I have seen lots of clients have non-attorneys form an LLC (or corporation) for them. CPAs, accountants, and on-line companies that are not law firms oftentimes offer business formations. Or the client just does it themselves. This can be enticing as you think it is more expensive to have an attorney do it, and you’ve heard that it is super easy to do.
I cannot tell you how many people that have come to me with issues relating to their LLC that had a non-attorney form their LLC. There is various case law in some of the states regarding whether this is even legal, as it has been argued that it may be the unauthorized practice of law. I’m not here to go into the details regarding that aspect, but more importantly, regardless of whether a non-attorney CAN form your LLC, SHOULD a non-attorney form your LLC?
Just because you can form your LLC, should you?
First and foremost, as someone who has spent over 10 years specializing in business law, forming countless LLCs and corporations, it’s somewhat insulting to have a client or potential client tell me that they’ll just have some non-attorney form the LLC (or do it themselves). This is a specialized process that you can get burned very easily if you skimp on the cost when forming the LLC.
It is absolutely true that it is relatively easy to file the articles of organization with most states to formally form your LLC. However, that is just the beginning of the formation process, and that is where most non-attorneys will stop.
Every LLC needs an operating agreement at a minimum (by-laws for a corporation). This is the internal documentation of how the entity will behave. Simply filing the articles of organization and using the LLC only on paper, you are absolutely not guaranteed the limited liability that can come from your LLC. In order to maintain limited liability for the owners of the LLC, you need to comply with certain legal requirements. Otherwise, you risk having the corporate veil being pierced. And isn’t that the whole point of having an LLC?
Ask yourself these questions.
If you go to a non-attorney to form your LLC, you are probably going to get an LLC formed. However, ask yourselves these questions:
- Is an LLC even the proper business formation for me? Was that discussed?
- If the ownership is 50/50, am I adequately dealing with the potential for deadlock?
- If there are three owner or more, can a majority vote of the members vote out another member at any time, for any reason?
- Do I need to put assets into the name of the LLC?
- Should I have separate LLCs for multiple large assets?
- Do I need to have a bank account in the name of the LLC?
- Should my LLC be member-managed or manager-managed?
- Can I keep the ownership of your LLC anonymous?
- Do I need to register the LLC in multiple states?
These are all questions that need to be address PRIOR to forming your LLC. These are all problems I’ve dealt with numerous times where a client had a non-attorney (sometimes themselves) form their LLC, and then at least one of these issues arose. When issues arise, we have to look to the NM Statutes for a ruling on a matter because their operating agreement either didn’t exist or it didn’t cover the necessary elements. Without an operating agreement, you are putting yourself at the mercy of the default rules – the NM Statutes. Has your non-attorney told you exactly what those Statutes contain?
Having an attorney in your corner from the beginning is crucial.
Having an attorney involved in your LLC formation is important for other reasons as well because you are surely going to need additional legal counsel down the road. It’s a good idea to form a relationship early on with an attorney by having the attorney form your LLC. When you’re in the planning stages of your company, here are a few other things that an attorney would be vital to assist with:
- Do you need a trademark
- Should you be worried if there are companies in other states with a same or similar name?
- What kinds of contracts do you need?
- What are the laws relating to my business and what do I need to watch out for?
- What if I have employees?
The value of an attorney.
While the cost of an attorney to form your LLC may seem like a lot, you have to look at the value and piece of mind that offers. And I can tell you from experience, it is much cheaper to have an attorney form your LLC than it is to revamp your LLC after you’re having issues.
As a note, whenever I form a legal entity for a client, I always recommend to the client that they consult and hire a CPA/accountant to ensure that all tax and financial requirements are dealt with properly.
Author: Kameron Kramer
Kameron is an experienced business law and intellectual property attorney. With a technical background gained as a chemical engineer, Kameron uses his varied skills to provide general counsel and start-up services to many local and regional companies.