Starting a business is an exciting journey filled with opportunities and challenges. With the wealth of online resources available today, many entrepreneurs are tempted to handle their own business formation to save time and money.
However, forming a business yourself creates several risks, and may result in costly, time-consuming errors. When you consult with a lawyer, you ensure that your new business follows all the applicable guidelines and regulations, which will minimize the risk of future problems.
Understanding the Business Formation Process
Starting a business goes beyond simply filling out official business forms from a website. You need to make vital decisions about how your business will operate, which tax regulations apply, and which risks and potential liabilities to protect yourself against.
Common business structures include:
Sole Proprietorship: The simplest form, but with no legal separation between you and your business. You ARE the business, and if bad luck strikes, it is you who bears the risk of losing assets like your home and savings to satisfy a judgment.
Partnership: Many businesses are run by partners. Be sure to enter into a partnership agreement to define each person’s rights and responsibilities, how much they will contribute to help start the business, and what sort of role they will play once the business is up and running.
Limited Liability Company (LLC): Provides liability protection and flexibility in management. LLCs are frequently the best choice for new business entities starting from scratch. As an LLC grows, you can elect to change how it is taxed to ensure maximum profitability.
Corporation: A business structure that creates a separate legal entity to operate as a company offers good protection from business liabilities, yet it must follow strict legal requirements. There are two types of corporations; S Corps and C Corps. C Corps are best for companies that hope to be listed on a stock exchange, but their income is taxed twice. S Corps are pass-through tax entities, meaning you only pay tax on the net profits of the business, but S Corps face a number of restrictions that do not apply to LLCs.
You need to select the correct business structure because every type has unique legal and tax implications. Consulting a business lawyer in New York can help you choose the optimal entity that matches your plans and legal specifications.
The Legal Risks of DIY Business Formation
Even though it costs less to form a business independently, dangerous risks might be hidden beneath the surface.
1. Inaccurate or Incomplete Paperwork
When paperwork for your business establishment is wrongly prepared or submitted, you face processing delays, rejections, and possible legal consequences. Different states have official business submission rules, and failing to follow them may cause future difficulties. A lawyer in Syracuse, NY, will assist with preparing and sending these documents according to official state requirements. Online incorporation services like Legal Zoom don’t provide all the forms – such as partnership agreements – that you need to effectively run your business without trouble.
2. Choosing the Wrong Business Structure
Your business performance suffers when you make poor entity selection because you pay more taxes and receive less protection. A professional business law expert helps new business owners predict all future effects that result from their selection. A business lawyer can help you identify your requirements and select the right business model that suits your requirements and circumstances.
3. Overlooking Compliance and Regulatory Requirements
Every business type needs legal documents, whether it is licenses, authority to collect sales tax, or consent from State agencies to the formation of certain types of businesses. A missed requirement for business compliance could result in financial penalties or legal trouble that could upend your business.
4. Unclear Ownership and Operating Agreements
Companies that operate as partnerships or LLCs require proper written operating or partnership rules to operate effectively. These papers define what each party must do and needs to do in the partnership while showing how profits will be split, adding new partners, selling your interest, and how you will address and resolve disagreements among the partners. When business partners have no previously agreed-upon terms, they may need to settle their differences in court, which becomes extremely expensive and disrupts business operations.
5. Taxation Issues and Liabilities
Improperly selecting how to set up your business can create surprise tax obligations that hurt your finances. How you classify your business for taxes determines your income tax burden and self-employment taxes, plus what deductions you can take. A New York State business attorney works with a tax expert to design business structures that reduce tax obligations.
The Value of Legal Guidance in Business Formation
Getting professional legal help brings entrepreneurs security, peace of mind, and benefits over time. Employing a lawyer in Syracuse, NY, offers superior business value compared to the expense of big city law firms.
1. Expert Advice on Business Structure
An attorney understands your business needs to suggest how to form an entity that lowers risk while making tax efficiency.
2. Accurate Documentation and Filing
Expert lawyers prepare and check official documents properly to prevent business issues caused by mistakes or oversights by the founders of the business.
3. Compliance and Risk Management
Your business lawyer keeps you legally compliant with different regulations to reduce potential lawsuits.
4. Customized Contracts and Agreements
You should create specialized contracts and agreements because they will shield your business interests, establish clear partnership terms, deliver a consistent customer experience, help you close new business faster, and decrease the risk of potential litigation by clearly stating each party’s rights, responsibilities and payment obligations.
5. Ongoing Legal Support
Business lawyers offer continuous operational advice, negotiation expertise, and dispute resolution capabilities to allow your organization to grow solidly forward. Many attorneys are available on an “as needed” basis. You become their priority client by entering into retainer agreements for a “Part-Time General Counsel”, also known as a “Fractional Attorney”. The lawyer is on call when you need them, and their knowledge and understanding of your business grows over time.
Conclusion
The low-cost approach of establishing a business by oneself exposes new business ventures to high risks, and may result in costly mistakes and legal complications. Obtaining professional legal support at the beginning of the business ensures a proper platform to enable your business to be successful.
Matt Van Ryn is a highly experienced business lawyer in Syracuse, NY, dedicated to helping entrepreneurs and business owners navigate the complexities of business formation, contracts, mergers, and compliance. Whether you’re starting a new venture, negotiating agreements, or ensuring regulatory compliance, his legal expertise provides the foundation for long-term business success.
Don’t take unnecessary risks. Consult a lawyer in Syracuse, NY, today, and build a strong legal foundation for your business.
