Creating an LLC - use my CPA or diy?

32 Replies

Hey all,

I'm finally at the point where I'm going to file for my LLC. There will be four members (all close family) involved. I'm in Illinois and the cost to fill out the paperwork myself is $500. My CPA will do it for $1250. I feel fairly confident that I can do all the paperwork without any problems, however because there are other members involved, I'm wondering if it's best to let the CPA do it.

I would prefer to have it done professionally, however since we are a small start up, capital is key right now and I keep thinking that we might be better served spending the additional $750 elsewhere.

Am I being unwise to consider doing it myself, especially since other parties will be involved or is it not that big of a deal to do it on my own?

Any thoughts or suggestions on this would be helpful.

Thanks!

Danielle

I would highly advise speaking with an attorney prior to filing for an LLC. It may very well be improper in your state, as it is in many states, for a non-legal professional (who isn't the owner of a business) to fill out and file with a state agency legally operative documents.

Hi @Matthew Kreitzer ,

Thank you for the FYI. I've done some checking and as long as he doesn't provide legal advice, he can guide me through the paperwork and decision making process. I assume he would fill out the paperwork, discuss it with us and have us sign and submit. His son is a RE attorney that we plan on using for document review/ closings and both of them come highly recommended.

With that said, I am going to look into this a little deeper. Thanks again for bringing this to my attention!

Hi Danielle, I have worked at both CPA firms and law offices and done business formations in both. I would use the CPA to select the best business entity for your purposes and to lay out all the steps that need to be done (people often forget "small" things such as requesting an EIN from the IRS) but you can do the actual paperwork and filing yourself.

I am not an attorney, but I have successfully files for multiple llcs in Illinois.    If you are extremely comfortable with every aspect of the filing docs, then you should be fine. 

With that being said,  any properly formed business entity must have a well thought out plan.   If your attorney is just gonna file some forms, do it yourself. 

If you have any doubt or questions, seek legal help as the ramifications of your actions could have huge implications down the road, when it will really matter.

Good luck!!!

If the CPA is saying anything beyond the tax implications of filing for an LLC, that would be legal advice and improper. If the CPA is even talking about the Tax Court's treatment of something, that would be legal advice and improper. Tread carefully.

@Danielle Cage For me it comes down to this: who can you hold accountable if something goes wrong? Are you going to call up your CPA and say "hey I need you to defend the documents you prepared?" because, seeing as he isn't an attorney, I don't think that would work out too well.

As a CPA myself, I'll advise on the tax and accounting side all day long. I'll help the client with a risk assessment and understanding the potential financial impact of litigation. But I don't see why I'd prepare the LLC's docs/ operating agreement for two reasons: (1) it brings about too much liability for me, since I don't practice law and write contracts day in, day out and (2) if I truly have the client's best interest in mind, shouldn't I refer my client to a specialist who is truly an expert in the area instead of trying to retain that revenue? Think about that for a second...

You shouldn't have a CPA draft legal agreements the same way you shouldn't take your tax return to an attorney (unless a tax attorney). The professionals should, however, collaborate and compliment each other.

Hope this helps.

I would think this could get complicated with multiple members.  Not sure if your company involves actually purchasing and holding properties, as well, or some other aspect of real estate services.  In Illinois, if you own properties in an L.L.C., you might want to keep each in a separate L.L.C. or multiple properties within one series L.L.C.  I think I would err on the side of caution and make sure everything is being set up with an eye towards future growth, as it is much harder to fix things down the line.  Your C.P.A. would be a great resource for strategy with the various tax implications, but I would at least consult with the attorney about the actual set up. I set up my series L.L.C. on my own (I am an attorney but never practiced in real estate law) but I asked a real estate attorney for guidance.  He was willing since we have done a lot of business with him.  It was great having someone to direct me as our properties are held in a trust and the wording could have been easily messed up.  If you have the proper guidance, the forms are not that hard to do, but I would be cautious.  If in doubt, I would hire the attorney.  Good luck to you!

@Danielle Cage ,

Personally, I'd say go the attorney route. Rather than try to minimize an expense, I'd focus on building a relationship with a team member: the attorney. That's not a popular viewpoint here on BP, but I hold a lot of those.

As for having your family members as members of the LLC, ask your attorney about the value of that. You may find that there's a more advantageous business entity structure which will help you control your tax liability while maximizing your deductions.

I'm not an attorney or accountant myself, so I apologize I can't provide more details / better information. I can refer you to someone who can.

Originally posted by @Brandon Hall :

@Danielle Cage For me it comes down to this: who can you hold accountable if something goes wrong? Are you going to call up your CPA and say "hey I need you to defend the documents you prepared?" because, seeing as he isn't an attorney, I don't think that would work out too well.

