Nearly one-quarter of small businesses are limited liability companies (LLCs), making it one of the most common types of business entities in the U.S. This isn’t surprising given the legal and tax advantages that come with an LLC.
Despite its popularity, however, there are several legal matters that may come into play when creating an LLC. Here’s where an LLC lawyer can help. An LLC attorney can help you understand if an LLC is in fact the best legal structure for your business, help you establish your LLC, and help you define the financial and management structure of the LLC as you grow the company to the next level. Learn the basics of LLCs, plus the best ways to find an LLC lawyer and get your business off on the right foot.
LLCs 101: How LLCs Work
There are four main ways you can structure a small business: sole proprietorship, partnership, LLC or corporation. Sole proprietorships and partnerships are the default modes of business ownership. If you don’t file anything with the state, you automatically have a sole proprietorship (if you’re the only owner) or a partnership (if there are multiple owners).
Sole proprietorships are pass-through entities, which means that the business’s profits and losses pass through to the owner’s personal income tax return and are taxed at the owner’s personal income tax rate. Partnerships work in the same way, except that the profits and losses are divided among multiple business owners. The biggest risk of sole proprietorships and partnerships is that they leave you open to personal liability. If someone sues your business and wins, they can take your personal assets (your car, your personal bank account, even your home, etc.).
Corporations and LLCs are registered business entities—you need to file paperwork with the state and comply with federal and state laws to maintain your status as an LLC or corporation. The biggest advantage that you get from registering as a business entity is extra legal protection. If someone wins a lawsuit against your business, they can take only the business’s assets—your personal assets are safe.
In addition, these entities work differently from a tax standpoint. C-corporations pay a tax at the company level, and shareholders again pay a tax on dividends at the individual level. S-corporations are pass-through entities, much like sole proprietorships and partnerships. LLCs have the greatest tax flexibility of all because you can choose how you want the IRS to tax you—as a pass-through entity or as a C-corp.
Even if you are the only owner of a business and have no employees, you can organize your company as an LLC. However, some states prohibit certain professions, such as doctors, insurance agents, financial companies, architects, and health care companies, from organizing as LLCs.
What an LLC Lawyer Can Help You With
Structuring your business as an LLC has a lot of advantages, but there is also a lot of legal paperwork you need to file to establish one. In addition, every state’s laws regulating LLCs are a little different, and without understanding your state’s requirements, you can run into trouble with the law, the IRS, or your local tax authority.
This is where an LLC lawyer can help you avoid potential pitfalls.
These are some of the specific things an LLC attorney can help you with:
- Determine whether your business is eligible to organize as an LLC in your state.
- Determine which state it’s best to register in, particularly relevant if you do business in multiple states.
- Understand whether, and why, an LLC is better for your business than other business structures, including the tax consequences of each structure.
- Draft and file your articles of organization, which is the foundational document for an LLC that you have to file with the state to create your LLC.
- Draft and negotiate funding agreements for your LLC with investors.
- Help you comply with Securities and Exchange Commission (SEC) requirements if you want to raise money from investors.
- Draft your LLC operating agreement, which creates the backbone of your LLC and specifies how you’ll make decisions and manage the business. This will cover things like how to invite new members into the business, replace members, and bind the company to business loans and important agreements.
- Maintain meeting minutes, member resolutions, and other important LLC paperwork.
- Understand state-specific LLC laws and how to comply with them.
It’s possible to form an LLC on your own, without a lawyer’s help. There are even online legal services that will help you form an LLC. They will assist you with filing formation paperwork and completing other documents. However, if you’re going into business for the first time or have a complicated situation (e.g. multiple owners, raising investor money, operating in multiple states, etc.), it’s a good idea to consult an attorney.
Where to Find an LLC Lawyer
Business attorneys are widely available, but your goal is to find one who’s experienced with LLCs, familiar with your state’s laws, and most of all, who understands your business’s goals.
There are multiple ways to find an LLC lawyer who is a great fit for your business:
1. Ask other business owners.
Often, the best way to find an LLC attorney is simply to get recommendations from other people who have formed a business recently or obtained help on a business legal matter. If they were happy with their lawyer, chances are good that the lawyer can help you, as well. Just make sure the lawyer is knowledgeable about your industry.
2. Use online legal companies.
A great way to get legal help for your LLC without paying a fortune is by utilizing online legal services. Two such sites are LegalZoom and Rocket Lawyer, which have business legal plans that give you unlimited access to business legal forms and an on-call attorney for less than $40 per month.
Two more options are LegalMatch and UpCounsel. Both will match you to a local attorney who’s qualified to help you once you submit an online questionnaire describing your legal matter. These sites pre-vet the attorneys and show client reviews, so you can rest assured that you’re viewing only top qualified attorneys.
