When I am estimating costs for a project for prospective clients, particularly those new to the formation of business entities and deal-doing, a common source of confusion is why there needs to be a fee paid to my law firm as well as to a corporate service company like CT Corporation or CSC. So, I thought it would be useful to briefly outline the different roles that each of us plays in the creation and maintenance of entities.
Company formation requires the drafting of appropriate documentation, which is clearly my role, and the public filing of a portion of that documentation with the applicable state’s agency in charge of business entities, such as a Secretary of State. Could I do the filing part myself? Of course; in fact, anyone can do it without using any intermediary. However, the service companies make it their business to handle the filings and develop relationships with the state agencies that come in handy when snags arise. They also can eyeball a filing and identify an issue that they may have seen with other filings and address it before having it filed and then rejected by the state. Additionally, it is more cost-efficient to use a company like this as compared to a high-rate law firm to handle routine tasks that are related to legal services without themselves constituting the rendering of legal advice.
Service companies also work with entities on an ongoing basis to act as registered agent in states where an entity may be organized without the business having a physical presence there, such as in Delaware. A registered agent is required in these circumstances to receive service of process and other official communications. Again, a law firm like mine could theoretically serve this role, but that would require establishing and staffing an office in other places, which is not worthwhile only to act as a registered agent. It’s more efficient to let a service company handle it.
There are a number of other back-office tasks handled by service companies – ordering good standing certificates, making UCC filings, applying for taxpayer identification numbers, etc. As with the other tasks, these are things I could be doing but would not be a cost-efficient use of an attorney’s time.
So, the good news for the law firm of Andrew Abramowitz, PLLC is that business has increased steadily over the past few years. The bad news is that there has been somewhat of a greater tendency among clients to be slow in paying invoices. There is a hassle factor associated with this, as it requires frequent follow-up, but the real issue, as anyone who runs a small business will know, is that lumpy income creates financial challenges. My firm has regular expenses that can’t be contingent on the timing of my clients’ payments, and the owner of the firm (yours truly) has personal expenses that are equally not capable of being deferred while I wait for payment. (All of this sounds very self-pitying, but I’ll get to the point soon. I’ve been very fortunate in life and cannot complain.)
In a recent transaction that I worked on – obviously, I can’t give too much detail to protect client confidentiality – I noticed a weird dynamic. In a typical negotiation, when the lawyers from each side are speaking without the principals present, there is some degree of emotional detachment from the ultimate outcome, even though each attorney knows his or her role is to represent the client’s interest. Lawyers will say, for example, that it’s not worth continuing to argue about a particular bone of contention because it is a “business issue” that needs to be worked out by the principals. However, in this transaction, the other attorney, though he was unfailingly polite and even-keeled, would make fairly routine requests from our side seem thoroughly unreasonable, putting me on the defensive.
Carolyn Elefant, writing in Above the Law, takes to task those solo lawyers who, to use her phrase, 
When I am assisting a client on a matter, and the help of a legal specialist is needed (tax, above all else, but many other areas as well), the client will often be reluctant to loop in the other attorneys and will urge me to handle it. While I’d like to think that this is a reflection of the client’s respect for my abilities, I’m sure it’s in part based on a fear that bringing on another attorney will drive up legal costs. I don’t think this is necessarily the case, and in any event, scrimping on getting the right advice can create substantive issues that cost far more in the long run.