Should You Hire a Lawyer or Paralegal to Set up Small Business Formation?

Written by: Andrew Gale - Orange County - Small Business Attorney

Planning to start a small business? If so, you need someone to guide you through the business formation process. Ideally, a competent business attorney is your most reliable source of legal guidance. But there are a number of startup companies in California that hire a paralegal instead of a lawyer because they think that they save more money by doing so. The truth is, business people are putting their enterprises at risk of various legal problems. A client in California recently approached Incorporation Attorney for help, because her business encountered problems after hiring an incompetent paralegal. 

Small Business Formation Lawyer – Risks in Using a Paralegal

Business Lawyer vs. Paralegal: What’s the Difference?

Ideally, when it comes to the business formation process, entrepreneurs should seek the help of a competent corporate lawyer. But there are a lot of business people in California that opt to hire a paralegal instead. Many of these company owners think that they can save more money by this decision. They believe that paralegals are a less expensive, but equally capable alternative to an attorney. This is a terrible misconception!

It’s important to understand that there is a vast list of differences between a paralegal and a corporate lawyer. One difference is the services that they are legally allowed to offer. Paralegals can help you in the completion of documents. They can assist you in preparing forms. But they are prohibited by the law to give legal advice, including counseling clients on how to form a business.

Guidance on how to course through the business formation process is a service that only corporate attorneys are legally allowed to provide. Moreover, there is a myriad of questions that come up when forming a business in California. All these inquiries can be answered proficiently by a lawyer.

A California Business Owner’s Horrible Experience with a Hired Paralegal

Andy Gale, one of the lawyers here at Incorporation Attorney, has many years of experience helping entrepreneurs start a small business in California. He recently was approached by a business owner who needed his help. The client was planning to open a business and she hired a paralegal to assist her.

The businesswoman had spent around 10 months working with the paralegal. The entrepreneur paid 2500 dollars for her services. After some time, the client became worried and started to have doubts about her services. She came to Andy because she was concerned whether the paralegal that she hired to do the work for her had actually completed the process or not.

As part of Incorporation Attorney’s services, Andy and his team reviewed the corporate records of the client to check if they were complete and if they were prepared properly. What the business attorneys discovered was shocking! They found out that the paralegal had barely done any work on the project. All she had completed for the client was file the company’s Articles of Incorporation, which is a one-page document submitted to the California Secretary of State. She did not do any work after that.

The paralegal neglected a lot of important work for the client. At the Internal Revenue Service, the business was not properly set up for the correct tax election. The paralegal also did not file a statement of information, which is required by the state for the government to know who the directors and officers of the company are. There were many more essential tasks that the paralegal failed to perform.

When the team from Incorporation Attorney checked the client’s status with the state, they found out that her business was suspended. This was a horrendous discovery! If legal problems came up in the future, the client could be sued, and there would be no corporate shield between her and the company. This means that the client would be held responsible for the liabilities of the corporation.

The Two-Fold Problem 

Hiring an incompetent paralegal to help her in forming a corporation brought a lot of problems to the client. Incorporation Attorney came in to untie the knots, but all of these could have been avoided if the businesswoman entrusted the process to a corporate lawyer. A closer analysis of the case shows that there were two problems that led to this situation.

Problem 1: The Client Had No Capacity to Evaluate the Paralegal’s Work

The client is neither an attorney nor a paralegal. She does not have any proper training in the practice of law nor does she have sufficient knowledge about the legal implications of forming a business. This was a problem because the client could not determine whether the paralegal was performing her duties. She did not have any idea whether the documentations prepared were complete or if they were done correctly.

This is why businesses need a corporate lawyer. A competent attorney is knowledgeable and experienced in the process of business formation. Even in situations where an entrepreneur is clueless about the legalities of forming a corporation, he or she can trust that a proficient lawyer will perform his or her duties properly.

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Problem 2: The Paralegal’s Incompetence and Deception

The paralegal was completely incompetent. The client was totally ripped off! Unfortunately, it took 10 months before the client realized that there was something fishy with the services she was receiving. The entrepreneur found out that her friends who were also business owners had a lot more documentation prepared when they had their corporations formed. She started becoming concerned because the paralegal only filed one document for her, the Articles of Incorporation. It was only then that she reached out to a competent corporate attorney.

Business attorneys can offer entrepreneurs a vast scope of services that paralegals are incapable of providing. If you want the formation of your corporation to be correctly accomplished, you should hire a reliable corporate lawyer.

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How Incorporation Attorney Resolved the Predicament

Andy Gale of Incorporation Attorney came to the client’s rescue! The first thing that his team did was contact the Internal Revenue Service. Andy made sure that the business was set up for the correct tax election. This is very important because successful businesses need to operate their enterprises in the most tax-efficient way possible.

The second action that Andy and his team did was contact the Secretary of State and submit the necessary documents that the paralegal was not able to file. This was essential to remove the business from its suspended status. The client’s enterprise is now recognized as an active corporation by the State of California.

Lastly, the team from Incorporation Attorney went through all of the client’s corporate records and completed all the vital formation documents. These are necessary for the client to be allowed to open a corporate bank account, be able to give proper documents to her CPA and be permitted to operate her business as a legal corporation.

Hire a Competent Business Attorney in California

Andy Gale is a small business attorney based in California. He specializes in forming corporations and limited liability companies for entrepreneurs. Andy is well-experienced in assisting clients at the entity formation stage of opening a business. If you have any questions, feel free to reach out to him! Call him at +1 (714) 634-4838.