11 Common Mistakes Before Starting an LLC You’ll Wish Someone Warned You About

Our formation experts have been on enough founder calls to tell you this:

Most people don’t mess up their business because they didn’t work hard or invest enough. They mess up because no one told them what to watch out for, before starting their LLC. Before all the paperwork. Before the logo. Before the first Stripe payout.

Just the other day,  one founder told one of our formation experts that they had to rebrand everything because the name they picked was already trademarked.

They’d already printed 1,000 product boxes. They had influencer campaigns lined up. And poof! Two months lost to rebranding and legal cleanup!

And, we’ve had folks come in mid-fundraise, only to discover their operating agreement is missing key clauses investors expect. They’d used some template they found online and assumed it was “good enough.”

And WE get it! In the early days of building a business, it’s natural to lean into DIY. You’re trying to keep costs down and scale slowly.

But that’s exactly when the most expensive mistakes get their foothold in your processes.

And the worst part? You usually don’t realize it until you’re too far in to undo them easily.

That’s why we put this list together. A roll of the most common, and quietly dangerous mistakes founders make before forming an LLC. 

Read through. Catch what you can. Even if just one of these helps you avoid a future mess, that’s a win for us:) 

And, if anything’s still unclear or you just want to talk it through, we’re around. Whenever you’re ready,  book a demo and ask as many questions as you want. 

11 Common Mistakes Before Starting an LLC

Here are 11 of the most common mistakes founders make before starting an LLC,  and what to do instead.

1. Choosing the Wrong State to Form Your LLC

In Connecticut, out-of-state businesses that failed to register were fined a combined $1.8 million in one fiscal year. Individual companies faced penalties averaging $4,600, with some fines reaching $30,795.

Let’s break it down with this example:

Imagine a founder based in New York sets up a Wyoming LLC thinking it’ll save them on taxes. But their business is operating in New York, that’s where they live, run ads, ship products, and use a local bank.

What happens next?

• New York legally requires that Wyoming LLC to register as a foreign entity

• The founder must pay both states for annual compliance

• They owe New York taxes anyway, there’s no escape

• Their Stripe or Shopify may hold payouts due to document mismatches

• They can’t get a resale certificate to avoid sales tax on inventory

• Some lenders or grant bodies reject their application because the state doesn’t match the business footprint

So, instead of saving money, they created double the admin, legal risk, and tax exposure.

Learn more: Wyoming vs Delaware LLC: Which is Better For You in 2025?

Bottomline: When your legal structure doesn’t match where your business is actually running, here’s what happens: 

• Your tax returns don’t match your revenue footprint

• Banks and payment processors flag compliance gaps

• You get hit with penalties for failing to register in your real operating state

• You waste money on registered agents and extra filings

• Worst of all, you lose time fixing what could have been right from Day 1

So, How Do You Pick the Right State?

Here’s the rule: Where your business earns money, hires people, stores inventory, or uses a bank account, that’s where you form your LLC.

• If you’re based in New York and selling physical goods: form in New York

• If you’re a global founder with no U.S. presence: Wyoming might work,  but only if truly remote

• If you’re building a VC-backed tech startup with stock and SAFEs: Delaware C-corp makes sense

But for 90% of small businesses and early e-commerce brands, filing in your home state is faster, cleaner, and cheaper in the long run.

Let doola guide you to the right setup from Day 1

2. Not Checking Business Name Availability

Each U.S. state has its own database of registered business entities. If someone else in your state, or even in your same vertical nationally, has registered a similar name, your filing may get rejected or cause future legal issues. 

Take the case of McDonald’s vs. MacJoy:

McDonald’s sued MacJoy, a popular restaurant chain based in Cebu, Philippines, for trademark infringement due to name similarity.

Despite being locally beloved, MacJoy was ultimately forced to rebrand after the Philippine Supreme Court upheld McDonald’s global trademark rights. 

