Absence of Malice

February 26th, 2009 Chris Posted in Legal | No Comments »

A couple of friends visited me last weekend here in Miami Beach. They left on Monday and I’ve just about recovered from the varied excesses that such a weekend inevitably entails. One particular morning (er… at least when we woke up) we went out for coffee and happened to be discussing the benefits of incorporation versus not (yes – we are huge losers).

The pro’s and con’s of incorporation are pretty well documented (liability, tax treatment) and as soon as your microbusiness becomes more of a going concern (employees, office, etc…) it really is mandatory.

What really surprised me is what my buddy was told by his lawyer – that it would cost thousands to incorporate. I was pretty shocked.

Now, I want to be very clear. I have nothing against lawyers per se. I view them as any other business professional who provide a service for money. Nothing evil, no malice. But they do exist to make money – like the rest of us.

So when my friend got his verbal quote for incorporation, it probably incorporated all sorts of good stuff (shareholders agreement, minute book, name search, etc…). But the real question is do you really need all. Especially, as a micro-business owner, this comes right out of your pocket. That’s right, we’re talking beer money!

I know all the lawyers in the audience will say that there are a million and one risks unless you do everything they recommend. The way I look at it is: 1. If you’re starting a micro-business, you’ve already accepted a bunch of risks much greater than this legal stuff, and 2. My doctor keeps telling me I’m only allowed one beer a day and I don’t listen to that either.

I contrast the role of a lawyer (make money) with that of the government department here in Canada that is responsible for incorporation: Industry Canada. Their goal is to make it as easy as possible to do business ’cause that’s good for the economy. I know that sounds oximoronic, but it’s true. Canada is the #2 country in the world for ease of starting a business (see all the gory stats here).

What did we did:

• Did a name search (you can do that through Industry Canada for $20 or your lawyer) – regardless, it’s cheap.
• Went to Industry Canada where you can incorporate on-line for $200. There are several forms but they are easy to download, complete and submit.
• That’s it…

We didn’t do things like shareholder agreements (there is only Colleen and I) and corporate minutes as they simply weren’t necessary for incorporation and for our simple structure.

Having said all this, two points:

• Do talk to your accountant. There is a myriad of financial stuff that needs to be considered (like picking the right fiscal year, initial funding of the corporation, etc…) which has an immediate and material impact to your money.
• At some point, some of the things you ignore are going to need to get done. For example, after five years, we did up a corporate minute book (a record of board of director meetings, etc…). It provides a record you’ll need if you ever want to sell the business or get additional investors – and it get’s more difficult to find all the paperwork with each year that passes. But you don’t need it to start.

So, I guess the moral is that when it comes to engaging your lawyer, think of him/her like any other professional – they provide a valuable service but you need to decide what is mandatory versus nice to have.

Just like if some high-tech guy came to your office and told you that you need a double-redundant T1 line to ensure business continuity: sure it’s a nice to have and there is a risk without, but it’s money that can be more directly invested to generate revenue. ‘Cause without that, there is no business.

C.

P. S. I am not a lawyer, this is all my opinion, take all advice at own risk, always consult an attorney (huh? didn’t you just say not to?), etc…