Avvo is another resource here. They host the largest online lawyer directory, and you can sort by zip code, level of experience, and the type of the legal help that you need for your LLC. Avvo also offers a forum where you can post a legal question at no cost and get a response from an attorney in a few hours.
3. Go through your local law school.
Many law schools have entrepreneurship clinics where law students represent small business owners under the supervision of a law professor. Usually, these legal services are free, and the clinic can help you with nearly everything that an attorney can help you with. For instance, law students can advise you on entity choice, draft and file formation paperwork on your LLC’s behalf, draft an operating agreement, and counsel you on other matters. Keep in mind, every law school clinic has its own eligibility requirements for who can become a client.
4. Contact your bar association or legal aid orgs.
State and local bar associations have online legal directories where you can search for an attorney based on practice area (you’ll want to look for lawyers with a business law or startup law focus). Legal aid groups and nonprofits also often try to match entrepreneurs with local attorneys, sometimes for free or for a low cost.
5. Attend business events and conferences.
One final way to find an LLC lawyer is by attending business meetups and conferences. The organizers of these events often invite local lawyers to attend or to speak. You can learn some basics from legal info sessions at these events and make appointments with lawyers for follow up about your specific business.
Questions to Ask Your LLC Lawyer
When you’re not a legal expert, it can be difficult to know what makes a good attorney. The lawyer who you ultimately choose is going to be an ally in the growth of your business, so it’s important to pick the right person. The most important thing is to choose someone who has a good rapport with you and who makes you feel confident about your business and protected from risk as you grow.
Here are some questions you can ask at your initial consultation to assess whether the lawyer is a good fit for your business:
- Are you licensed in the state where I’m registering my LLC and in the state where I conduct the most business (if the state where you’re doing business and where you’re registering your LLC are different)?
- How many years of experience do you have in small business law/startup law?
- What percentage of your clients are small business owners?
- How much experience do you have with my industry?
- How much do you charge? What’s your fee structure (e.g. hourly, fixed rate, or contingency)?
- How long will it take to finish my legal matter? (This will affect the fee.)
- Will paralegals or legal assistants handle a portion of my case? (This will also affect the fee.)
- Do you have experience with investor funding/funding agreements for an LLC?
- Can you consult about tax options and consequences for LLCs?
- What is your preferred mode of communication?
Ideally, you’ll want to have this list of questions and anything additional you want to ask ready to go before the initial meeting with your lawyer. And remember, don’t hold back. Now is the time to ask as many questions as you can, so they are no surprises once things are underway. And one more tip—before hiring an attorney, always double check that their bar license is active and in good standing. You can usually check by looking up the attorney on your state bar’s website.
What Your LLC Lawyer Will Ask You
Once you’ve chosen a lawyer to work with, the tables will turn—time for the lawyer to ask you some questions. Here are some basic things you should come prepared to discuss at your first appointment:
- If this is a brand-new business, when do you want to launch?
- Which states do you conduct business in or plan to conduct business in?
- What name do you plan to give to your LLC?
- What’s your current business entity structure (if you’ve already launched your business)?
- Do you have an employer identification number (EIN)?
- Do you have all necessary permits and licenses to be operating?
- Do you plan to raise investor money?
- What do you anticipate being your business’s income this year? (If you’ve been in business for while, you’ll probably need to show some historical financial statements.)
- Do you have or plan to bring in business partners? How many? What duties will they have? How much capital (if any) will they contribute to the business?
- Do you plan to hire employees? When, and how many?
- Do you own other businesses?
Coming prepared with the answers to these questions ahead of time will make your initial appointment more productive, so you can more quickly choose the lawyer who is most qualified to help you.
Cost of an LLC Lawyer
The charge for an LLC lawyer will vary based on the type of legal work you need them to do and their fee structure. Some LLC lawyers charge a fixed rate of as low as $500 to draft and file LLC formation paperwork, and others charge as much as $3,000. For document drafting and document review, lawyers typically charge an hourly rate of $100 to $300. Many lawyers offer a free initial consultation where you can find out how the lawyer works and get a general idea of how they are going to help you.
You can get online legal help at a significantly lower cost, but there’s a catch. When you use an online legal company to form an LLC or to get LLC documents, you’re either doing things on your own, or a rep of one the company is helping you behind the scenes—not a licensed attorney. That leaves your paperwork prone to more errors. If this is the first business you’re starting or if you just want some extra piece of mind, it can be beneficial to hire an LLC lawyer.
An LLC lawyer can be incredibly helpful in your first few years as a business. They can help you get started and keep your business compliant as you expand, raise money, or hire employees.
Finding an LLC attorney can be as easy as tapping into your network, and if that doesn’t work, you can look to a local law school, bar association, or legal aid organization. Online legal companies can also provide low-cost help. Remember to carefully evaluate prospective lawyers, and come prepared to discuss your business and your goals.
- SmallBizTrends.com. “Startup Statistics – The Numbers You Need to Know“