Starting a new business is exciting. As an entrepreneur, you may want to start a limited liability company due to its many advantages regarding personal liability and pass-through taxation. While an LLC can be relatively easy to set up, you should be careful not to make any costly mistakes.
If you make errors while forming your LLC, you may run into a variety of frustrating problems, such as expensive fines and complex legal issues. Here are common miscalculations you should avoid when establishing your LLC.
First mistake: Commingling funds
When creating your business, it is crucial to keep your personal and business funds separate. If you have a single bank account for both of them, your LLC will not be compliant. It may be difficult to prove your business is a separate legal entity from yourself if you do this. To avoid this, make sure you open up a bank account for your business. You may need to obtain an Employer Identification Number to create a bank account.
Second mistake: Not having a proper operating agreement
You may think printing out an operating agreement you find online will be sufficient. However, this can be a significant error. Enacting a thorough and well-tailored operating agreement is critical, especially if your LLC has multiple members. Issues it can be crucial for operating agreements to address include:
- Capital contributions
- Division of profits and losses
- Appointment of officers
- Dissolution procedures
- Dispute resolutions
You should take the time to set up a properly-tailored operating agreement when forming your LLC.
Third mistake: Failure to get proper help
Even though starting an LLC may be simpler than some other business entities, it can still be a very good idea to obtain legal counsel. An attorney can advise you on various issues, including the following:
- Incorporating in the correct state
- Getting business licenses
- Ongoing compliance
- Resolving disputes among members
If you avoid these oversights, you may be on the right track to starting a successful business.