I got a quote from a lawyer of $850 to do all of the paperwork required to form my LLC (articles of organization, operating agreement, and file for EIN). My question is whether or not I should consider doing these things myself. My partner and I have never formed an LLC before and we don’t want to make a mistake that could hurt us in the future. So I guess I have the following questions.
Are we being overly paranoid and should we go ahead and file the paperwork ourselves?
What kind of mistakes can we make that can hurt us in the future?
The quote is on the high end, but is a bargain if you get actual face time with an attorney and the operating agreement is specific to your situation. It is a rip off if he sends you some cookie cutter agreement without actually talking to you and your partner. There are plenty of web sites that will sell you a generic operating agreement for under $20.
Filing with the state and getting an EIN take about 30 minutes and attorneys do it as a convenience. (Scam artists charge for it.) You only need an attorney to draft the operating agreement, but you can do that yourself if you are competent in partnership law, debtor/creditor law, bankruptcy law, tax law, contract law, succession planning, and corporate governance as well as all the case law surrounding LLCs, partnerships, and corporations . Those are just a few of the many areas involved and the LLC will also need integration into your estate and business plan. Remember it is not a one size fits all document (unless you want it to have limited effect). It is as specific to your situation as medical care.
The biggest mistake people make with LLCs is that they think protecting assets from lawsuits by transferring them to LLCs is legal. A close second is thinking an LLC creates an impenetrable wall between business and personal assets. Both assumptions are false and have cost people dearly in court.
Another mistake is thinking an LLC is the end-all-be-all. It is actuallly just one tool in a planner’s toolbox and is supplemented with other entities and structures to create a comprehensive estate, financial, tax, and business plan. That is the true power of an LLC. It’s advantages cover holes in other areas, while other things cover the holes in an LLC. Some other common mistakes include treating the LLC like a personal piggy bank, failing to maintain corporate formalities, forgetting to transfer assets into the LLC, acting in a member-manager role, and failing to pay the annual fees and filing the annual report.
I had a law firm draw mine up and they only charged $500. Plus, they did all the state LLC, EIN, etc. work on top of it. The Operating Agreement they made for me is somewhat general, but doesn’t seem to cookie-cutter-ish and it does have specifics to my busines - that being rentals. I did get face time and brought up some key points that I wanted included in the Operating Agreement and those were in there when it was all said and done.
I figured that I would pay the money for an attorney the first time to draw up my first official business forms and then use that as a example for other entity structures that I would create down the road. That’s exactly what I did for my S-corp. I didn’t do a literal cut and paste from the LLC to the S-corp, but took some of the good ideas and restructured them to apply more specifically to the S-corp. Granted, I’m not an attorney, so of course I would not create it all perfect, but I figured it would get me going and cover me enough to get to the point where I could hire a real-estate specialist attorney to review everything and polish as needed. The biggest bonus of doing it this way is that I have delved much deeper into what I was doing and what was going on than if I would have just paid some attorney to do it all for me and send me a bill when it was done. So far, it seems to be working for my situation and I’ve become much more self-informed thru the whole process.
Thanks for the helpful replies guys. I think I’m going to follow your advice Dr_White and have the attorney draft the initial document. Our operating agreement will be specifically tailored to our business and not some cut-and-paste hack job. I think going in I’ve got too many questions to really feel comfortable with doing this myself. Although the price is a bit high it’s actually not much higher than the going rate in my area.