Mistakes to Avoid when Forming an LLC

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If you own a small business or plan to open your business in the near future, you have to form an LLC or Limited Liability Company. Frivolous lawsuits are filed every day with the hopes of settling out of court. Attorneys know that if they file suit against you, even if you’re in the right, you may not have enough money to hire the attorneys for a suitable defense making you more inclined to settle. Forming an LLC is no longer an option. It’s a necessity that protects not only you, but also your family.

In most cases, forming an LLC is easy and inexpensive. In many cases, you can complete the process for less than $200 and some online services like ActiveFilings.com will charge you even less to prepare the filing for you.

Once you obtain LLC status, it’s important that you remain in compliance with the laws surrounding LLC status in your state. Even forgetting to file the required annual report can open you and your family to potential liability. Here are a few ways to remain in compliance.

Don’t comingle

Even if your business is exceedingly small, you need a business bank account. All of your business funds should first go to that account. You can then pay yourself out of that account. If you mix personal and business funds in one bank account, that is considered comingling of funds. This makes it hard to prove that your business is truly a separate entity.

Maintain Your Articles

When you became an LLC, you likely had to complete articles of incorporation. Various states may use different terminology but you completed an official document outlining key aspects of your business including corporate structure, shareholders, and other information. If any of that changes, you should have “articles of amendment” documenting the change. Also, keep accurate minutes of any corporate meetings.

Pay your Taxes

Regardless of how much money you made (or didn’t) this year, you have to file corporate tax returns. If you fail to do that, you may no longer be recognized as an LLC in your state. Taxes, along with any renewal applications and annual reports that are required by your state must be completed on time in order to maintain your LLC status.


Forming an LLC is easy and inexpensive. Every business, regardless of its size, has to have LLC status for a variety of reasons but the most important is to separate business assets for personal funds. How would you feel if money for your child’s college education was taken because of a lawsuit stemming from your business? If you haven’t formed an LLC for your business, start the process today.