Many lawyers provide pro bono services. They may be required or encouraged to do so by state professional responsibility rules. But a large number will do so anyway because one of the reasons they entered the profession is to help those less fortunate than themselves.
Among the lawyers who can make a positive impact by donating their time and expertise are those who are assisting in the formation of small businesses, nonprofits, and mission-driven for-profit business entities for clients who could not otherwise afford legal advice.
This article looks at some of the services lawyers may be able to perform for entrepreneurs who qualify for pro bono service.
What is pro bono legal service?
The term “pro bono” comes from the Latin phrase “pro bono publico” which means “for the public good”. Pro bono service is the rendering of a professional service without charging a fee or expecting compensation.
ABA Model Rule 6.1 provides that every lawyer has a professional responsibility to provide legal services to those unable to pay. The ABA rule recommends lawyers aspire to 50 hours each year of pro bono legal service.
Each state has its own ethical rule requiring or encouraging lawyers to render pro bono services to certain kinds of clients. Although lawyers may want to check with their state committees to be sure, these clients can include individuals looking to start a small business or form a nonprofit or for-profit business entity with a charitable or socially beneficial mission.
What kind of clients can business lawyers working pro bono help?
Clients looking to start a small business
For many Americans, starting their own business is their dream. And for many others it is their best chance of improving their lives and that of their families. However, starting a business without legal advice can greatly diminish the business’ chance of succeeding. Unfortunately, many people cannot afford the legal advice they need when starting a business. Lawyers providing their services pro bono to these budding entrepreneurs who could not afford their advice otherwise can make the difference between the small business succeeding or failing.
Clients starting a nonprofit organization
Poverty, homelessness, food insecurity, natural disasters, gun violence, human trafficking, diseases. These are just a few of the many crises facing our local and global communities.
That’s the bad news. The good news is that there are many people who want to help. And some want to help by forming a nonprofit organization to provide vital services and assistance to those in need. This is particularly important as federal funding has been greatly reduced.
Unfortunately, many cannot afford the legal advice they need to get started. That’s where the lawyer donating his or her services can do so much good helping not only the client by forming the nonprofit organization but also helping everyone that the nonprofit can help.
Clients looking to earn a profit and do good
Not every client looking for legal advice related to entity formation is interested in just (a) earning a profit or (b) accomplishing a charitable or social mission. Some clients want both. In the past such “social entrepreneurs” didn’t have many options. Today they do. However they may need a lawyer to advise them as to these options and make sure the socially conscious entity is properly formed and operated.
What legal services would benefit these three classes of clients?
- Advising as to the best business structure or business entity
In most cases the client will have a number of options. For example, in the case of a small business, the choice is generally between a sole proprietorship, partnership, LLC, or corporation. For a nonprofit, the choices include a nonprofit corporation, nonprofit LLC, or unincorporated nonprofit association. For the socially conscious entrepreneur the choices include a low profit limited liability company (L3C), benefit corporation, or social purpose corporation. The lawyer can help advise as to which best fits the client’s goals. - Advising as to tax-related issues
For example, if an LLC is chosen for a small business, the lawyer may help determine whether the LLC should be taxed under the default tax classification (disregarded entity or pass-through entity) or should elect taxation as a C corporation or S corporation. In the case of a nonprofit, the lawyer may advise as to how to obtain and maintain tax exempt status, and can advise as to any tax related requirements that a socially conscious entity must meet. - Advising as to choice of formation state
If a statutory entity such as a corporation or LLC (whether for profit, nonprofit, or socially conscious) is chosen, a formation state for the entity must also be selected. In general, it will be the state where the business is located or the nonprofit is headquartered, although there are circumstances where a different state is better. In the case of the socially conscious entrepreneur, not every state has all of the options so the lawyer can help explain the more limited choices - Explaining the role of the registered agent and recommending whether to use a commercial registered agent
Nearly every state business entity law requires the entity to appoint and continually maintain a registered agent. A registered agent is an agent authorized to receive service of process on the entity’s behalf. An important decision every person starting an entity must make is whether to appoint an individual such as an owner or employee as the registered agent or to appoint a commercial registered agent such as C T Corporation System. A commercial registered agent is in the business of providing registered agent services, and in case of corporate service providers like CT, other compliance related services for its customers. The business lawyer should explain the pros and cons of either choice. - Forming the entity
The steps in the formation process include choosing and reserving the entity’s name, and drafting and filing the formation document with the formation state’s business entity filing office. For a small business, using the state’s form (or online filing) may be sufficient. But drafting the formation document can be important for nonprofits and socially conscious entities, as there is certain required language that will need to be included. For example, the formation document of a public benefit corporation has to have a specific benefit clause and an L3C also has to have certain specific language in its formation document. - Drafting governing documents
Corporations need bylaws, LLCs need an operating agreement. The business entity lawyer can assist in the drafting of these documents. A well drafted operating agreement that meets the specific needs of the LLC and its owners is particularly important. And a socially conscious entrepreneur will want to be sure the governing documents are consistent with their goals. - Helping to obtain business licenses, permits, and registrations
Almost every small business, nonprofit, or socially conscious entity will need at least one license, permit, or registration. The business lawyer can assist in determining which licenses, permits, or registrations are needed and in procuring them. - Qualifying the business entity in any foreign state where it will be transacting business
If the entity will be transacting business in states other than its formation state, it will have to qualify (also called register) in those so-called foreign states. A business lawyer can help determine if qualification is necessary and assist in getting the entity qualified.