New business owners are turning to the online incorporation service providers to help them process the start-up paperwork at a good priceCarol Power reports

The economic climate over the past year, with layoffs, corporate closures, downsizing and lower salaries, has given people the incentive to start their own businesses. Many are turning to incorporation service providers to assist them with the next step.

I know someone who is losing his job next month. Although he has known his company was closing for some time, he has not yet had another job offer. So, he has decided to branch out on his own. He reckons he has enough contacts and freelance work coming in to survive in business for at least six months.

To set up in business, there are two main options - form either a limited liability company or a corporation. Traditionally, a new business owner would have hired a lawyer to do the paperwork but now most of the paperwork can be filled out less expensively online.

One company that is growing at a rate of 25 per cent to 40 per cent year on year is Business Filings Inc, which is an incorporation service provider on the internet. It was founded in 1996 and is headquartered in Madison, Wisconsin, with satellite offices around the country. Since its inception, it has formed more than 30,000 businesses for domestic and international customers.

According to Megan Rusch, marketing co-ordinator, the majority of its clients are small business owners who have from one to 10 employees. Over 95 per cent of its orders are received on the Web.

At the Business Filings website at www.bizfilings.com, someone can complete an order form to set up a company. For a fee of about $400 (€415), Business Filings prepares and files the articles of organisation and pays the initial filing fees with the state.

However, each state is different, each with its own laws of governance. For example, Massachusetts requires that two members are needed to form a limited liability company. All other states allow one or more members. Business Filings also offers services to international customers who wish to set up a limited liability company or corporation within the US.

Once someone has placed an order with Business Filings, they can access its online corporate status centre 24 hours a day, seven days a week. Within this area, they can follow their order as it is processed and filed, and can download documents online. They can also access Registered Agent information for the new company. Any time they want, they can contact Business Filings customer service team by phone, e-mail and live chat Monday to Friday.

The company employs 28 people, only one of whom has a law degree. Because attorneys are not required in the incorporation process, Business Filings' customer service team undergoes four weeks of training before answering phone calls. "This ensures they are well versed not only in the products and services Business Filings provides, but also on all facets of the incorporation process," Ms Rusch said.

The Business Filings website states that it only offers business services and is not a substitute for legal advice. This presents a problem for people like Charles Grinnell, a corporate and tax lawyer in Stamford, Connecticut, who said: "The services provided by these people are fine but the way they do business is not appropriate. People don't get much from them."

Mr Grinnell points out that this type of company can file a certificate of corporation but an owner would also have to prepare other documentation. "For example, do they perform other services that an organisation needs like issuing shares, election of officers and adoption of bylaws? It's unprofessional and irresponsible to take money from someone, file their papers and then pretend they have been incorporated. A responsible lawyer will not simply just file articles," he said.

However, a lawyer could charge double what these companies charge on the Net. Mr Grinnell said the average lawyer's fee for organizing a relatively simple corporation or limited liability company ranges from $750 to $1,500.