+ How do I start a new company?

There are few things more exciting than starting your own company. You may have heard that there are different types of companies that can be formed, each with different advantages.

The most common company is called a sole proprietorship. Think of your childhood lemonade stand. You didn't incorporate your lemonade stand, right? (if you did, let's talk, we may have a job for you) You just went out into the marketplace and started working. That is a sole proprietorship. It is the "default" corporate form. The advantage to a sole proprietorship is that you don't need to do anything to get started other than start making, selling, or serving something. The downside is that you may be personally liable for any issues that arise out of your business. If you're selling lemonade for 5 cents a cup, that might not be a big deal. But if you're working with significant contracts, or you have employees and potential liabilities, you are going to want to limit your personal exposure. You don't want to lose your house or your car because of your business liabilities.

Two ways to do that are through forming a corporation, or forming a Limited Liability Company (or LLC). There are also partnerships, limited liability partnerships, and a few other forms of incorporation. These forms are less commonly used nowadays, but still important for some purposes.

Some companies may be eligible to be a "pass-through entity", like an S-Corp, which means you pay taxes on the income of the company as if it was your personal income. Other companies are treated as a "C-Corp" which means the company has to pay taxes separately, and you also have to pay taxes on the income you derive from the company. Traditional C-Corporations are double-taxed. This is one reason why the LLC form has become more popular in the last 20 years.

To start a corporation or an LLC, you need to file articles of incorporation (or articles of organization for an LLC), prepare bylaws, publish the new entity (if its a New York LLC). You will need to prepare basic filings telling the state a little about your company. Your company will need to file taxes. Depending on the work you are doing, you may need to register with various government agencies. And of course, there is an annual registration fee from the state.

There are advantages and disadvantages of a corporation versus an LLC. Generally, if you think you want venture capital financing in the future, you will probably want to consider a corporatoin. For more straight forward businesses, an LLC is generally easier to operate, with fewer corporate formalities. If you have partners, you will need to make sure your bylaws reflect an agreed upon set of rules for how your company will operate (i.e., what happens when one of you wants out? how many board members will you have? who has what position?)

Generally speaking, when you're starting a new company, you should make sure to have a lawyer, a banker, an accountant and an insurance broker. Feel free to contact us to discuss forming a new company. We would be glad to talk to you about your best options and handle the paperwork for you. It's a great way to start a relationship for the future of your company.

+ Why shouldn't I just use one of those cheap websites to form my new company?

When you're starting a new business, money is tight. It's tempting to try out a $99 LLC formation, what could go wrong?

Here is the thing. First, those companies won't guide you toward which type of company is right for you. Someone would have to take the time to get to know your business a little before they could do that. Those companies aren't going to do that. Not for $99. So, on step one, you may be forming the wrong type of company. Once you start down that road, it can be cumbersome (pronounced" "ex-pen-sive") to change course.

Second, those companies don't tell you that there are several extra steps, fees, and charges that are going to come up before you are fully formed. In New York, there is a state fee of about $200 to form a new LLC, plus additional fees to publish your LLC in the newspaper, get copies of your documents from the state, etc. All of this is going to get tacked on after the fact. A lot of these companies don't help you with the publicaton at all. Or they will try to upsell you for additional charges. And, of course, if you do any of these steps incorrectly, you can end up either with no company, or the wrong company. Sometimes, you may not find this out until you have a major problem.

When you hire an attorney to start your company, you are making an investment in your company. Generally speaking, you are going to get what you pay for. If your new business is more of a hobby, it might not make sense to invest your money in hiring a lawyer. But if your business is something that you want to growth into something bigger, something amazing, then you should consider having counsel guide you through the process and make sure it is done correctly.

Your business lawyer should be available to you to answer questions, sometimes even if they aren't exactly legal questions (like: do I need a corporate seal? can you recommend a good accoutant? how do I prepare a board resolution?)

Last, your bylaws and other corporate documents are important. A $99 formation is not going to guide you through the process of having corporate bylaws that actually reflect how you want to run your business. If they provide any bylaws at all, it will be a pre-printed agreement that won't actually reflect how your company works. Failure to follow the agreement could cause you to nullify the protections of your company entirely. (As an analogy, imagine paying half-price for insurance knowing that the policy will deny coverage when you need it. Not a good investment, right? Same concept here.)

+ What else does a business lawyer do?

We work with clients to help their businesses grow. That can mean a lot of different things. We draft contracts between our clients and their customers. We negotiate purchase agreements for major assets or capital improvements. We draft non-disclosure agreements, employement contracts, software licenses, privacy polcies and a host of other things. We can prepare your company for sale, transfer ownership to someone else and run a merger or acquisition of another business. Looking to start a franchise? trademark your designs? copyright your music? We can do that too.

As your business grows, having an attorney that knows your business and knows who you are allows you to grow into new opportunities pretty seemlessly.

+ What does all of this stuff cost?

A lawyer's favorite answer: it depends. Generally, finite projects are cheaper than you'd think, especially if it is something relatively straight forward. Depending on your level of sophistication, some documents can be prepared once, and then re-used for other applications. Whenever possible, we like to quote a flat fee for a project, so that you know what it is actually going to cost, and so that our incentives are aligned with yours. As an example, we typically do LLC formations for $1250 inclusive of all fees associated with the formation for filing and publication. A tech startup might be a little more time consuming because it needs to account for equity provided to owners, as well as stock options for employees. That would typically more like $2,500 for a Delaware corporation. These sorts of arrangements allow for you to have an attorney, ask him or her questions, and get specific answers by someone who has taken the time to know your business.

Some projects have to be billed hourly, especially if it's unclear how long they will take or when they will be "done." Our hourly rate right now is $255 for attorney time and $100 for paralegal time. Some projects can be completed in as little as a couple hours, others can take significantly more than that.

+ Do I have to pay a retainer, and what is a retainer?

A retainer can refer to two different things, and sometimes it can be confusing which one someone is referring to. Generally speaking, a retainer is pre-payment for services. In the olden days, this sometimes took the form of a person paying a lawyer a monthly fee so that the lawyer was available to them whenever needed. Nowadays, you might call this a subscription model. We are open to those sorts of arrangements, but they are not our most commmon fee structure and is probably only adviseable if you have ongoing needs every month that require the advice of counsel.

More commonly, a retainer refers to putting down a deposit on a legal matter. For new customers, we typically ask for a deposit on the work we are about to begin.

That money doesn't go directly into the firm's bank account. It is deposited into an attorney trust account. That means that the money belongs to the client until it is earned. In fact, under the rules of professional conduct, which applies to all attorneys, an attorney may never, ever, ever, ever use client trust funds for any purpose other than what it was intended. So, we could use that money to pay your LLC filing fees with the state, and we can transfer the money into the firm's account once the project is completed, but we cannot just take the money, unless the project is completed. If you fire an attorney, for any reason, they should provide a refund on any "unearned funds" that you paid up front.