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Incorporating online has become much easier over the years. In some states, all you need is an internet connection and a credit card, and you can start forming limited liability companies, corporations, and even non-profits…without ever talking to an attorney. But forming a company to hold your business is a major decision, and here are some tips for doing it right:
#1: Know Your Entity
Most online incorporators will incorporate all types of entities. LLCs, Professional LLCs, limited partnerships, corporations, and non-profits. Each form has its advantages and disadvantages depending on the particular circumstances and goals of your business. You need to throughly research each entity before deciding. While this site, obviously, focuses on LLCs, the limited liability company is not the right form for every single business. The LLC is best for most startups and particularly real estate holding companies, but there are circumstances when a c-Corporation could be preferable. Be sure that investigate before you choose.
#2: Click the Right Button
Once you decide on an entity, you want to be sure that you form the right one! With the same online incorporator doing LLCs and C-corporations, it’s easy to click the wrong button and accidentally form the wrong entity. Most incorporators will have a list of entities all in a single drop-down box for you to select from. It can be easy to accidently select the wrong one. That’s why using a service with a 1-800 number might be worth it–just to be sure that you get what you’re expecting.
#3: Know Your Services
- Do you need a registered agent?
- Do you need a EIN (sometimes called FEIN) form completed for you?
- Do you need a sample operating agreement?
- Do you need compliance services?
- Do you need a corporate seal?
Do you know what all the above are? Online incorporation companies offer a lot of add-on services beyond simple incorporation services. Some of these are useful. Others are just profit centers for the incorporator. See this article for more information on the most recommended incorporation services.
#4: Get It In Writing
We might be well into the first decade of the 21st century, but the paperless office is still long away.
Be sure that you get your certificate of formation in writing from your incorporator. You don’t need a fancy leather binder. What you do need is a certificate from your state showing that your LLC (or other entity) was duly formed. This serves two purposes. First, when you go to open a business checking account, the bank is going to want proof that you formed your company. Secondly, it’s just good for your peace of mind to have your business’s formation in writing, and not drifting off in cyberspace somewhere.
#5: Consult An Attorney For Complicated Operating Arrangements
If you have a complex arrangement of partners (members, to use the correct term) and profit sharing, you ought to bring an attorney into the picture to craft your operating agreement. You don’t need an attorney to actually form your LLC.
Forming an LLC is simple paperwork. However, your LLC’s Operating Agreement is a legally binding contract between all the members of your LLC. What is complicated? If you have some members contributing property, some contributing cash, and others contributing labor, and have some sort of unequal profit sharing until certain members are repaid…then you have a complicated arrangement.
In other words, if you have outside investors, you’ll probably want an attorney to at least look over your operating agreement. If you are using an LLC as part of a large asset protection program, then you should have an attorney rewrite your operating agreement.
Single member and husband/wife LLCs that contain home based businesses can probably use the sample operating agreements provided by most incorporators. Even a state’s default rules might be acceptable in those situations.
While hiring an attorney is expensive, you’ve still saved money on the actual incorporation. Redirecting that cash towards tweaking your operating agreement is a good use of resources if your LLC structure is complex.