In short, even a slight resemblance, in name, pronunciation, or logo,  can trigger action from large companies who’ve spent decades building brand equity.

Key Facts Every Founder Should Know ✔️ Business Name ≠ Trademark: Just because your LLC name is approved in your state doesn’t mean it’s protected nationwide. You still need to check for existing trademarks with the USPTO (United States Patent and Trademark Office). ✔️ Each State Is Different: “Available in New York” doesn’t mean “available in Texas”,  if you plan to expand or register as a foreign entity later, your name may conflict. ✔️ Your EIN and Business Bank Account Require a Valid, Registered Name: If your LLC name gets rejected, you can’t proceed with any of these. That delays Stripe/Shopify payouts, business credit, and even basic accounting setup.

1. Check Your State’s Business Entity Database

Every Secretary of State has a free online search tool. Here’s where to check:

• California

• New York

• Texas

• Florida

2. Search for Federal Trademarks

Even if your business name is approved in your state, it doesn’t mean someone hasn’t federally trademarked it.

If they have, and you’re in a similar category,  they could legally block you, sue, or force a rebrand after you’ve already launched.

To check, use the USPTO’s TESS search.

What to look for:

• Exact matches of your business name

• Similar spellings (e.g., “Luna” vs. “Lunaa”)

• Similar industries,  if you’re in skincare, don’t just check your name, check for competitors in that niche

💡 Watch out for “sound-alike” issues. Even if the spelling is different, if it sounds similar and is in the same industry, you could still face a trademark challenge.

3. Run a Google + Social Media Sweep

Once your legal and trademark check is clear, check for brand usability.

Even if no one’s legally blocked you, you don’t want to confuse your customers with similarly named brands. Or, struggle with SEO or social media discoverability.

What to search on Google: 

• Is the .com domain available?  If not, do you have a viable alternative (like .co or .shop)?

• Are the Instagram, Twitter, and TikTok handles free?

• Does anyone in your niche already use that name,  even unofficially?

💡 Keep in mind: You want your name to be distinct in both legal records and in people’s minds. If it blends in or creates overlap, it’s going to cost you in branding and growth later.

4. Lock It All Down Early

Once you’re confident that the name is available in your state, clear on the trademark register and free on domains and social media, then you need to  claim it all at once,  before someone else does.

Here’s what to do:

• Buy the domain (use Namecheap, GoDaddy, or Google Domains)

• Reserve your social handles (even if you won’t use them yet)

• File your LLC using the confirmed name

• Consider filing a trademark (especially if you plan to scale, raise money, or operate nationally)

💡 Our advice: The earlier you do this, the easier it is to build clean branding, SEO, and customer trust. It’s much harder (and more expensive) to switch names later,  especially after launch.

Before you print labels, build your Shopify store, or open that bank account, make sure your name is legally safe.

3. Skipping the Operating Agreement

You don’t want to be the founder who overlooks this particular part of your LLC setup.

Without a proper operating agreement:

• You may be denied a business bank account. Many banks (like Mercury, Brex, or traditional players) ask for your operating agreement to prove ownership, control, and authority to manage funds.

• You may get rejected by investors or accelerators. During due diligence, most serious angels or VCs will request to see your operating agreement. If it’s missing, it signals lack of structure, and could stall or kill the deal.

• You can’t prove who owns what. Especially dangerous if you have co-founders. If there’s a fallout or one person leaves, there’s no clarity on equity ownership, vesting, IP rights, or decision-making authority.

• You’ll default to state rules you probably don’t understand.  If a dispute arises over profit sharing, voting rights, or transfer of ownership,  the court will rely on your state’s default rules. These are often outdated, generic, and not designed for high-growth startups.

• You open yourself up to tax confusion. Your operating agreement can specify how profits and losses are allocated, which matters for IRS reporting. Without it, your filings may get challenged,  or you may miss deductions.

So, When Should You Create Your Operating Agreement?