As a CPA myself, I'll advise on the tax and accounting side all day long. I'll help the client with a risk assessment and understanding the potential financial impact of litigation. But I don't see why I'd prepare the LLC's docs/ operating agreement for two reasons: (1) it brings about too much liability for me, since I don't practice law and write contracts day in, day out and (2) if I truly have the client's best interest in mind, shouldn't I refer my client to a specialist who is truly an expert in the area instead of trying to retain that revenue? Think about that for a second...

You shouldn't have a CPA draft legal agreements the same way you shouldn't take your tax return to an attorney (unless a tax attorney). The professionals should, however, collaborate and compliment each other.

Hope this helps.

 I completely agree with Brandon. I will however, add that most tax attorneys don't even prepare tax returns they often just provide representation for clients. (Many subcontract tax returns out).

I'd be happy to review it and suggest additions that make sense for tax and accounting or buy sell, ( or suggest What ifs) purposes; however, I will not address law portions.

Forming the LLC is simple (just a one page filing in most states). The bigger issue is what the operating agreement (aka limited liability company agreement) will look like. Even if all 4 are putting in the same amount of money and each has 25% voting power, there are many more considerations. What if one person wants out - can he/she sell to anyone, are there rights of first refusal, etc.? What if 2 want to sell the property and 2 don't - what's the mechanism to break the tie? Those are things an attorney can at least point out for you and help you consider. Whether you choose to address them in the operating agreement is a different story, as that can add to costs to put it together, but definitely things you need to at least think through in advance.

There are 3 considerations here:

(1) deciding which entity to use from a tax perspective & obtaining and EIN number

(2) deciding which entity to use from a legal perspective & getting a quality Operating Agreement in place among the members

(3) submitting the paperwork properly to the Secretary of State

Basically, they have all been discussed here. They are all important. A tax professional should advise you on #1. Only an attorney should advise you on #2. Take the time and effort to do both of those correctly. Then, if those are both in order, following directions on the SoS form is the easy part. 

@Danielle Cage , it does, on the surface, seem that $750 would be better spent elsewhere. But that is coming from a rosy picture at the beginning of the endeavor, where everyone is still friendly and talking.

Imagine one member wants out, or does something unethical or downright illegal. Better to have the legal framework in place by a knowledgeable professional with zero skin in the game, than to have an ambiguous setup that costs several thousands to unravel. Go with the pro.

I wanted to thank everyone for all of the suggestions!

@Brandon Hall and @Steven Hamilton II I appreciate the perspective you added. I wasn't necessarily looking at it like that. I suppose it's simple, leave the legal work to the attorneys and the tax work to the CPAs.

@Joshua Schneiderman , @Jerry Stanford and  @Mindy Jensen We have decided to use an attorney to assist with crafting a solid Operating Agreement. I think in the excitement of getting started, I wasn't focusing correctly on what is important. I am going into business with family, however it doesn't mean that issues won't arise. These not only need to be planned for, but also properly documented. So thanks!

@James Ihssen  ,  @Kadidia Cooper and @Derek Martin We are going to have the attorney assist with creating the Operating Agreement and most likely filing the paperwork. I know I can easily file it, however since they are doing half the work, it will most likely be worth it to have them finish the process.

@David Dachtera Thanks for the offer! I'll pm you to get that referral.

Thanks again everyone for your input!

Danielle

Originally posted by @Danielle Cage :

I wanted to thank everyone for all of the suggestions!

@Brandon Hall and @Steven Hamilton II I appreciate the perspective you added. I wasn't necessarily looking at it like that. I suppose it's simple, leave the legal work to the attorneys and the tax work to the CPAs.

@Joshua Schneiderman , @Jerry Stanford and  @Mindy Jensen We have decided to use an attorney to assist with crafting a solid Operating Agreement. I think in the excitement of getting started, I wasn't focusing correctly on what is important. I am going into business with family, however it doesn't mean that issues won't arise. These not only need to be planned for, but also properly documented. So thanks!

@James Ihssen  ,  @Kadidia Cooper and @Derek Martin We are going to have the attorney assist with creating the Operating Agreement and most likely filing the paperwork. I know I can easily file it, however since they are doing half the work, it will most likely be worth it to have them finish the process.

@David Dachtera Thanks for the offer! I'll pm you to get that referral.

Thanks again everyone for your input!

Danielle

 When you are creating an entity you want both an accountant and the attorney involved. 

I would consider consulting a CPA and An RE attorney. Usually consultations are free. Once you have the fee, you can see if the other one will match or beat it! Follow?

