Startups: Don’t DIY on Tax Law, You’ll Regret it Later
When you’re first starting up a small business, you’ll undoubtedly be advised to form an LLC. However, attorney Joe Chase points out that once entrepreneurs have taken the time to make things official on paper, they mistakenly think their work is done.
In the article, Small Businesses: Pay Attention to Taxes, Chase confirms that “forming a corporation or a limited liability company (LLC) is a straightforward and cost-effective way for business owners to help protect themselves against personal liability for obligations of their businesses.” The trouble comes when new businesses stop there.
“. . .(S)imply forming an entity is not enough to protect a business owner against all personal liability,” Chase says in his article published by NBC Montana. He writes from experience as a business lawyer that there are some oft-overlooked issues that can be taken care of right from the beginning for a moderate cost to avoid complications and extra cost down the line.
Not as expensive as you think
“The main expense associated with forming a corporation or LLC is the attorney time necessary to put together organizational documents for the new entity,” Chase explains.
Good news for the budget-conscious startup: these documents, which detail ownership and management structures, can be assembled for a reasonable price.
The devil is in the details
In addition to the organizational documents, new businesses must observe certain practices reflective of the legal structure they have put on paper. “For example, in the case of a corporation, annual meetings of shareholders and directors should be held,” Chase says.
Sometimes there are situations where the LLC alone does not sufficiently protect you against personal liability, for example, with respect to landlords, or if you’re a licensed professional. In addition, there are those complex tax considerations. (e.g. S-corporation or no?)
To make the best decisions, the author recommends seeking professional guidance with a good business lawyer who is also well connected with skilled tax lawyers and accountants.
Author’s conclusion: don’t go it alone when it comes to the law.
Chase concludes that even though hiring a business lawyer will cost some money, it’s worth it. When business owners try to cut corners and take a DIY approach to these legal issues, “important organizational tax, accounting, and other considerations have often not been taken into account, leading to significant legal expenditures and tax consequences down the road,” Chase writes.
To read the original article in its entirety, please visit NBC Montana.