The short answer: within the first week of forming your LLC.

Right after your Articles of Organization are filed and your EIN is secured, the very next thing should be your operating agreement. 

Let’s say you’re a solo founder. You might think: “Why bother? It’s just me.” But even as a single-member LLC, you still need to decide:

• How will you pay yourself,  as a draw, as salary?

• How are profits retained vs. distributed?

• What happens to the business if you become incapacitated?

• How will the LLC be taxed,  default status or S Corp?

Now, imagine your business grows,  you decide to bring in a contractor, maybe convert them into a partner or advisor. Or you raise capital. 

If there’s no operating agreement already in place, you’ll be bound to negotiate foundational rules while under pressure. Above all, there will be too many questions from your investors.

For example, your co-founder wants to know how their equity is handled. And any gap or vague explanation tells people you have not created your operating agreement yet. 

Worst case? You’re forced to create or backdate one reactively,  which could raise legal eyebrows or hamper a potential deal. 

If you’re not sure what needs to be in an operating agreement or how to future-proof it? Our experts help you build one based on your current setup and scaling plans. Sign up for a demo now!

4. Not Getting an EIN (Even as a Solo or Non-U.S. Founder

An EIN is your first step to separating personal and business credit.

Once you have it, credit bureaus like Dun & Bradstreet and Experian Business can track your business credit score. That’s critical for:

• Applying for loans or credit cards

• Building vendor credit

• Scaling operations

Who Needs an EIN?

Everyone. Even if you’re the only member of your LLC. Even if you’re not hiring yet. And especially if you’re a non-U.S. resident launching remotely.

If You’re a U.S. Founder (You Have an SSN or ITIN)

You’re in luck. The process takes just 10 minutes and is completely free.

EIN Online Application (Instant)

👉🏼 Go to the IRS EIN Assistant.

👉🏼 Click “Apply Online Now”

👉🏼 Choose: “Limited Liability Company (LLC)” State: New York

👉🏼 Fill in business name, address, members, and SSN

👉🏼 Submit and download your EIN confirmation letter (CP 575)

Pro Tip: The online EIN system only works during U.S. business hours (Mon–Fri, 7 a.m. to 10 p.m. ET). It also times out fast, so have all your details ready before starting.

If You’re a Non-U.S. Founder (No SSN or ITIN)

Here’s where most international founders wear themselves out.

You can’t use the IRS online portal unless you have an SSN or ITIN. So you must apply manually using Form SS-4 via fax or international mail.

Step-by-Step Guide to EIN Application (No SSN or ITIN)

👉🏼 Download IRS Form SS-4.

👉🏼 Fill out the form by hand or digitally.

👉🏼 Double-check for common rejection errors (listed below).

👉🏼 Sign the form with a wet signature (typed signatures are not accepted).

👉🏼 Fax the completed SS-4 to the correct number: If you’re outside the U.S.: +1-304-707-9471.  If you’re inside the U.S.: 855-641-6935.

👉🏼 Wait approximately 4–6 weeks for your EIN confirmation letter (CP 575) via physical mail (no email delivery).

What Breaks Without an EIN

Here’s what happens when you don’t have an EIN:

1. You Can’t Open a U.S. Business Bank Account

Banks like Mercury, Brex, and Stripe require an EIN to onboard your business.

Without it, there’s no account, no revenue access, and no scaling path.

2. You Can’t Legally Hire or Pay U.S. Contractors

Need to issue a W-9 or file a 1099? You can’t legally do so without an Employer Identification Number (EIN).

Without an EIN, contractors might refuse to work with you, and you risk incurring IRS penalties due to incomplete paperwork.

3. You Undermine Credibility Early

Using your Social Security Number (SSN) or foreign tax ID instead of an Employer Identification Number (EIN) can give the impression that your business is a side hustle rather than a serious venture. 

This can negatively impact how investors perceive your company, especially when you begin to share your capitalization table (a record of ownership).

