FAQ: Should you use an on-line incorporation service to create your firm?
Answer:
Do you buy your suits off the rack and hope it fits perfectly? Or do you have
one tailored to fit properly? Almost no one can buy a suit off the rack without
adjusting the pants, the waist or the shoulders. It’s the same with legal services. If
you are happy with a cookie cutter approach to problems then by all means use an
on-line service. These shops are cheaper than what an attorney will charge. But
they do not offer the perspective that a business needs as it grows. No matter what,
their will be gaps in the incorporation service’s product. Things that should have
been tailored to the special circumstances of your company or that can be done
easily now or expensively later. For example, when you start your firm you don’t
have to worry about votes and filing amendments to the corporation papers with the
various state agencies and the IRS and reporting the changes to the various parties
who have an interest in any changes in the corporate structure (creditors, lenders, tax
authorities). Even a customized set or corporate documents now will not mean that
they won’t have to be altered in the future. But it will be your material and will be
easier to alter.
FAQ:
What protection does incorporation provide and what are the limits of
that protection?
Historically, people who ran businesses as sole proprietors or partners were
personally liable for all debts of the business. A corporation will provide limited
liability for the owners of the business; the most they have at risk is what they have
invested. However, it will not provide protection for you for acts that you,
personally, take for the business.
In addition to the question of piercing the corporate veil, if you sign a
contract- a lease, a mortgage, a credit card application for the corporation, you may
be expected to personally guarantee the contract; if so, you will still be personally
liable for the debt.
Second; and this is the real problem, most small businesses are run by the
owners. If the business does something that causes harm, then chances are
you will be sued, in addition to the business entity, not on the basis of your
Kaufman Law Group, PLLC
8000 Towers Crescent Drive
Suite 1350
Vienna, VA 22182
703.764.9080
703.764-0014 (fax)
ownership of the business, but on the basis of your running the business. If you are
driving the business vehicle, and get into an accident, they can sue you personally
because you were the driver. If one of your employees gets into an accident while
working for the business, they may be able to sue you, individually, for negligent
hiring/retention/supervision/entrustment. If someone slips and falls on the ice
outside your business, to the extent that you were responsible for making the
decision to remove the ice, as manager, you can be sued personally. A tenant gets
hurt on your rental property, they may very sue you as property manager. What I’m
getting at is, if you are involved in running the business, chances are you are going
to be liable for the debts of the business, notwithstanding that you have a
corporation or LLC or LLP.
So what should you do? The best thing to do is to get insurance, and a lot of it.
Kaufman Law Group, PLLC
8000 Towers Crescent Drive
Suite 1350
Vienna, VA 22182
703.764.9080
703.764-0014 (fax)
