Business Formations: Why Entrepreneurs Should Consult a Lawyer

Posted on | December 3, 2012 | No Comments

By James D. Griffith, Law Office of James D. Griffith, P.L.L.C.

Starting a business can be exhilarating, overwhelming and a bit scary—all at the same time. But experienced entrepreneurs know that consulting a lawyer early in the process can help avoid or minimize the problems related to running the business and working with partners. The result is greater peace of mind and confidence during the start-up process.

You’re probably thinking, “Why should I talk to a lawyer—they’re expensive, I’m trying to start a business, and I need to control costs. Besides, the lawyer is just going to fill out a form and file it with the State.”

First, consulting a lawyer is not as expensive as you think. Although big law firms will charge big prices (some well over $1,000 for a business formation), many sole practitioners and small firms provide services to start-up businesses at very reasonable prices. And the relatively small up-front expense can avoid or minimize much more expensive problems at a later time. Pay a little now, or risk paying a lot later.

Second, a lawyer should be consulted early in the start-up process because a lawyer’s services go beyond completing a form. Lawyers are trained to understand how corporations, limited liability companies (LLCs) and partnerships structure the relationships between those involved in the business. A lawyer can help determine which type of business entity is appropriate based on the nature of the business venture. They also understand how corporations, LLCs and partnerships differ in terms of the tax consequences and the potential for liability to third parties.

In addition, consultation with a lawyer is valuable because a lawyer can draft articles and bylaws, an operating agreement or a partnership agreement that fits the needs of clients. This is particularly important when two or more individuals want to work together as co-owners of a business. These documents can be essential in determining the rights and obligations of the co-owners if a business dispute develops between them or the business is found liable to a third party.

Finally, experienced businesspeople consult lawyers when starting a business because it establishes a relationship with a business lawyer. Establishing a relationship will be beneficial if the start-up entrepreneurs, at a later time, need assistance with understanding and negotiating a contract or enforcing a contract provision. In some lines of business, start-ups need assistance applying for and obtaining regulatory licenses from a state or federal agency.

Overall, consulting a lawyer when starting a business can avoid or minimize certain problems that can arise in running a business and working with partners—which can provide peace of mind in the present and save money in the long run.



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