4. You Miss Key Filing Windows

A missing EIN creates a cascade of problems, preventing you from filing federal taxes, running payroll, and obtaining necessary business licenses. 

This, in turn, makes it impossible to legally pay yourself or contractors, file for sales tax permits (if selling physical products), register for business insurance, open merchant accounts, or complete KYC with your bank.

The result? You waste time, lose early traction, and start your business from a position of disorganization, not readiness.

Whether you’re setting up a U.S. LLC from abroad or simply need an EIN for an existing business, doola’s expert team handles your entire EIN application process, so you never have to touch an IRS form or fax machine.

Dive deeper: Do I Need an EIN for Dropshipping?

5. Mixing Business and Personal Finances

You already know mixing business and personal finances can mess up accounting and expose you to legal risk.

But here’s what nobody tells you: 

This mistake can block you from getting acquired. Even if you’re profitable.

If your business finances are tangled with your personal ones,  no clean trail of how much was invested, how profits were retained, or how assets were paid for, buyers often walk away or require months of forensic accounting (at your cost) before continuing.

One investor even told us:

“If a founder doesn’t separate their finances, it tells me two things: they haven’t thought long-term, and they’ve never worked at a real company.”

That’s harsh. But that’s how they think. 

How Do You Avoid This Mistake?

Here are a few steps you need to take to keep your finances organized:

✅ Open a Business Bank Account Immediately After Forming Your LLC

Don’t wait for the first invoice. Do it the moment your EIN and Articles of Organization are in hand. 

✅ Only Use Business Funds for Business Expenses

Even if it’s easier to swipe your personal card “just this once,” don’t. Every exception muddies the finance trail.

✅ Pay Yourself Formally, Even If It’s a Small Amount

Write yourself a check or transfer from the business account. This builds the habit and paper trail of structured compensation.

✅ If You Fund the Business Personally, Document It

Treat it as a loan or capital contribution. Keep a note of it in your books. Don’t blur the line with unrecorded top-ups.

Related read: How Much Does an LLC Cost in Every State (2025 Guide)

6. Using a Home Address or Ineligible Registered Agent

A surprising number of new founders either list their personal address as their official registered agent or appoint themselves (or a friend) in that role, often without meeting legal requirements. 

At first glance, it may feel simple and cost-effective. But this decision exposes your business to serious risk.

What Can Go Wrong If You Use the Wrong Registered Agent (or None at All)

Your registered agent protects your business from legal and operational chaos. Here’s what can go wrong when this role isn’t handled properly:

1. You Might Lose a Lawsuit Without Knowing It

If court documents or legal notices are sent to your listed address, and no one receives or forwards them,  the court can issue a default judgment against you.

Real Example: In Millennium Outdoors, LLC v. Leader Accessories, LLC, the defendant’s attorney (listed as the registered agent) failed to forward the lawsuit. 

The Wisconsin court upheld a default judgment anyway,  because ignorance isn’t a defense:)

2. Your Business Can Be Dissolved by the State

If your state can’t reliably contact you, maybe your agent address is invalid, you moved, or the agent isn’t available during business hours, your LLC can be administratively dissolved.

And once dissolved:

• You lose your liability protection

• You may not be able to operate legally

• You’ll need to pay reinstatement fees or refile

3. You May Miss Tax Deadlines and Compliance Notices

States send franchise tax notices, biennial filing reminders, and penalty warnings to your registered agent.

If you miss them:

• You could be fined

• You might lose good standing

• You risk being disqualified from licenses, grants, or investor funding

4. Trouble Opening Bank Accounts or Getting Licenses

Many banks, platforms (like Stripe), and partners verify your registered agent when you are:

• Opening a business bank account

• Applying for licenses

• Onboarding as a vendor or partner

An invalid agent can cause:

• Delayed account approvals

• License denials (especially in states like CA, NY, TX)

• Red flags during investor due diligence

5. You Expose Your Home Address to the Public

If you use your home address as your registered agent:

• It becomes part of the public record

• Anyone can access it, including marketers, legal trolls, and spam bots

Yes, really: Some founders have had process servers show up at their doorstep, in front of family or neighbors. Totally avoidable.

