Starting a business can be expensive. For some start-ups, one of the most costly (and avoidable) expenses is hiring a lawyer. For others, passing up on hiring a lawyer can create more costs than it saves. Startomatic is here to help you answer once and for all—do you need a lawyer to start a business?
The Legal Piece of Starting a Business
The short answer is no—you do not always need a lawyer to start a business. In fact, most new businesses can find the legal help they need online for less than $100. Let’s take a look at six common legal processes you can often DIY (with the right tools).
1: Selecting Your Legal Entity
Is your business going to be a corporation? An LLC? Maybe you’re not really sure. You may be tempted to hire a corporate lawyer to guide you through this decision.
Do you need a lawyer to help select your legal entity?
Probably not. Online tools, like a legal entity selector
, can walk you through this decision—especially if you are deciding between a corporation and an LLC
. Roughly 90% of start-ups will be just fine with either a corporation or an LLC.
If you decide you need to venture into the labyrinth of more “exotic” legal entities (GPs, LLLPs, PLLCs, etc.), you may be in a different boat. With fewer available resources and more intricate ownership, liability, and tax structures, you will want to make sure you fully understand what you’re getting into, so an experienced business lawyer may be a good investment.
2: Setting Up Company Ownership
For both legal and functional purposes, you’ll need to nail down the ownership of your start-up before completing your legal formation documents. This involves answering the hard questions, like:
- Who owns what percentage of the business?
- Who will be responsible for decision making and management?
Making these decisions is not always as straightforward as it may seem; the vocabulary and details will vary depending on the type of entity, and making changes in the future can be costly. That’s why some start-ups consider legal consultation at this stage.
Do you need a lawyer when setting up your company’s ownership? Probably not.
Online resources—like this tool
—can help you easily understand and select your ownership and management structures.
When should you consider paying for professional advice about company ownership? If you are taking in outside investment from professional investors, or if you need a more unusual and complex ownership structure with preferred shares or equity incentive plans, paying for legal services may be a worthwhile expense.
3: EIN Applications
Do you need to pay a lawyer to prepare and file an EIN application? No. Online solutions (like Startomatic) can help you complete this process with ease. Using an online resource comes at a small fraction of the cost delivered by a corporate lawyer. In fact, Startomatic’s EIN filing service comes at no additional cost - it’s entirely included in your subscription.
4: Filing an S-Election
Corporations often choose to make an “S-election” with the IRS to save on taxes. Why? Forgoing an S-election means your corporation will be taxed as a C-corporation, which is subject to a type of “double taxation.” (We break down the details of S-elections for you here
Do you need a lawyer to prepare and file an S-election paperwork? No
. Online resources (like this starter tool
) can completely automate this process for you. Again, this feature is available through Startomatic at no additional cost.
5: Legal Contracts and Documents for New Businesses
Strong legal contracts and documents are at the foundation of most businesses. These pieces of paper can protect you, your company, and your finances from disaster. While it is important to get your legal contracts and documents right, you may not need a lawyer to make this happen.
Do you need a lawyer to write your legal contracts and documents?
For most start-ups, no. Legal document templates
cover many common legal documents and contracts.
However, if your company’s needs go beyond the document basics, you should contact an attorney for support.
6: Getting a Trademark
A trademark is important for most new businesses. It can help you maintain your brand’s value and protect you from product or service imitators.
Do you need a lawyer to get a trademark? Probably not.
You may not know it, but you actually get some trademark protection
as soon as you begin using your particular name or logo. This is called an unregistered or “common law” trademark. However, you should first use a Trademark Search Tool
to ensure your new name or logo is not infringing on another company’s trademark.
If, on the other hand, you want a registered
trademark, you have two basic options. First, if you’re the DIY type, the USPTO’s website
is actually pretty user-friendly when it comes to filing a trademark application. Second, for more complicated applications with multiple classes and/or existing trademarks that may object to your filing, you may need legal support.
Finally, if trademark protection is absolutely essential to your business plan, you will want to hire an attorney who specializes in trademarks to complete a thorough trademark clearance search and handle the application paperwork for you. You can expect to pay several thousand dollars for this service, plus filing fees of $250-$750 per class.
Reasons You May Need a Lawyer
Unfortunately, not all business legal tasks can (or should!) be solved without a professional. Here’s a look at some of the common reasons you probably should consult a lawyer for your start-up.
Unique Business Situations
Online resources, like those listed above, support the legal needs of most—but not all—businesses. If your business exists outside the realm of support provided by online resources, you may need to hire a professional.
Taking an Outside Investment: How are you funding your start-up? Most starters use bank loans, personal savings, or investments from founders, friends, and family. However, if you are taking on third-party outside investment, we would recommend having a lawyer draft and/or review the investment documents to be sure they’re fair and do what you expect.
Stock Option Plan: While it is not common, some businesses need an option plan to compensate employees—such as stock options or other equity incentives. To keep your company protected, you should have a lawyer draw up the plan.
Regulated Industries: If you’re getting started in a heavily regulated industry (law, medicine, lobbying, pharma), you will probably want to hire a lawyer experienced in that industry to help you.
If you are going to need to patent an invention, you should probably speak with a patent lawyer. This process goes beyond DIY tools and resources. You will want to ensure that you keep your ideas protected with the help of a professional attorney. However, you may still be able to use online resources like Startomatic to handle the legal formation, while the patent lawyer covers the patent application.
Other Reasons You May Need a Lawyer
You know your business and your situation best. If you think you need legal support to help you along any stage of your business, you should consult an attorney. While saving money is great, you should at least talk to a lawyer when in doubt. Just be sure to find one who focuses their practice on business matters.
Startomatic: Helping You Start Your Business
If you’re ready to start your own business, Startomatic is here for you. We’re founders just like you, and we’ve created a one-stop solution with everything needed to launch and run your start-up. Our guides and tools can help you navigate the legal side of starting a new business—while saving thousands on a corporate lawyer. Did we mention that Startomatic
is just $99 a month? Sign up
today to try us risk-free for two weeks