Do You Need an Attorney to Start an LLC?

by Joe Stone

Starting an LLC does not require the services of an attorney. All states permit any business owner to file the necessary forms that brings an LLC into existence. The information needed to prepare the forms is typically very basic and step-by-step instructions are provided with the forms to facilitate the process. However, starting an LLC simply brings a legal entity into existence and does not necessarily mean that the LLC is structured to meet your needs, the needs of any other owners or the business itself. An attorney's services can help address these issues.

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Multiple Members

If you start your LLC as the sole owner, or member, and do not intend to add additional members in the future, you are in total control of the business and do not really have any need for an attorney's services regarding the LLC structure. However, if your LLC has multiple members, the situation is entirely different. Each member has the right to control the business and is responsible to the other members as well as the LLC for his business decisions and actions. Although a written operating agreement is not required under most state's LLC law, it is a practical necessity for LLCs with multiple members – and is where an attorney’s services can be most beneficial for your LLC. A carefully drafted operating agreement sets forth the operational structure for your LLC by providing rules and regulations agreed to by all members that meet the particular needs of your LLC. This will help avoid protracted member disputes and facilitate smooth day-to-day operations.

Tax Considerations

A primary reason to start an LLC is because of its federal tax treatment. The Internal Revenue Code allows an LLC to be taxed as a partnership, which means that the LLC avoids federal taxes. All profits and losses pass through to the members. However, an LLC is not a recognized legal entity under federal law and, in certain circumstances, the IRS will treat an LLC as a corporation and subject it to paying federal taxes. For an LLC with multiple members who are all relying on the pass-through treatment of a partnership for federal tax purposes, an attorney’s services can be used to structure the LLC and draft its operating agreement to ensure the expected tax treatment.

Qualifying a Foreign LLC

Starting your LLC in a state with seemingly advantageous LLC laws -- low filing fees and little to no annual state taxes -- could result in unexpected disadvantages if your LLC will conduct business in another state. For example, if your business is located in California and operates solely within the state, starting your LLC under Nevada law is unlikely to yield any benefit and may, in fact, be more costly in the long run. In order for a Nevada LLC -- or any out-of-state or foreign LLC -- to properly engage in business in California, it must qualify to do business under California law. This means that your Nevada LLC will have to pay the same $800 annual Franchise Tax Board. Further, according to the Burton Law Firm in Sacramento, California, there are additional state tax burdens on LLCs in California that are generally higher on foreign LLCs than California LLCs. Because the issue of qualifying a foreign LLC is not unique to California, but applies in all states, you should consult an attorney to determine whether it is of any benefit to start an LLC in a state other than where you do business.

Termination Planning

You should not only focus on starting an LLC, but also consider what to do when something may happen that could cause its end. Members may desire to leave the business for personal reasons, be forced to leave due to health considerations or even die unexpectedly. Unless there is a plan in place for such matters in the LLC’s operating agreement, the business may not be able to continue and be forced to dissolve. These types of situations are typically considered by an attorney drafting an LLC’s operating agreement and provisions can usually be made to provide for terminating a member’s ownership in the LLC so as to avoid undue legal complications or financial burden for the LLC or its other members.