Hire a professional registered agent service that meets these criteria: 👉🏼 Has a physical address in your state 👉🏼 Is available during business hours to receive documents 👉🏼 Provides timely notification and forwarding of legal correspondence 👉🏼 Maintains accurate public filings so your LLC stays compliant The cost for registered agent services can range from $40 to almost $600 per year. How doola Helps We assign a compliant, in-state registered agent service as part of your LLC setup. That means: 👉🏼 You never expose your home address 👉🏼 We reliably forward all official mail and notices 👉🏼 We handle updates if you move or expand into new states 👉🏼 You stay in good standing without lifting a finger

7. Not Clarifying Your Business’s Purpose, Budget, and Legal Needs

If you don’t define what your business is, how you’ll operate, and what legal structure matches that reality, you will end up:

• Registering the wrong entity

• Missing hidden compliance deadlines

• Getting blocked by banks, vendors, or investors

• Or worse,  getting locked into a legal structure that actively works against your growth

Here’s how you can avoid this mistake:

1. Define What Your Business Actually Does

Write one clear sentence about what you’re selling and how.

Example: “We sell haircare products online via Shopify and Amazon.” This determines your EIN category, your tax treatment, licensing, and even how Stripe or your bank evaluates you.

2. Identify Where You’re Really Operating

Where you form your LLC isn’t always where your business is legally active.

If you live and work in New York but registered in Wyoming, you’re still operating in New York. And NY wants its paperwork, filings, and fees.

3. Budget for Boring but Mandatory Legal Costs

Don’t just budget for growth. Budget for compliance. That includes state franchise taxes, NY publication (if needed), registered agent fees, and ongoing CPA/bookkeeping costs.

These aren’t optional, and skipping them often leads to fines or operational delays.

4. Set Up Your Core Legal Documents Early

At minimum, every founder needs:

1. An Operating Agreement

2. An Independent Contractor Agreement

3. Terms of Service or Sales/Service Agreement.

These protect your IP, enforce payments, and keep client/vendor relationships clean. Make sure you have them ready. 

5. Organize Everything in a Legal Folder

Whether it’s Notion, Drive, or Dropbox,  create one digital folder that holds:

– EIN letter

– Formation docs

– BOI report

– Licenses, contracts, permits

– State compliance deadlines

 This prevents scramble mode later when banks, investors, or vendors ask for documentation.

8. Misunderstanding LLC Tax Implications

One of the most common, and costly misunderstandings new founders make is assuming their LLC automatically takes care of taxes. 

It doesn’t. LLC is a legal structure, not a tax strategy.

According to IRS data, the vast majority of LLCs are taxed by default as sole proprietorships or partnerships. That means all your profits pass directly to your personal tax return, and are subject to ordinary income tax plus self-employment tax. 

For most founders, that’s 15.3% on top of everything else.

In the early months, this feels manageable. But once the business gains traction, this structure often becomes a burden. Many founders don’t even realize they’re overpaying, until it’s too late to fix.

What Most Founders Get Wrong

1. They Think the LLC Will Automatically Lower Their Taxes

It doesn’t. By default, you’re on the hook for full self-employment tax. And unless you choose otherwise, you’ll stay that way.

2. They Don’t Know About the S Corp Option

An LLC can elect to be taxed as an S Corporation. And once your net income crosses a certain threshold (typically around $70,000–$80,000/year), this change can reduce your tax burden significantly.

Instead of paying self-employment tax on your entire profit, you pay yourself a reasonable salary (which is taxed normally). And the remaining profit is taken as a distribution not subject to self-employment tax.