@Danielle Cage I would suggest that when you negotiate your operating agreement imagine, if you can, that it has all gone wrong and you need to break up the pieces of the business. Just like a divorce situation in a marriage. From my experience as an ex financial planner, having dealt with many family related partnerships and business ventures, it is better to work out the divorce process before the event when you are all still friends than after the event when you are potential enemies. Especially if it is family involved.

When we have family involved in business we tend to be less demanding of our own rights because they would not take advantage of us, they are family and we love each other...right! However, that's what many divorced people said before their spouse tried to take them to the cleaners.

You will  also need to consider the events of death or permanent disability of one or more of the owners/partners. What is going to happen, when will it happen, who is going to manage it and what will it cost? These are all questions your advisers should be able to help you all understand and to then develop a plan to deal with these types of events in your operating agreement.

Take your time and do not skimp on the set up costs. It is important to all of you that you get it right.

Good luck with your venture and I wish you well in your endeavours.

Happy investing!

I realize this thread is old, but I would suggest you file your own paperwork with the state (easy) and consider putting together your own operating agreement (there are plenty of examples to start from for many different cases - search online).

If you get to the point where you feel over your head, ask your attorney to review. Once you've got everything the way you want it, ask your attorney to review.

Three reasons:

1. It'll be cheaper.

2. Your intentions will be communicated to your attorney clearly if you write it yourself.

3. You'll learn... both how to do this stuff (it's not complicated) and, most likely, the value of counsel when he/she asks you things you didn't think about.

@Matthew Kreitzer , would you mind elaborating on why "talking" about the Tax Court's treatment of something is "legal advice"?  It's my understanding that merely speaking generally about a court's treatment of something without specifically applying it to someone's particular circumstances or directing a course of action and clarifying that the information provided is not legal advice is simply providing legal information, which CPAs as well as my neighbor Bob may do all day long, while applying the law or the Tax Court's interpretation of it to someone's particular circumstances and directing a specific course of action, on the other hand, is "legal advice" and would be improper for a CPA to provide.  But then again I'm not a lawyer, and I'd love to get some clarity here.

Originally posted by Logan A., would you mind elaborating on why "talking" about the Tax Court's treatment of something is "legal advice"?  It's my understanding that merely speaking generally about a court's treatment of something without specifically applying it to someone's particular circumstances or directing a course of action and clarifying that the information provided is not legal advice is simply providing legal information, which CPAs as well as my neighbor Bob may do all day long, while applying the law or the Tax Court's interpretation of it to someone's particular circumstances and directing a specific course of action, on the other hand, is "legal advice" and would be improper for a CPA to provide.  But then again I'm not a lawyer, and I'd love to get some clarity here.

Please Note: The information below is not intended to guide your actions. You should consult your own in-house counsel in determining what your own corporate policies are.

 From a logical standpoint, I would agree with you. From a practical perspective, I would disagree. Practice of law rules for Tax Courts are different than normal practice of law rules. They actually have their own "practice of law" rules for what constitutes legal advice. Speaking about tax court treatment, which would imply some knowledge of how the tax court works, under the rules of at least my jurisdiction, constitutes the unauthorized practice of law.


For an example, here is my state's rules which clearly outline who may discuss what for taxes;

http://www.vsb.org/pro-guidelines/index.php/unauth...

Tax Professionals should refrain from giving knowledge of how the Tax Court functions when detailing tax treatments unless they are a licensed attorney, and preferably, licensed to practice before the U.S. Tax Court.

Your neighbor Bob can talk about how the IRS operates all day, but the rules get much stricter when you talk about how the Tax Court works. It is better not to open one's self up to liability, especially when it is a Class 1 Misdemeanor in my state and in many states to do unauthorized practice of law.

@Matthew Kreitzer , thanks for the information.  Not saying I would ever want to take the Tax Court exam because I don't believe there's much of a point given that I have an excellent local tax attorney to whom I refer my clients as needs arise, but theoretically, would a CPA who has passed the Tax Court's exam for non-attorneys speaking about Tax Court treatment still constitute the unauthorized practice of law?

Originally posted by Logan A.:

@Matthew Kreitzer, thanks for the information.  Not saying I would ever want to take the Tax Court exam because I don't believe there's much of a point given that I have an excellent local tax attorney to whom I refer my clients as needs arise, but theoretically, would a CPA who has passed the Tax Court's exam for non-attorneys speaking about Tax Court treatment still constitute the unauthorized practice of law?

 Were there a CPA who had passed the Tax Court Examination, they could probably speak to the basic current treatment of the Tax Court, but would be hard pressed to make predictions about Tax Court treatment. Primarily because the Tax Court, as I'm sure you may be aware of, is horribly chaotic in their decision making process, and I'd argue predicting their actions would fall outside the capabilities (no offense intended). That's why we have Tax Attorneys. 

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