How to start an LLC and what mistakes not to make

Starting an LLC (Limited Liability Company) is a popular business structure that offers several advantages over a sole proprietorship or partnership, including personal liability protection, business tax flexibility, and ease of formation and maintenance. However, there are several common mistakes that LLC owners make that can hinder their business’s success or even lead to legal problems. In this guide, we will discuss some of the most common mistakes to avoid when forming and running an LLC.

1. Not Choosing the Right Business Structure

One of the most common mistakes made by aspiring LLC owners is not choosing the right business structure for their needs. An LLC is a good option for many businesses, but it is not the only option. Sole proprietorships are the simplest and least expensive type of business to form, but they do not provide any personal liability protection. Partnerships are similar to LLCs, but they can be more complex to manage and are not always the best choice for businesses with multiple owners. Corporations are the most complex type of business structure, but they also offer the most protection for owners.

2. Not Filing the Right Paperwork

Another common mistake is not filing the right paperwork to form an LLC. The specific requirements for forming an LLC vary from state to state, but they typically include filing an articles of organization with the state government and obtaining an employer identification number (EIN) from the IRS. Failure to file the proper paperwork can result in your LLC not being legally recognized, which means that you will not be protected from personal liability.

3. Not Keeping Business and Personal Assets Separate

One of the main benefits of forming an LLC is that it provides personal liability protection for its owners. However, this protection can be voided if you do not keep your business and personal assets separate. This means that you should open a separate bank account for your LLC and keep all business records separate from your personal records.

4. Not Having an Operating Agreement

An operating agreement is a legal document that outlines the ownership structure, management responsibilities, and profit-sharing arrangements for an LLC. It is important to have an operating agreement in place to avoid disputes between owners down the road.

5. Not Obtaining the Necessary Business Licenses and Permits

Depending on the type of business you operate, you may need to obtain certain business licenses and permits. Failure to do so can result in fines or even legal trouble.

6. Not Hiring a Registered Agent

A registered agent is a person or entity that is responsible for receiving legal documents on behalf of an LLC. If you do not have a registered agent, you may miss important legal deadlines or be served with a lawsuit that you are not aware of.

7. Not Paying Taxes

LLCs are pass-through entities, which means that they do not pay taxes on their own profits. Instead, the profits are passed through to the owners, who then report them on their personal income tax returns. However, LLC owners are still responsible for paying certain taxes, such as self-employment tax.

8. Not Getting Professional Help

Forming and running an LLC can be a complex process. If you are not sure how to do it yourself, it is a good idea to consult with an attorney or accountant. They can help you avoid making common mistakes and ensure that your LLC is formed and run properly. Parties like Legal Zoom can help you form your LLC the right way.

By avoiding these common mistakes, you can help ensure that your LLC is a success.