Home Based Company Formation Questions and Answers
How does this work?
We have entered into a special agreement for our members with an online legal document company that specializes in helping individuals get their new home-based businesses started by focusing both on entity formation and the key legal agreements needed by new companies.
Is this service right for me?
This program is designed to suit the needs primarily of professional service businesses, such as virtual call center Home Agents, as well as designers, IT consultants, financial advisors, freelance writers, programmers, accountants, etc., that are owned by one or a small number of individuals who are active in the business.
Does it matter which state I'm located in?
It does. Organization of your company is state specific, and our Tutorial/Questionnaire elicits information needed to properly form your company in the state in which you will be doing business. Certain provisions in the legal agreements provided such as non-competition provisions and legal liability exclusions and remedies, will vary from state to state. These provisions are included in the form documents as statements of the intended rights and responsibilities that you and the parties you contract with are agreeing to be legally bound by.
Should I set up a Corporation (INC) or Limited Liability Company (LLC)?
This service specializes in forming a Limited Liability Company (LLC) for each new business. The LLC is generally easier to manage than a corporation and offers the same benefits of limited liability and pass-through (or single-level) tax treatment to its owners. And, if there is only one owner, the LLC doesn't require a separate tax return with the IRS. Down the road, the LLC has the benefit of offering flexibility if you are going to raise money or add other owners. While there are circumstances in which an S corporation makes sense, these are typically local tax-related issues that don't materially impact the decision to become an LLC.
What do I receive?
This service was formed to cover the legal needs of your new business by focusing on formation and the key legal agreements most often required by new professional services companies. You will receive the following critical business entity documents:
You will also receive the following key agreements needed to operate your business:
Once you complete our simple process, you'll have the confidence of knowing that your company has been organized correctly, and you'll have a set of legal forms to use as your core business tools.
Applicable State Filing
Both a corporation and a Limited Liability Company must register in the states where it conducts business. If your business provides services from a local office (or home office) or at clients' locations in the same state as your office, then it generally makes sense to form your company in the state where your office is located. Forming the company in another state does not mean you can bypass filing taxes in the state where your office resides. To save extra filing and registration fees, and to simplify your tax filings, we assume that your company should be formed in the state where your principal office is located.
Federal and State Tax ID Number Registration
In addition to filing a certificate of formation in your state, the IRS and many states require additional identification numbers for your LLC. Generally, businesses need both Federal and State numbers, so both filings are included in your Package.
Note: This service does not include additional state and/or local level filings (some of which may be required for the conduct of your business), such as local licenses, permits and registrations, employment, sales, use and other tax registrations, or professional licensing.
State Records Name Search
Your company needs a name that is dissimilar to other entities in its state of formation. It is also advisable for you to choose a name that won't be confused with other existing businesses. In our Tutorial/Questionnaire, we ask you to provide several name options, just in case your first choices are not available, and we check those names with the state before we file for your company.
Note: We do not perform a trademark search or search the name in other states. If you intend to brand your company name, or conduct significant business outside your state of formation, we recommend that you engage a competent attorney to handle the search to assure that your desired name will be clear of claims from others.
Registered Agent Designation
Most jurisdictions require that any business registered within their borders designate a "Registered Agent" to receive service of process. If you maintain an office in the state where your company is formed, you can serve as the Registered Agent, and do not need to retain the services of a third party Registered Agent.
LLC Operating Agreement
The Operating Agreement you will be provided establishes, among other things, the management structure of the LLC and the economic rights of the owners. In an LLC, owners are referred to as “members” (as opposed to shareholders in a corporation), and their ownership interests are referred to as “membership interests” (as opposed to shares of stock in a corporation).
Ownership Percentage Designation
Your Operating Agreement will provide that the membership interests in your LLC will be expressed as percentages, which reflect the relative capital contributions of the members. When completing the Tutorial/Questionnaire, you will be asked to provide the respective ownership percentages and capital contributions for yourself and any other members, to ensure that your LLC is set up in accordance with your desired business arrangements.
