Forming an LLC or a corporation is a fairly easy and straightforward process -- but very easy to mess up. Many small business owners unknowingly make mistakes during the incorporation process that can have major ramifications. Before you start the process on your own, make sure you take care to avoid these all too common mistakes.
Mistake 1: Choosing the wrong entity
One of the biggest mistakes you can make is choosing the wrong business entity. The entity you choose will affect your taxes, employee benefits, how much paperwork you need to do, how you need to stay compliant and more. Forming an LLC may be a good choice if you want minimal paperwork and formalities.
Mistake 2: Incorporating at the wrong time
Did you know that filing your incorporation documents at the wrong time of the year can cost you a lot more in taxes, or require an additional tax return? A business services company can help you time your incorporation.
Mistake 3: Choosing the wrong state
Do not assume that a Delaware LLC or corporation is necessarily the right choice for your business. If you only do business in one state, but incorporate in another, you will probably end up paying extra filing fees and taxes every year.
Mistake 4: Not staying compliant
The work is not finished when you submit your applications and form your LLC or corporation. You also have an obligation to keep your new entity in compliance. If you are sued and it is shown that you have not properly maintained your LLC or corporation, the corporate shield can be pierced and put you on the hook. Compliance requires keeping your personal funds separate from business funds, filing for foreign qualification when you operate in a state other than your state of incorporation, sending in your annual reports on time, and more.
Mistake 5: Hiring an accountant to do the work
Forming an LLC or corporation is a legal issue, not just a financial issue. While your accountant can help you understand the tax implications of your decision, an accountant is not trained in legal matters. You may want to consult your accountant and an attorney for help making your decision before working with a corporate services company to file the paperwork for you.
Mistake 1: Choosing the wrong entity
One of the biggest mistakes you can make is choosing the wrong business entity. The entity you choose will affect your taxes, employee benefits, how much paperwork you need to do, how you need to stay compliant and more. Forming an LLC may be a good choice if you want minimal paperwork and formalities.
Mistake 2: Incorporating at the wrong time
Did you know that filing your incorporation documents at the wrong time of the year can cost you a lot more in taxes, or require an additional tax return? A business services company can help you time your incorporation.
Mistake 3: Choosing the wrong state
Do not assume that a Delaware LLC or corporation is necessarily the right choice for your business. If you only do business in one state, but incorporate in another, you will probably end up paying extra filing fees and taxes every year.
Mistake 4: Not staying compliant
The work is not finished when you submit your applications and form your LLC or corporation. You also have an obligation to keep your new entity in compliance. If you are sued and it is shown that you have not properly maintained your LLC or corporation, the corporate shield can be pierced and put you on the hook. Compliance requires keeping your personal funds separate from business funds, filing for foreign qualification when you operate in a state other than your state of incorporation, sending in your annual reports on time, and more.
Mistake 5: Hiring an accountant to do the work
Forming an LLC or corporation is a legal issue, not just a financial issue. While your accountant can help you understand the tax implications of your decision, an accountant is not trained in legal matters. You may want to consult your accountant and an attorney for help making your decision before working with a corporate services company to file the paperwork for you.