Do you need to hire a lawyer for the initial setup of a business?

A client wants help with the initial setup of her business and submitting paperwork for her tax id and DBA on her behalf. Is this something I can do? I am a freelance administrative assistant, not a lawyer. Are there legal considerations to keep in mind? Is this something I can do for her without getting into any trouble?

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11

If either an attorney or a CPA have made the choice of entity determination, then yes, if you know what you are doing, there is no reason why you can't assist in the process-driven work of setting up an entity. You would never sign the papers on the owner's behalf, but would coordinate preparation, signature and filing. You should ask your client if she has confirmed with her CPA that a d/b/a is the best choice for her. As for whether a sole proprietor can have a tax ID, they are often obtained so that one doesn't need to provide their SSN to clients for 1099 purposes, or to open a bank account in the business name.

IF your client (as has been discussed here) intends to take on partners, have others invest in her business, take out a loan, enter into contracts or enter into any kind of transaction - or if they foresee any of these activities down the road, then they should be having a conversation with an attorney. People 'don't know what they don't know' and attorneys and CPAs provide a wealth of information on what to expect as you grow, risks, and sometimes, just better ways of being successful.

I do not recommend DIY services for entity formations. Most often, the people who use those services don't really understand the records that are generated from those services and never properly complete the supporting organization documents, or maintain their entity in good standing (although that's n/a for a d/b/a, which probably only needs to be renewed every 'x' years). Frequently, they ultimately wind up in an attorney's office who then engages me to clean everything up.

Thank you! Very helpful.

Crushed my answer. Great clarity, yes helpful.

7

My thoughts are that your client could do it themselves but you would need to be careful helping them with it. If there were problems with the setup you could be considered to be practicing law without a license.

Setting up a DBA is pretty easy and the forms and instructions should be available on your state's web site. The business can be changed to an LLC or corporate structure later on without much difficulty. If there is an infringement with the name the state will advise you.

6

On the surface you might think that since the client can do it for themselves then you can do it for them as well. I wouldn't be so sure because you are going to be signing documents on their behalf (if you are doing it for them). If all you do is research the process and prep form for them, then I will GUESS you are ok.

The reason for talking to an attorney isn't about the forms and registration (though important) its about what form of incorporation makes sense. S corp, B corp, LLC, etc... A tax attorney or CPA can give feedback on that. Often in my work I see business owners who made one choice at startup because it was easy and then have regrets as the business gains momentum.

(FYI - A sole proprietor doesn't have a new tax id for their business)

Thank you for the response. If I were to only do research for them and provide them with links to where they can submit the forms they request themselves, make it explicit that I am not an attorney and am not providing any legal advice, and suggest that they do consult an attorney for the reasons that you all have shared with me, do you I'll have my bases covered? I would be charging her specifically for research and directing her to the appropriate resources.

6

No, you do not have to hire a lawyer, but you do need to follow legal guide lines. All states have different laws, so check your local laws. The best guide for a business startup is to contact SCORE. SCORE is a group of business volunteers who help mentor small businesses. You can find more info at www.score.org

Ditto

I would avoid SCORE like the plague. The completely infactual or illegal things I have had them tell client is fascinating. Like recommending incorporating in a state without income tax... completely ignoring issues like nexus.

6

Merely setting up a new entity (such as an LLC, a corporation, non-profit, etc.) is easy to do without a lawyer. There are inexpensive online services that can do this for you. One of my favorites is MyCorporation.com. I'm a lawyer, but I still send my clients to them, if all they need is to create a simple entity. Where the lawyer comes in is for any of the following, after the entity is set up:

(1) there are multiple owners or equity holders and you want to create a shareholders agreement (for a corporation) or operating agreement (for an LLC) to address possible disputes between owners (such as, what if one owner wants to exit, what if one dies or is incapacitated, what if they disagree on strategy or key decisions, etc.). (For a single owner of a simple LLC, this is often unnecessary until after you grow)

(2) You plan to issue options or other similar rights (such as "sweat equity" for employees or officers) and you need someone to create a stock option plan. (For a single owner of a simple LLC, this is often unnecessary until after you grow)

(3) You need a standard "template" commercial agreement to use with all your customers. (Most businesses will need this right away, even if quick and simple - preferable at low cost)

(4) You need a terms of use and privacy policy for your website, and/or for your mobile app(s). (Most businesses will need this right away, even if quick and simple - preferable at low cost)

(5) You need someone to quickly review any other business contracts you receive before you sign them (such as from suppliers, leases from your landlord, etc.). (Most businesses will need this right away, even if quick and simple - preferable at low cost)

The reason you need these contracts, terms and agreements (in #3-5) is to protect your business. Think of it like insurance. You hope you never need to go to the contract to sue your customer or your vendor. but IF anything ever does go wrong, you want your liability to limited properly so you don't lose your entire business over one bad deal. Yes, your personal liability is limited if you set up an LLC or corporation. But that does not mean that you do not care at all whether your company is liable for something unnecessarily. You can still lose your entire business if your contracts aren't drafted properly and your company ends up exposed to more liability than you thought. Spending a few dollars on a lawyer is just like buying insurance. You hope you never need to "use" the terms negotiated in the contract. But you want to have them there anyway, just in case. A good lawyer can also give some business advice and share industry learnings based on their experiences (e.g., why would you want to structure your deal this way when you can structure it that way instead - that's what many of my other similar clients do).

OutsideGC is a virtual law firm with a low cost structure. We offer the same quality legal services as a big firm, at a fraction of the cost. Because we have no offices, secretaries or bloated staff or overhead, we charge about 1/3 what a big firm does, even though all of our lawyers have the same big firm experience. I am happy to chat any time for free for an initial consult if you have questions as to whether or not you need a lawyer and how much it might cost.

5

As others have mentioned, it really depends on the situation regarding the need to hire an attorney for the initial setup. Generally, the more people involved in the initial setup (i.e., co-owners, initial investors, employees, partners), the greater need for legal guidance.

Also, if the industry in which the company is going to be involved has licenses and regulations that need to be followed, then an attorney would be quite beneficial.

Finally, it sounds like your client is wanting to form a sole proprietorship which, although being relatively easy to set up, does not provide the liability protection as other forms of businesses. It may be helpful for the client to discuss options with an attorney before proceeding.

There may be a local SBA source with whom you can discuss in more detail - https://www.sba.gov/tools/local-assistance

4

If you're merely obtaining a tax ID and filing a DBA for a sole proprietorship, these likely don't involve giving legal advice, so you can probably do these without being a licensed attorney. But if you're setting up an entity, whether a corporation or an LLC, that necessarily involves designing a capital structure that best meets the client's needs; and I don't think you can do that without practicing law, which requires a licensed attorney.

4

Have the client sign a contract with your business - agreeing to indemnify you/your business, etc.. This means they can't sue later for any mistake. Make them sign their legal documents.
A DBA is not required to obtain a free EIN/Fed. ID # unless they have payroll, but is recommended. Put it on the bank acct, Schedule C, etc. instead of your social security #. Obtain EIN free at irs.gov - use SS-4.

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