The expertise that attorneys bring to a business comes at a cost that not all entrepreneurs can afford when establishing their businesses. This leaves would-be business owners asking, “Do I need a lawyer to start a small business?”
Keep reading to learn about the benefits of consulting a small business lawyer and whether or not you need an attorney to get your business off the ground.
Why do small businesses need a lawyer?
Small businesses rely on lawyers to provide legal expertise in some areas, which they might not be well-versed. These include the knowledge to:
- Ensure compliance: A lawyer can help make sure that your business opens and operates by federal, state and local laws.
- Reduce risk: Doing business exposes you to risk, but a business attorney can help you establish a set of procedures that will limit your risk.
- Minimize liability: A lawyer can help define business terms of service and contract language that restrict your liability in the event of a legal claim.
- Establish agreements: A lawyer can help you establish formal legal documents that govern relationships across the organization. This way, you know what you owe to your partners, employees, vendors, customers or clients and their deliverables in return.
- Master taxes: Attorneys trained in tax can help ensure that you pay the tax you owe; they can also help lower your tax liability by identifying valid business deductions and reimbursements.
When do new small businesses typically use a lawyer?
The specific scenarios when start-up small businesses often choose to consult a lawyer include:
- Choosing a business entity: A lawyer can help you decide between a sole proprietorship, partnership, LLC or corporation based on the nature and size of your business and the tax and legal pros and cons of each.
- Picking a business name: An attorney can perform the research needed to ensure that the name you give your business is not in use by another business or trademarked. Operating under an already trademarked name can cause financial and legal woes down the road.
- Forming a business entity: Business owners often retain the services of a lawyer to create partnership agreements or file certificates of incorporation. These are necessary documents needed for a small business owner to legally operate his or her business.
- Licenses/permits: Small business owners often consult lawyers about the licenses and permits they need to obtain to set up shop. Relevant documents might include general business and trade-specific licenses, zoning permits and others.
- Creating contracts: From terms of service to vendor and employee contracts, lawyers can make light work of preparing bullet-proof contracts for agreements your business enters into with other entities.
- Patenting a business idea: A lawyer can help advise you about how to keep your patent confidential, search for and avoid duplicate patents already filed with the U.S. Patent and Trademark Office, and file a patent application.
Do I need a lawyer to start a small business?
Retaining the services of a lawyer is not required as a condition of starting a business. In fact, many of the steps of starting a business cited above can be performed without a lawyer. This means the decision to hire a lawyer or go the DIY route depends on your business entity. Also, consider the amount of time and effort you are willing to expend to get your business off the ground.
Sole proprietorships, being the simplest business entity, can easily be launched on your own without a lawyer. You don’t have to file incorporation documents to start operating. Although, you may need to file an assumed name certificate locally, obtain all licenses and permits, and get an EIN from the IRS. Depending on the nature of your business, this usually involves straightforward paperwork you can find online.
Generally, partnerships are the first entity type for which some business owners choose to seek the help of an attorney. You will need to register an assumed business name at the state or local level.
More importantly, creating a partnership agreement for partners to enter into, while not mandatory in most states, is strongly urged. You can also file these forms yourself through online legal services.
Do I need a lawyer to start an LLC or corporation?
LLCs can benefit from a lawyer as these entities often require filing articles of organization (or a certificate of formation) with the state, the appointment of a registered agent and adherence to other regulatory requirements. Therefore, consider creating an operating agreement. You can file such agreements through online legal services, but lawyers can construct agreements more tailored to your business.
S-corporation and corporation owners stand to benefit the most from hiring a lawyer as these complex entities usually require filing legal papers. Critical legal documents include filing articles of organization, establishing corporate bylaws, appointing corporate directors and issuing stock to shareholders. As with LLCs, there are online legal services that allow you to set up a corporation yourself. However, lawyers can better walk you through potential pitfalls before signing on the dotted line.