This isn’t a loophole. It’s an IRS-recognized structure designed for small business owners. But you have to file Form 2553 in time, and most first-time founders don’t even know the option exists.

3. They Overlook State-Level Tax Requirements

Even if your federal setup looks clean, many states,  like California, New York, and Texas, have their own annual fees, publication rules, and tax filings.

For example:

• California charges an $800 minimum annual franchise tax, no matter your profit.

• New York has a mandatory publication requirement that most out-of-state LLC services don’t warn you about.

• Foreign founders who don’t file Form 5472 can be fined $25,000 per year, even if they’re not making a dime yet.

What This Mistake Reveals:

There’s a gap in understanding between legal setup and financial reality.

Many founders form their LLC and assume they’re “done.” But if you don’t understand how that entity behaves at tax time, you cannot save anything from your hard earned money.

How To Avoid This Mistake

Here’s how you can avoid this costly mistake:

1. Ask This Question Before You Even Form: “What’s the right tax treatment for my business model?”

Most people default to forming an LLC without asking how it will be taxed.

Don’t wait until year-end to figure it out. If you’re planning to reinvest profits, stay small and local, or operate as a solo founder, default taxation might work.

But if you’re expecting real margins, growth, or outside capital, explore S corp or C corp treatment upfront.

2. Book a One-Time Strategy Call With a Tax Advisor.  Ideally Before Your First $10K in Revenue

This isn’t a recurring cost. But, one good session with an expert can help you:

• Understand whether pass-through taxation works for you

• Evaluate if (and when) an S corp election makes sense

• Map out quarterly tax payments and avoid surprise bills

• Set up a clean chart of accounts with the help of doola Bookkeeping

3. If You’re a Non-U.S. Founder, Learn These Two Forms

If you own a U.S. LLC as a non-resident, and don’t have an S corp or C corp election, the IRS expects these two forms from you:

Form 5472 and Pro forma 1120.

These are required even if you have zero income. Skipping them could mean $25,000+ in penalties. 

Avoid this by working with a tax provider that understands cross-border filing.

4. Don’t Delay Filings

To be taxed as an S corp, you typically need to file within 75 days of forming your LLC or starting the new tax year.

If you miss that window, you may have to wait a full year, or pay penalties.

5. Understand State Requirements

Each U.S. state has its own definition of what counts as “doing business”, and it’s not always obvious.

You may owe state taxes, franchise fees, sales tax filings, or registration requirements even if:

• Your customers are in that state (especially if you’re selling physical goods)

• You have inventory stored in third-party warehouses there (like Amazon FBA)

• You hired a remote employee or contractor there

• You run ads targeted to that state and generate significant revenue

• You live in one state but formed your LLC in another

These triggers create what’s called “nexus”,  a legal connection to that state that can bring tax obligations with it.

For example: If you formed your LLC in Delaware but run your business from California, the state of California still expects you to register and pay taxes as a “foreign entity” doing business in-state. If you’re unsure, book a demo with doola.

9. Trying to DIY Without Understanding the Process

According to Eximius Ventures, legal and regulatory issues account for nearly 18–19% of startup failures worldwide. That’s almost one in five startups collapsing not due to lack of product-market fit. 

But due to legal missteps, structural blind spots, and compliance errors that could have been avoided early on.

Not exaggerating, but most startups do underestimate the complexity of legal infrastructure. 

New founders often try to save money, move fast, and keep things lean by doing everything themselves: the legal formation, the contracts, the taxes, the team agreements, the IP rights. 

All of it.

But it takes just one misstep in this DIY approach to create a messy compliance setup, and land them squarely on the radar of regulatory authorities.

A few examples for you:

Grooveshark, the music streaming app, collapsed after failing to properly license copyrighted music,  a legal oversight that triggered multiple lawsuits from record labels.

Theranos, the biotech unicorn, didn’t just fall due to tech failure. The real unraveling began with regulatory violations and deceptive legal structuring that masked compliance gaps.

