The Limited Liability Company (LLC) is an immensely popular business entity choice for small businesses. On face, the LLC is the perfect way to form a small business. It offers the limited liability advantages of the corporate form with the pass through tax treatment of the partnership and low formation and maintenance costs of partnerships/sole proprietorships.

LLCs are also extraordinarily easy to form. In Missouri, anyone with an Internet connection can form an LLC and have a copy of his or her official Certificate of Organization in hand in less than 15 minutes. No joke. See the process for yourself at the Missouri Secretary of State website. Answer seven or so simple questions, plug in your credit card number, agree to pay the $105 filing fee, and you’re official. It’s a nice system, but note that the registration process begins with a warning — one I will reiterate here.

Organizing an LLC is easy. Setting up and operating your LLC in a way that will insure that you benefit from the liability and tax advantages is the hard part. Plunking down the $105 and getting your Certificate of Registration makes business formation so beguilingly simple that many people think the job is done. In truth, while you are “official”, all you’ve done is provide notice to the state and the general public that you’re in business–and let people know where they can reach your LLC if they want to sue it. The next step is is the crucial one — and one that will require much more effort. You need an Operating Agreement.

An Operating Agreement is the foundation for your company. It will specify who’s involved, what they do, and how the company will be operated. Most importantly, it defines the relationships between you and your partners and between you (and each other founder) and the company. Specifically this is likely where you’ll formally limit the liability of individual owners and employees of the LLC. This is also where you will address any special tax allocation issues. A properly drafted Operating Agreement can stand you and your company in good stead for years, providing for such events as the departure of a member, loans from members to the LLC or vice versa, bank loans, and other items that come up over the life of a business. A solid Operating Agreement is a signal of a well organized business and respect for the limited liability form — items which, if unimportant to you know, will likely prove extremely comforting should you find yourself on the wrong end of a lawsuit involving your LLC.

An Operating Agreement does not have to be an all knowing document full of provisions for unlikely events or doomsday scenarios. It can be a relatively simple set of ground rules that grows with your business. If the Operating Agreement is not perfect or does not provide for every possible contingency, it can always be amended, updated, added to, or replaced as a whole. Doing any kind of business without an Operating Agreement, on the other hand, is a very unwise move. The lack of an Operating Ageement with some no-brainer basic provisions can leave you without the kind of protections you thought you were getting when you registered your LLC with the state. At best you will be at the mercy of state default rules for LLC operation. Worse, you could end up personally liable for financial problems of your company, whether or not you caused them.

Good luck and please remember the information here is very general and may not apply to your specific situation. Nothing here should be considered legal advice. For information on your situation, contact your lawyer or the appropriate government agency.

We all know the old adage about getting what you pay for, but when it comes to your business formation documents, you may have to worry about getting far less than you pay for. Case in point: any of the numerous services that provide “custom” business formation documents without ever putting you in touch with a real lawyer licensed to practice in your state.

There are a range of options for the development of business formation documents, from self-help books, to online services, to large full service law firms. For many entrepreneurs, there is a great attraction to the savings offered by the low end of the spectrum. There has been a recent growth in “commodity” legal service companies, operating mostly via the Internet, that claim to blend the low cost of the self help methods with the individual attention and peace of mind that come with traditional legal service.

My thought: don’t be fooled. The problem with services of this type, such as LegalZoom, is that they are set up to have no real accountability to you. This is for two reasons: first, you have no idea who you’re dealing with, or even whether you’re dealing with a lawyer. This leaves you little recourse when something goes wrong. You may be able to complain to the company, and maybe they’ll listen — but this is far different than the duty owed to you by a real lawyer, licensed in your state, who has a host of legal and ethical obligations to you and to the state bar to which he or she is accountable for professional lapses. The second, and more important, reason is that you may not become aware of a defect in your formation documents for years. As with many legal documents, the quality of formation documents gets little attention when things are going well. The first time you are likely to become aware of the problem is sometime down the road — probably at a time when there are significant financial, liability, or tax stakes. Flaws in organization documents have a way of hiding until there is a lot money involved — when they suddenly blossom, often causing suspicion among long time partners and turning friends into enemies. Sure, you may be able to place some of the blame on the document service at that point, but time has a way of muddying things, and anonymous online services have a way of not being attentive to the changing needs of new and growing businesses.

When you add the “hide the ball” pricing tactics that many such services employ (quoting a low price, then charging outrageous amounts for revisions or updates, unreasonable service and shipping charges, and the like), this type of service may put you in a position of spending far more than a self help method and having far less than the peace of mind offered by a lawyer.

My feeling, of course, is that anyone serious about starting and running a business should consult with a lawyer licensed to practice in his or her state. Many lawyers specializing in small businesses offer flexible rate arrangements that can make the cost of services far more palatable. For those of you who really can’t see the value in having a local lawyer help organize your business, go with a good self help book. The cost is low, and you’ll get the opportunity to gain an understanding of all of the factors involved in forming your business.

Some readers may feel that, as a lawyer, I have an axe to grind when it comes to long distance “legal” services — after all, they compete for the same business as I do. There may be some truth to that. However, before you go attributing too much of my attitude to sour grapes, have a look at what the folks at Legal Zoom have to say about their own services (it’s at the bottom of every page)

Disclaimer: The information provided in this site is not legal advice, but general information on legal issues commonly encountered. LegalZoom’s Legal Document Service is not a law firm and is not a substitute for an attorney or law firm. ..

Oops. And that’s just what’s on every page. Click over to the disclaimers for even more bad news.

Remember, your business documents are serious legal agreements that, should you achieve business success, will govern rights and responsibilities to amounts of money far in excess of the amount you’d pay even the priciest law firm for business organization. Do you want to trust those documents to a company that disclaims responsibility for their contents before you’ve even pulled out your credit card? For those of you who note that I carry a disclaimer of my own at the bottom of each post, please also note that a) I am not marketing the information on this site as a solution to any specific legal needs; b) I am not charging anyone for the information on this site; and c) even if it were not grossly unethical, I would never, ever attempt to make such a disclaimer about the effect of my services to anyone who actually came to me for legal services.

However you go about it, make sure you do the research. The Internet offers a wealth of information on all of the services you might use to get your business formed, including numerous spots for reviews and rankings. A little more research and (maybe) a little more expense at the outset of your venture could have huge financial and emotional benefits in the future.

Good luck and please remember the information here is very general and may not apply to your specific situation. Nothing here should be considered legal advice. For information on your situation, contact your lawyer or the appropriate government agency.