3) What’s the right entity type for me?
Take a step back. Sometimes people do not consider, or are not aware, of all of the different entity types available to them. Is an LLC better? Is an LLC taxed as an S corporation better? These are often subjective questions that depend on multiple factors. For example, how many owners are involved with the business? How much revenue will the business have? How much income will the business have?
(4) How many shares of stock should I authorize and issue when I incorporate my business?
Stock issuance is an often overlooked part of incorporating a business. So often, business owners do not think about the long term implications of share issuance. Be sure to discuss how many shares of stock should be authorized and issued. This could save you some money, and a headache, down the line.
(5) How do securities laws impact me?
Yet another often overlooked subject when incorporating a business is securities laws. When you incorporate your business, your corporation becomes subject to a myriad of laws. More specifically, you must make sure you comply with securities laws. Failing to do so can result in assessment of penalties and legal issues. Make sure to ask which laws apply, whether any securities exemptions are available and what steps to take to ensure compliance.
(6) How does the Corporate Transparency Act impact the decision to incorporate your business?
The Corporate Transparency Act is a historic new law impacting all new corporations and LLCs. Basically, starting some time in 2022, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) is requiring new entities to disclose what’s known as “beneficial ownership” information. The purpose of the law is to clamp down on things like money laundering, cybercrime, terrorism and fraud. Willful violations of the law can result in substantial monetary penalties and imprisonment. Accordingly, make sure the person you choose to have incorporate your business is apprised of all upcoming developments on the law.