Given the fact that the threat of getting sued is on just about every business owner's mind, it is hardly surprising that most businesses are held in the form of a corporation or limited liability company. While this makes sense, how to actually form an entity is an issue to.

You can form a corporation or a limited liability company in three basic ways. You can do it yourself. You can use a cheap online service. You can hire an attorney. The "best" choice is primary a balancing act of two factors - price and risk.

Price is often the first thing that most people think of when forming business entities comes to mind. Let's face it, most new businesses are idea rich and cash poor. You just know it will be the next big thing, but the old bank account is not exactly bubbling over at the moment.

To save a ton of money, you can form your business entity yourself. Of course, you need to figure out how to do it, and hope you get it right. A bit more expensive option is to use an online service. Such services will usually file the necessary paperwork with the Secretary of State in question, but that is about it. The third option is the most expensive, to wit, hiring an attorney. Basing the decision just on price, however, can lead to trouble.

Risk is the second factor when making your decision to incorporate. In this case, we are talking about the risk of doing something wrong and having the corporate entity set aside should someone sue the business. With all the online incorporation services popping up, this is becoming a new focus for plaintiff attorney's that sue businesses. Why?

Forming a business entity is a surprisingly formal affair. Certain steps have to be taken and the details have to be focused on. People trying to do it themselves almost always fail to do certain things such as issue stock and correctly set up the initial board of directors. Online services are infamous for filing documents with the relevant Secretary of State as "incorporators", and then failing to transfer the corporate entity to the business owners. This leads to the bizarre situation in court where the entity is set aside because the shareholders can't prove they actually own the entity. Incorporation attorneys, on the other hand, know how to handle all this. Of course, they cost a lot more.

So, what is the best choice for your situation? It depends on your comfort level. If you want to minimize risk, go with the attorney. If you are good at working out things on your own, you might take a shot at doing it yourself. It just depends.

About the Author

Richard A. Chapo provides California incorporation services via his site at SanDiegoBusinessLawFirm.com