What Are Formation Companies? - dummies

By Jennifer Reuting

Don’t know exactly what a formation company is? Sure you do! Have you seen those ads offering to form your LLC for a few hundred dollars? Normally, those ads are placed by formation companies — companies whose sole business is forming corporations and LLCs.

These companies seem to be popping up everywhere. With all the advertisements and hoopla, the real question is: Do you really need a formation company? And if so, how do you choose one?

First things first: Using a formation company to form your LLC makes sense if you

  • Want to save money: Attorneys charge upwards of $1,000 for a basic LLC formation, but a good formation company may charge as little as $99. And because formation companies deal with a much larger quantity of LLCs than individual attorneys do, they have the process down to a science.

    So unless your articles of organization are über complex, you may want to keep the extra dough and save the legal fees for consulting work.

  • Want to save time: When dealing with a large number of filings, formation companies are forced to work out the kinks and get the whole LLC formation process down pat. This prevents any lag time that you may encounter when attempting to file on your own.

    Plus, because formation companies deal so much with the various secretaries of state offices, they’ve developed relationships that can prove useful when you want to get your filing completed in a timely manner. With the right formation company, this nominal fee can save you weeks of tedious research and bureaucratic hassles.

  • Are forming multiple LLCs and want an expert to look over your structure: Some brick-and-mortar formation companies (the ones that operate outside of the online realm) have consultants who can review your strategy with a skilled eye and set you up in the proper business structure.

  • Are forming an LLC in a different state than the one in which you live: Different states come with different laws, and a good formation company located in all 50 states is well aware of how the various governments operate. It can also serve as your registered agent, hand-deliver your filings, and make sure that you stay in compliance while you’re living hundreds of miles away.

If you decide that a formation company is right for you, make sure that you hire a quality firm. Screen prospects by asking the following questions:

  • Do you have an attorney and an accountant on staff to advise me on legal and tax issues?

  • Will you assign a consultant to work with me on an ongoing basis?

  • Are you located in all 50 states? If not, do you have knowledge of and relations in all other states?

  • Will you customize the company to suit my needs?

  • Will you customize the articles of organization as opposed to just using state forms?