Many entrepreneurs need to control expenses – including legal fees. One way to do that is to incorporate online rather than work with a lawyer. Occasionally I am asked, “When is it OK to incorporate online?”
My greatest concern when entrepreneurs incorporate online is that they have no way to know whether the process has been completed properly. This is particularly true with respect to issuing shares – a critical task.
In answering this question, I look for activities that increase the likelihood of a dispute or a lawsuit. I ask:
- Will you have investors?
- Will you have co-founders?
- Will you have employees?
If the answer to any of these questions is “yes,” I recommend that the entrepreneur not incorporate online. The reason: Improper corporate paperwork may increase the likelihood of personal liability for the entrepreneur. (See Beware Your Alter Ego.)
If the answer to each question is “no“, then the decision to incorporate online is less of a problem. The reason: The corporation is a one-person business, so the risk of a dispute arising is small.
In summary, while online incorporation is less expensive, it carries increased risk. The degree of risk depends, in turn, on the types of relationships corporation and its founder will have. Once those relationships are identified, the risk can be assessed accordingly.
- Can I Form an LLC without a Lawyer?
- Forming an LLC Online: You Get What You Pay For
- Online Incorporation: It’s Time to Call Out Inadequate Providers
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.