——————————————————————–

A 5 Piece Presentation from the Minds of MWR Legal

Compilations of an extensive interview conducted by Jason Myers

Myth #1- Online Form Documents Make Incorporation Easy

These days, many entrepreneurs hope to get their legal structures online for cheap or for free, without realizing the inherent risks involved. There are many considerations for each unique situation when creating an entity that a form document simply cannot take into account.

If you have partners, intend to go after investment, or plan to sell your company down the road, a “form fill” document will likely end up costing you more in legal fees than you possibly could have saved by taking the cheap route in the first place. While we love the accessibility of information on the internet, there are myriad arrangements and issues among partners that a form document simply cannot cover and you may never realize until you are in hot water.

A prime example, and a recurring one, is the tale of the partner who loses interest. Entrepreneurs generally have a multitasking, furiously busy lifestyle and can only funnel so much energy into each project they are involved with. If your partner decides to be less active in the organization, and you don’t have a provision to cover it, you may be stuck paying him/her a partnership share while receiving minimal participation and support for the business.

The formation of any entity beyond a sole member LLC (which gives you some liability protection as a sole proprietor) truly deserves, if nothing more, a conversation with your attorney. Your attorney will be able to help you understand the benefits of different types of entities so that you take into account tax, fundraising, and other considerations. Spending this time with your legal advisor to discuss the relevant issues to your unique situation can be an invaluable exercise, with the benefits far outweighing the risk of initial investment.

When we meet with our entrepreneur clients regarding a partnership, we generally provide a questionnaire to fill out before the consultation. The questionnaire will immediately address certain issues that often remain undiscovered; that is, they remain undiscovered until problems occur and the resolution of the disagreement can mean the fate of the business. In these tense situations you could end up in expensive court battles or face other serious threats to your company and its people.

It is far easier to resolve these issues before things get to this point, by asking questions such as: “What happens in the event of a partner’s death?” (will his wife or children now own and control part of your company?) or “What are the duties of each partner, and what is the recourse for failure to complete these?” and “What happens if partners disagree on the direction of the business?” and so on, until a agreement is drafted for your specific reality.

This rigorous questioning has saved businesses before they even start. We were once approached by three women to build a partnership, and by the end of the meeting one of the partners realized she wasn’t going to be a good fit for the business. By parting ways in the beginning they saved themselves a lot of misery that would have been caused by the later discovery of their misunderstandings. It could have created a lot of pain and hard feelings, as well as legal fees to clean up the mess. Instead, the two other women executed a partnership agreement that worked for them.

The bottom line is this: The myth that it is outrageously expensive to have an attorney provide you with an entity that fits your unique situation isn’t necessarily true, and in the end it may be worth its weight in gold.

Visit MWR Legal to learn more about our talented legal minds and how we can help your company.

512.320.0601