What’s Wrong With Forming an LLC Or Corporation By Yourself Or Online?

What’s Wrong With Forming an LLC Or Corporation By Yourself Or Online?

What’s wrong with forming an LLC or a corporation by yourself, and doing it online? There are a number of providers out there that allow you how to do it online by yourself. When clients ask me this, they say, “Do I really need to hire an attorney and spend extra money? Can’t I just do it online because it does the same thing?” In some sense, yes, they can. 

What can be done online?

The filing of the actual document can be done by just about anybody. You can download the forms, and in some states you actually do it online yourself. You fill out a few things about the owners, pay a filing fee, and you’re done. 

In California, there are usually some forms that you’d fill out and send in online with a filing fee. For a $100 filing fee, you set up a corporation by yourself. Yes, that is possible, but that’s only the first step in setting up the corporation. 

 

Next steps

Some of the online companies that will do this for you will send you a sample of the operating agreement if you set up an LLC. It’s normally something that you should have, and it includes any resolutions that you need to do which are basically actions taken by the owners or managers of the business. 

And those are steps that you need to take. So, I tell people that there is not necessarily anything wrong with using an online service to do that. It can be a quick, easy, and cheap way to form a corporation or an LLC. However, that’s just the first step. Setting up a corporation or an LLC gives liability protection only if you’ve taken all the right steps and you continue to operate your business properly. 

How to make sure your company is properly set up?

So, the advice that goes along with forming an LLC or a corporation, that’s where an attorney comes in because they not only give you the paperwork or the documents. They also tell you what actions you really need to take to make sure this is properly set up and will actually protect you. Otherwise, you’re just wasting your money. 

If a corporation or an LLC is not set up right and you’re just using an online service, they send you something in the mail, and you never even look at it. You think you are protected, but you are not; not at all. 

What happens if you get sued?

Any attorney who comes in when something happens with the business will look to sue and collect. And you know that this is California where lawyers are very aggressive about that. So they’ll find any way they can to come after you personally. 

A lot of people set up an LLC or a corporation and put $50 or $100 in the bank account, never think about it, and just leave it there. Then they run everything personally. Wrong. You’re going to get sued and they are going to take your personal assets. 

Why do-it-yourself filing is a big mistake

You didn’t properly capitalize the company. You didn’t follow your formation procedures. If it’s a corporation, did you have annual meetings? Did you have resolutions? Did you keep minutes of those meetings? Has your board of directors approved certain required things that take place during the life of a corporation? 

Have the shareholders consented to things that they need to consent to, which needs to be done in writing? Were there meetings for those shareholders on an annual basis or special meetings to approve things done by the corporation? 

Was the board of directors elected properly? Were the accounts of the company kept separate or was the business checking account for the LLC used to pay for somebody’s mortgage for their house, or for their car or their Starbucks? 

You must take the right steps

These are things that a good creditor’s attorney is going to look at and just pick apart and find you personally liable. So, yes, you can use an online service to set up an LLC or corporation, but it’s going to do you no good. It’s going to be a waste of time and money if you don’t take the right steps to make sure that your company is really set up and operated properly.

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