Once you have determined that forming a corporation is the appropriate legal structure for your business, the next step is to begin the process of incorporating. The first thing you need to know is that each state has its own rules and legal regulations regarding corporate formation.
Forming a corporation can be a complex process, it is not intuitive and there are more initial costs and fees then you might first think. There are also initial set-up costs to consider.
Costs Associated With Incorporating Your Small Business
While it is possible to incorporate your business without a lawyer, the risk of making a mistake is rarely, if ever worth the savings. If you proceed without using an experienced business attorney, and the process is not in strict accordance with state law, your corporation might not survive a legal challenge, which means, you may be conducting business without the legal protections the corporate veil provides. Many businesses make this mistake and pay dearly for it when the corporation is later sued by creditors and there is no lawful veil present to insulate the owners from liability.
The costs of incorporating can vary greatly depending on the type of lawyer you choose to perform the work.
Many small business law attorneys will charge a flat fee to incorporate your business. The price range for most incorporations ranges between $600 and $1,500. However, be mindful that your attorney is only going to prepare and file the essential corporate documents. After the attorney files these documents and after you designate your directors and issue shares, you will essentially be your own.
It is recommended that you locate a full service business attorney - one that goes beyond the initial setting up of the corporate structure, beyond just the filing and preparation of your essential corporate documents. In this regard, there are many benefits to retaining a more experienced and full-service corporate attorney. As you might have guessed however, these types of attorneys also come with a higher price tag. Full service lawyers rarely work on a project flat fee basis, but rather charge for their legal work by the hour.
There is a significant difference in hourly rates among the full service business attorneys. The average corporate hourly rate is between $200 and $500/hr. The largest and most prestigious law firms in the country (also known as the AMLAW-100 firms) often charge as much as $500/hr. for associate time, all the way up to $1,000/hr. for a partner’s time. It’s hard to imagine that the actual work product is that much different, but clients believe that the value of the legal work they receive is a reflection of what they are willing to pay.
If you anticipate selling shares, retaining a full service business lawyer is highly advisable. Selling shares of your corporation to third parties is often fraught with complexity and should almost never be attempted without the advice and counsel of an experienced business securities lawyer.
You should also know that the more shareholders you have, the more expensive your legal fees will be. If you intend on raising capital by selling your company’s shares to a sizeable number of people, the legal fees can run well into six-figures. The complexity of the legal work and the elevated level of specialized talent needed to perform that work also increases.
On the other end of the value spectrum, consider using an online incorporation service.
There are many to choose from. They can usually answer your basic questions and perform all the necessary paperwork and required filings for you online. You will also be responsible for paying government filing fees and costs. You should also consider the cost of your states franchise tax. All state imposes what they call a franchise tax for you having the privilege of doing business in that state. The average franchise tax is about a $1,000.
For more information on small business lawyers and other corporate legal services, including incorporations and other business forms and discount services, visit GotTrouble.com