When Do Start-Up Businesses Need to Hire a Lawyer?

You may not need to hire a lawyer as soon as you think when starting a business.

Once you have a great idea for your start-up business, do you need to hire a lawyer to help you get started? Not necessarily. A lot of the initial steps related to choosing and forming your business entity you can do on your own. However, once you get to later stages with your business—for example when you start hiring employees or entering into more complicated agreements—you may need the assistance of a lawyer. Remember, though, if you're uncertain about something at any stage in the process, deciding to hire a lawyer can save you money by helping you avoid mistakes, like getting involved in a situation with unintended (and possibly costly) consequences.

Deciding on Your Business Structure

You'll need to decide what type of ownership structure makes sense for your new business. Most states have information on their secretary of state (SOS) website about the different types of business entities you can choose from—solo proprietorship, LLC, corporation, and partnership. There are also many online and other resources available to help you understand your choices.

Figuring out what type of ownership structure best suits your needs will depend on the type of business you have, the number of owners, and your financing. Although many entrepreneurs make this decision on their own, you may have questions about liability, tax, ownership, and more that you should discuss with a lawyer or an accountant before you decide. For more information, see Choosing the Best Ownership Structure for Your Business.

Checking for Name Availability

Choosing a name for your business is another initial step you will need to take. While there are some legal requirements related to naming your business, this can usually be done quite easily without the help of a lawyer.

The first thing you'll need to do is check whether the name you want is available in the state where you plan to form and operate your business. Most states have a business name database on their Secretary of State (SOS) website with the names of all the businesses that are already registered in their state. You should find instructions there about checking for name availability and how to reserve your business name if you decide to do that.

Once you've determined that the name you want to use is available in your state, you'll want to make sure it's not a registered trademark. You can do this by checking online with the U.S. Patent and Trademark Office's Trademark Electronic Search System (TESS). Are you planning on having a business website? If so, you should also check for domain name conflicts. See Make Sure Your Proposed Business Name Is Available for more information on naming your business.

Forming Your Business Entity

Once you've decided on the business structure and a name for your new business, you're ready to form your business entity. If you've decided on a sole proprietorship or partnership, you likely won't need to file any forms or pay any fees to become official (although partners should enter into a partnership agreement).

If you've decided you want to form an LLC or corporation, you'll need to file organizational documents with the state and pay a filing fee. Most SOS offices have helpful information and forms that you can use to create your LLC or corporation. These forms generally require only very basic information, like the name and the address of the new business, the name and address of your registered agent, and a few other items. There are usually detailed instructions on the SOS website about how to complete the form, pay the filing fee, and file the document with the state. There are also online resources and companies that can form your business entity for you.

In addition to registering your business entity with the SOS's office, you'll need to create bylaws if you're forming a corporation, or an operating agreement if you're forming an LLC. These are internal documents that lay out the rules and procedures for your organization, like how to hold meetings, take action, or dissolve and wind up your business. See Nolo.com for more information and resources to create these documents on your own, including books, articles, and online products.

As part of getting your business started, you'll want to open a business bank account and keep all money for your new business separate from your personal or other business finances. To do this, you'll need an employer identification number (EIN) from the IRS, which you can apply for online. Once you have your EIN and the stamped copy of your formation documents from the SOS, you can go to a local bank and open a business account.

If you're a sole proprietorship or single-member LLC and don't plan on having employees, you aren't required to have an EIN, although it's considered good business practice. For more information, see Which Type of Business Entity Needs an Employer Identification Number (EIN)?

Operating the Business

Once the formation tasks are done, you can focus your energy on getting your business up and running, figuring out the best way to sell your services or products, and creating the online presence you want. Depending on what your business does, you may need to create contracts or different types of agreements for the services or products your business offers.

You'll also need to get any required permits and licenses as well as proper insurance for your business. There are a lot of self-help resources available which can help you get through these tasks without having to hire a lawyer.

At some point, you may run into more complex situations or legal issues with potentially serious consequences. This might occur in the context of a possible employee lawsuit or bringing on investors or buying another business. The cost of hiring an experienced lawyer to help out with more complicated situations will be more than offset by the costs you may incur if you make a mistake. Most small businesses encounter some situation where they'll need the help of an experienced small business lawyer.

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