Forming an LLC involves filing certain documents with you Secretary of State’s office. Depending on the state where your business will be registered, it may be very easy or exceeding complicated but if you’ve never gone through the process, there are pitfalls to avoid. Here are a few.
Incorporating in the Wrong State
There are a lot of articles that advise business owners to register their LLC in a state like Nevada because it has a lot of pro business laws that make it cost effective. This might be true if you’re a large corporation but for small businesses, registering in your home state is still the best way. The amount of extra compliance that it takes to operate outside of your home state will cancel any potential benefit you receive from out of state registration.
Not Understanding the Corporate Veil
The corporate veil is one of the main reasons that business owners should form an LLC. The corporate veil shields your personal assets from your company’s assets. It’s important to understand that the corporate veil is not absolute. If you engage in any fraudulent activity, you as an individual may be liable and if you co-mingle business and personal funds, the corporate veil may be breached. Before relying on the corporate veil, make sure you have a complete understanding of how to comply with the laws that keep it intact.
Not Having the Proper Licenses
Just because you’re an LLC doesn’t mean that your registration activities are complete. A majority of businesses require some sort of local or state license in order to operate. Even freelance writers sometimes have to hold local business licenses.
Along with licensing, don’t forget about liability insurance, insurance on your business property and personal insurances including disability, health, and retirement plans.
Not Getting Help
The process of forming an LLC is surprisingly cheap. You can spend your time making plans and getting things in place to launch your new business or you can spend that time trying to figure out how to file the paperwork correctly. For a small fee, an online business registration service can take of the process for you and allow you to use your time growing your business.
The final thing to remember is that the biggest mistake you can make is to not form an LLC. If you are operating as a business it’s important that you officially designate it as an entity in the state where you live. If you don’t know how, get help.