The Operating Agreement assumes that your LLC will be managed by majority vote of the members as a group, based on their percentage ownership. Accordingly, if you are the sole member, then your 100% membership interest obviously constitutes a majority of the members. If there are two 50/50 members, then both of them must consent under this structure. If there are multiple members, then so long as you retain greater than 50% membership interest, you will control the management of the LLC.
Alternative management structures are available. For example, the agreement may provide that you will have exclusive control of the LLC even if there are other members (i.e., they won't have the opportunity to vote, notwithstanding that they are owners). Or, it may provide the minority percentage members with veto rights over certain significant actions of the company. If you are interested in these provisions, please Upstartlegal.
Allocations and Distributions of Profits
In addition to any regular compensation for their work on behalf of the LLC, the members are entitled to any net profit that the company may produce. Your Operating Agreement assumes that profits and losses of the LLC will be shared among the members, if there are more than just you, on a pro rata basis in accordance with their ownership percentages in the LLC.
Companies frequently agree to indemnify, with some exceptions, the members and management of the LLC against certain costs they may incur as a result of their participation in the LLC. More specifically, the LLC will often cover defined litigation costs and damages of its members, managers, employees and officers that they may face personally as a result of decisions they make, or work they do on behalf of the company. Your Operating Agreement includes a standard set of these indemnification provisions, though certain states have laws that may limit the circumstances under which they may apply.
Transfer of Ownership Restrictions
Because we assume that all of the members of your LLC will either be active in the business or "relationship" investors, your Operating Agreement prohibits each of the members from transferring their membership interest without the prior consent of the other members. This prohibition has the effect of keeping the company and its business together without unwanted or unapproved participants. This also forces a member who desires to exit, whether voluntarily or otherwise, to do so in a way that is satisfactory to the other members. If you prefer free transferability (i.e., the right to sell or gift membership interest to anyone without the consent of the other members), you will be asked to provide the needed information, so your Operating Agreement can be modified.
In most small businesses, the members want to provide for the purchase of an existing member's interest on certain events. Typically, these are events where the member can no longer be active in the business or does or experiences something that adversely affects the member's rights (breach of the Operating Agreement or any other agreement with the Company, death, disability, failure to provide adequate time and effort to company, etc.). As a consequence, the company has the right or obligation to buy back the membership interest of the member. Your Operating Agreement includes these buyout provisions. The company will pay $1.00 for a purchase in the event of a materially adverse action by the member or the member's breach, or if the member quits working for the business. The company will pay an appraised value, over a time period, in the event of a member's death or disability.
This service strives to assist you in creating a professional product. They will thoroughly review your information before the documents are sent to you. They check for completeness and accuracy based on the questions in their Tutorial/Questionnaire, and will contact you if they have questions or believe additional information is required.
Round of Revision
They recognize that you may have comments which you would like in your documents after you review them. Their customer support team is available for questions, and will provide a one-time "round of revision" opportunity for you to provide specific written comments via email. They will then attempt to incorporate your comments into your documents. However, they are not a law firm. Accordingly, they will only provide you with a set of form agreements and cannot fully-customize your documents.
What is the Cost?
The American Home Agent Association has contracted with Upstartlegal.com to provide this Package of documents and services to help our members provide call center services as an independent contractor through a home based company. Upstartlegal has agreed to give our members a 50% discount off their normal $395 pricing structure, which reduces the cost to $195 and makes their services cost significantly less than what a lawyer will charge. The cost of any state filing fees is extra, and may cost up to a few hundred dollars. You will be notified about these before you are asked to make any payments of any kind for this service. When you compare prices make sure you are comparing "apples to apples" services? You should check whether the other charges include such things as EIN preparation, state registration, mailing your documents, copies of filed documents and all the other things included with the Upstartlegal Package. We think the legal agreements included in the Upstartlegal Package are important and that you'll use the agreements over and over as tools to get and keep new business.