Do You Need a Lawyer to Incorporate Your Business?

Many years ago, I incorporated my small business. This means I filed Articles of Incorporation with my state as well as some forms with the IRS to specify that I wanted to operate my company as a specific kind of corporation called an S-corp.

There are many benefits of incorporating your business (and a few disadvantages too). You can get more flexibility in how you are taxed on your income as a corporation, protect yourself against liability, and more easily transfer ownership. But you have to deal with the complexities of actually forming a corporation.

If you're thinking about doing so, you may wonder whether you need to hire a lawyer to help. Here's what you need to know.

You are not required to hire a lawyer

There is no requirement that you hire legal help to assist you with the incorporation process. In fact, I incorporated my business on my own.

Online services can help you complete incorporation paperwork for a fee and walk you through the process in your state. Many states also provide guides for filing the necessary paperwork and forming your corporation.

If you have the time and knowledge, you can use these resources and save yourself the cost of hiring a professional to help you. This means more money in your business checking account.

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Hiring a lawyer may be a good idea anyway

While you don't have to hire a lawyer, the reality is that doing so may be a good idea. Benefits of getting legal help include:

• Advice on whether incorporation is right for you
• Help deciding whether to form an S-corp or a C-corp (They have key differences, including who can be a shareholder, how you are taxed on profits, and how you declare losses)
• Assistance completing all of the required paperwork with your state and the IRS
• Guidance on ongoing obligations, such as annual filings you must submit and periodic corporate board meetings
• Advice on setting your salary as an employee of your corporation

These are just a few of the many different things a lawyer can assist you with during the incorporation process. The bottom line is, you should hire a lawyer unless you:

• Are 100% confident you know what type of corporation makes sense
• Understand what a pass-through corporation is and why you might want one (you pay taxes on profits and losses on your personal returns)
• Understand the special tax rules applicable to both S-corporations and C-corporations (for example, you know C-corps could be double-taxed since the company pays taxes on profits and you pay taxes on dividends)

Doing the paperwork itself isn't the hard part, it's making the decisions surrounding incorporation that can be tricky. Getting legal advice on these issues can help ensure you don't make a costly mistake that could come back to haunt you.