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.