This is a common question many start-up business owners come across. Modern start-up businesses have a “lean” mentality and want to run efficiently and cut costs when possible. Many times cost-cutting measures remove expenses from legal work. It is understandable why a business would choose to budget its limited capital resources for another area of concern, such as marketing, building the company’s product or service, or employee incentives. All of these alternatives provide an immediate and tangible benefit, but budgeting for an attorney does not always create an immediate or even visible result. In the end, it is always worth hiring an attorney to make sure the business is formed and planned out properly.

Below you will find four important reasons for hiring an attorney at the beginning or early stages of your business.

Fund Raising

Do you want to start a company and use your own money, or would you rather use the money of investors?

 When getting your business off the ground, one of the most important decisions you need to make is how do you want to raise money. If you choose to use your own capital, you will always have more risk. If you spend all your capital and have no other money coming in, you are stuck. However, with more risk, there is more reward. If you risk it all, you get to reap all the reward and collect all the profits.

Alternatively, if you choose to use an investor’s money and you lose it, the investor will not be satisfied, but investors know of the potential risks associated with their investments. While an investor may not be pleased with the loss of their money, you still have the option of moving forward and seeking alternative investors or changing the course of the business altogether. The main benefit of seeking out investors is the opportunity to bring a product or service to life without risking your life savings.

These are just a couple of the considerations you should have in mind when you start your business. A knowledgeable business attorney will know how to form a company, keeping in mind fundraising at all stages of your company’s life.

Limited Liability

The most common and in many cases the most important reason to form a business under a legal entity rather than as a general partnership or sole proprietorship is to limit your liability. Almost every legal entity nowadays has some sort of built-in legal protection and limited form of liability. However, to maintain that limited liability most companies need to adhere to certain principles to maintain separation between themselves and the legal entity. For most corporations, this would entail filing your franchise tax board taxes on time, filing statements of information yearly (or bi-annually depending on the type of entity), and regularly holding meetings with the board of directors, shareholders and sometimes the company’s officers. The frequency of meetings for directors, officers and shareholders are dependent on what is written into the company’s bylaws.

While limited liability companies do not formally require the holding of annual or quarterly meetings, these meetings requirements are determined by the operating agreement of the company. Where the corporation’s bylaws determine the “rules” of the corporation, the operating agreement will determine the limited liability company’s “rules.”

Focus on your Business

While most entity formations can be straightforward, there are some complexities that can make the formation of a new business time-consuming. The benefit of hiring a business attorney from the start is the knowledge they possess. A knowledgeable attorney can help you to secure business licenses, make sure your company name or alternative names are available, secure a fictitious business name for the business, retrieve an Employer Identification Number from the Internal Revenue Service, or look for potential trademark and copyright issues.

Creating new companies regularly creates a degree of knowledge that allows an attorney to understand what is required for new companies and what issues to be on the lookout for. Another benefit is the speed and accuracy with which an attorney can set up your new entity. Experience possesses generous rewards in these circumstances.

Proper Documentation

Depending on the type of business that you are setting up, you will be selling some sort of service or product. An attorney can help you to prepare all your documentation, whether it is contracts, service agreements, or employment agreements. No matter what type of business you set up, you will use some sort of legal documentation daily. Proper documentation can act to protect your business against others similar to the way that forming a legal business entity will protect an individual from being personally responsible for a company’s faults.

The importance of using an attorney to draft and review your contracts is to make sure the exposure of the business is limited in scope. An attorney will be able to advocate for strong indemnification for your business, specify limitations to the company’s liability, and set specific guidelines to limit liability against customers.

These are just some of the many potential reasons to bring an attorney in to plan your business early. Not all attorneys are expensive and many are willing to work within your budgets or to set up payment plans for you. Even if you do not have the resources to hire an attorney full time, it may be worthwhile to consult with an attorney to inform you of potential hazards your business may run into.


The information in this article is provided for educational purposes and to give you an idea and general understanding of the law, this information is not to be construed as legal advice. Please consult with an attorney before making a decision about how to form a legal entity or set up a new business. Many ideas and situations are unique so an attorney should look into your specific circumstances to see what options are best suited for you.

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