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The Risks Of Going It Alone

Setting Up A Business Without Legal Counsel - Hudson Martin PCSetting up a business entity through which to operate your business requires adherence to state requirements to ensure the protection of a corporate shield, which separates personal assets from business assets and liabilities. The corporate shield protection for an entity owner operating a business is extended by the state to promote economic growth by encouraging individuals’ entrepreneurial spirit and ideas to establish businesses in a manner that does not put the individual’s other personal assets at risk. However, with the privilege of the corporate shield comes responsibility in compliance in operating your entity so that you can preserve the protection offered by the corporate shield. By way of compliance, there are a number of items one must adhere to when operating an entity to keep the corporate shield in place. First, a business needs to be adequately capitalized to operate. This means that you must invest enough in your business to operate in a prudent manner that protects public interest and safely. For example, if you started a business but only contributed enough to fund the rent but not enough to pay your employees, it is likely, you would be held personally liable for failure to pay employees regardless of if the employer was technically your entity. Being adequately capitalized is especially important in high-risk industries. Undercapitalization could lead to accidents, putting customers at risk and the business owner’s personal assets in jeopardy. One common observation is that individuals who attempt to set up their businesses without proper legal assistance often tend to be undercapitalized, which raises concerns about their eligibility for liability shield protection. These individuals may not have consulted with an attorney or a CPA to ensure safe and compliant operations, which also impacts their likelihood of success, as they might not be investing in the right aspects of their business. Second, to maintain your corporate shield, you need to use your entity and not hold yourself out personally as being responsible. That means by way of example, if you go to the trouble of setting up an entity but then you sign a lease and the tenant is you individually verses your entity, then the law will hold you personally responsible despite the fact that your business entity was actually meant to be the tenant. Third, the corporate shield provided to entities will not protect an owner’s assets if an owner has comingled their assets with those of the business entity. It is important to keep separate books and records. Finally, to maintain your corporate shield you must follow state and federal law in relation to the various requirements that apply to each entity. For example, in California, corporations are required to hold annual shareholder and board of directors’ meetings. Making sure you are aware of and in compliance with state and federal regulations is a good reason to have a knowledgeable business law attorney on your support team.

Beware Cheaper, Online Resources

Many budding business entrepreneurs turn to online resources to set up their corporations or LLCs. These platforms are well-known by attorneys because entrepreneurs often need legal assistance to correct issues arising from using them. After operating for a year or two, businesses usually need to address tax filings and may find themselves in a mess due to a lack of meaningful guidance from online resources when they first formed their entity. The approach of consulting an attorney is advantageous, as it aids in proper entity formation, ensuring compliance with state and HR requirements, and the establishment of essential contracts. This investment in legal consultation is vital for the long-term success of the business and can prevent more significant expenses associated with rectifying mistakes later on.

What To Expect From Downloadable Documents

Utilizing downloadable documents and online resources for incorporating businesses might offer some customization, but it is typically limited to surface-level information such as name and owner details. What is often missing is an in-depth discussion about the suitability of the entity type, future plans, growth strategies, the inclusion of shareholders, and employee management. Consultations with both a CPA and an attorney are essential for addressing these aspects, and lacking such guidance can lead to complications. Starting with the right legal and financial foundation is less time-consuming and less expensive overall compared to fixing issues that arise from inadequate initial setups.

Why an Experienced Business Attorney is Important

Choosing the wrong attorney can be as risky as using downloadable documents or online services. It is essential to be upfront during attorney interviews, inquire about their experience level, and ask about the number of LLCs, S-corps, or partnerships they have assisted in forming. Industry-specific experience is crucial. For instance, launching a construction company verses a restaurant requires specialized knowledge in each field. A contractor would want a business attorney in California who is familiar with the Contractor State Licensing Board of California and construction specific contracts. A restaurateur will want a business law attorney with California Alcohol Beverage Control experience and other hospitality related law experience. Finding an attorney familiar with the industry is imperative. Establishing a relationship with the right attorney, who understands your industry and provides valuable guidance, leads to a long-term partnership, often spanning generations, and contributes to the success of the business. For more information on Setting Up A Business Without Legal Counsel, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (831) 480-6608 today.
Hudson Martin PC - Carmel, CA

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