Forming An LLC: Top 3 Mistakes To Avoid

Forming a limited liability company, or LLC, is not as difficult as many people think it is.

The steps you have to follow are simple: you have to pick a name that is in accordance with the LLC rules in your state, you have to file paperwork and pay your filing fee, and you’ll need to create an operating agreement to outline the responsibilities of LLC members, to name a few things.

But while forming an LLC may be a relatively simple process, that doesn’t mean it’s one that will be trouble free.

Here are the top three mistakes you will want to avoid when forming an LLC:

Mistake #1: An LLC May Not Be The Best Option For You

To begin with, an LLC may not even be the best option for you. Other business structure options include the sole proprietorship, the C corporation, and the S corporation. Each of these are meant for different purposes.

If you want to create a small business with liability protection and minimal paperwork involved, then there’s no question that an LLC is the right way to go. But if you’d rather have a pass through entity for your taxes, the S corporation would be much preferable. On the other hand, a C corporation is a good choice for larger business that are legally separate from their owners.

Mistake #2: You Don’t Keep Your Business LLC Compliant

While this may seem too obvious, it’s actually a mistake that many LLC business owners make. The moment your business becomes an LLC, you simply have to follow all LLC rules in your state. Otherwise, if it is shown that you are not in compliance, your personal assets will be vulnerable.

While the LLC laws vary from state-to-state, some basic things that you will need to do regardless of what state you are in include keeping your personal money separate from your business funds, using your business title to sign documents related to your business, and sending in an annual report by a date required by your state, to name a few things.

Mistake #3: You Don’t Gather The Necessary Business Licenses

Almost all businesses are required to get a license, whether it be at the local, state, or federal level. And most of the time, there are more than one license you’ll be required to get.

The best place to check will be either your local county office or your city hall. There you can speak with an authority figure such as the county clerk, who will inform you of all the licenses you need and the paperwork you’ll need to file.

The good news is that businesses licenses are usually cheap and easy to get. Furthermore, not getting the required licenses means you’ll owe costly penalties for operating your business without them.

LLC Mistakes To Avoid

An LLC is definitely one of the most viable options for legally forming a new start-up business, but you’ll want to be very careful that you avoid each of these mistakes that we have covered here today.