Staring a business is a time of excitement, but also many questions. The advice of an attorney can be invaluable even for the most basic of questions, and could save you a lot of trouble and money down the road. The answers provided here are not meant to replace experienced legal advice, but to give you a head start in your quest for answers.
FREQUENTLY ASKED QUESTIONS
1. Should I do business as an entity or as a sole proprietor?
In this day of litigious mindsets, it’s always better to do business as a corporation or LLC (limited liability corporation) than as a sole proprietor. Both LLCs and corporations receive liability protection, shielding the owners from personal liability for claims against the company. The modest costs of filing and maintaining a LLC or corporation days also make them attractive to entrepreneurs.
2. What entity should I choose, LLC or corporation?
Every business is different, so it’s difficult to choose an entity without knowing the details of the situation. Basically, a corporation is a taxpaying entity under the Internal Revenue Code; a tax return must be prepared and filed on its behalf. An LLC is not a taxpaying entity, but a pass through entity that is taxed like a partnership. The profits and losses of the LLC are passed through to the owners as individuals for tax return purposes. Thus, LLCs are a hybrid between partnerships and corporations – they get the liability protection of corporations but they are taxed like a partnership.
There are advantages to both entity structures that need to be considered before making a decision. Rob can advise you on which is likely to offer the most advantages to you and your particular business.
3. If I choose a LLC, am I stuck with a LLC forever?
No, a LLC may be converted to a corporation at any time.
4. What is the difference between a “C” corporation and a “Sub S” corporation?
A “C” corporation is a typical for-profit corporation. A “Sub-S” corporation is a “C” corporation that has elected to be taxed similar to a pass through entity. However, Sub-S corporations have restrictions on their structure (e.g., only one class of stock is allowed, etc.) that might make their utilization difficult in certain situations.
5. Can I file an entity myself?
Yes, all states allow people to file entities directly through the state offices and/or engage a filing service to file the documents for them. But it is still important to get an attorney’s advice on choosing the right entity, and how to structure it to best suit the business and goals of the entrepreneur.
6. What is an operating agreement for LLCs?
An operating agreement is the governing management agreement for LLCs, although it is not filed with the state. Similar to a partnership agreement, it sets forth provisions on how the LLC will be governed, how much equity the owners have, how much money the owners are contributing to the company, etc. In a corporation, the same provisions would be found in the organizational minutes, the bylaws and potentially in a stock purchase agreement or buy sell agreement.
7. What documents will a bank need to open bank accounts for the business?
For an LLC or corporation, a bank will typically want a copy of your articles of incorporation or articles of organization, a federal tax identification number for the business and may want a copy of your operating agreement for a LLC.
8. How do I get a federal tax identification number for my business?
You can apply online at IRS.gov or have your CPA or attorney get it for you. There are questions on the application that you should discuss with your CPA or attorney before applying.
9. Can I write my own contracts?
It depends on how complicated the transaction. Some contracts require some fairly specific legalese and require the help of an attorney. However, for more basic agreements, our office sells different document packages to make the process of drafting certain documents and agreements easy. You may still want to run the draft document by an attorney before signing as an experienced attorney will bring up issues that you will never have considered. But, if you have the time and inclination, you can save money by writing the initial draft yourself.
10. What is your hourly billing rate?
Rob charges $325 per hour for his time, and the office charges $150 per hour for paralegal and staff time. Rob’s equivalent billing rate at a large law firm would be $450-$600 per hour, or $400 per hour at a mid-size law firm. Unlike other attorneys, Rob does not charge clients for short phone calls or emails.
Have More Questions?
Rob will be happy to answer your question for free! Email him at firstname.lastname@example.org, or call him at 602-468-5751.