💡 doola’s key suggestion: Don’t dabble with legal infrastructure if you haven’t taken the time to deeply understand it. Avoid DIYing anything that can affect your liability, ownership, credibility, or future funding.

When Should You Stop DIYing And Bring In Expert Help?

There’s no shame in starting lean. But there is danger in holding on to DIYing too long.

Here’s doola’s  list of when it’s time to step out of DIY and get professional guidance:

1. You’re Generating Revenue Across State Or Country Borders

Different states (and countries) have unique sales tax rules, income tax nexus triggers, and reporting requirements. If you’re selling across jurisdictions — even digitally — it’s time to speak to a compliance expert.

2. You’re Hiring People (Employees Or Contractors)

Misclassifying a contractor can trigger back taxes, interest, and audits. The moment payroll or work-for-hire enters the picture, get an employment attorney or HR compliance consultant involved.

3. You’re Drafting Or Signing Contracts Beyond $5,000

Whether it’s a client agreement, supplier contract, licensing deal, or co-founder equity split, anything that involves risk, recurring obligations, or intellectual property should be reviewed by legal counsel.

4. You’re Handling Intellectual Property (IP)

Founders often forget to transfer IP rights from contractors or agencies. Without a proper IP assignment clause, your company may not even own its brand assets or source code, especially if a dispute arises later.

5. You’re Raising Capital, Even From Friends & Family

The minute money enters your cap table, even in informal ways,  it triggers securities compliance rules. 

Improper equity distribution or SAFE/convertible notes without proper documentation can destroy future rounds.

 6. You’re Structuring Equity, Vesting, Or Advisory Shares

If you’re issuing shares, setting up vesting cliffs, or allocating equity to advisors or employees, DIY can go very wrong. 

Missing repurchase rights, unclear vesting schedules, or inconsistent cap tables can tank investor interest later.

7. You’re Moving To A Physical Location

Leases, zoning regulations, occupancy permits, signage laws, insurance,  all of it kicks in once you open a shop, office, or warehouse. That’s not something to handle on guesswork or optimism.

8. You’re Collecting Customer Data

If your business touches personally identifiable information (PII), emails, phone numbers, payment details, health info, you’re under privacy laws like GDPR, CCPA, HIPAA. DIY data protection puts you at risk for major fines.

If you’re earning across states, hiring people, scaling operations, you don’t have to juggle legal, tax, and compliance on your own. doola helps founders set up, run, and maintain their business the right way from day one.

10. Ignoring Record-Keeping and Documentation

Early on, your entire business might live in your head. You remember when you filed the LLC, when your first Stripe payout came in, which contractor sent that invoice by email.

But human memory isn’t a system. It fades. And as your business begins to scale, the absence of proper documentation starts to cost you.

In Ghana, over 70% of small businesses don’t maintain proper accounting records, and they don’t blame market competition or weak sales. They point to poor documentation as the root cause of failure.

Whatever the reason, the lack of a solid system for bookkeeping and record-keeping has consistently cost businesses time, money, and growth. 

In fact, IDC estimates that disorganized document systems result in over 21% productivity loss, costing around $19,700 per information worker per year.

Also, if you bring on employees or contractors into a system that has no structure, no onboarding templates, no record of who’s doing what and when, you are silently pushing people to adopt a “figure it out themselves” mentality. 

That works until it breaks, then turnover rises, and burnout follows.

How To Build A Light But Durable Documentation Habit

Here’s what founders who scale cleanly tend to do:

1. Centralize Everything In One Cloud Workspace

Don’t scatter files across Gmail attachments, WhatsApp, Drive, Dropbox, and desktops.

Create one place. Even if it’s just a single Google Drive folder with subfolders:

• Legal (LLC docs, EIN, licenses, contracts)

• Financial (bank statements, tax filings, invoices, P&L)

• HR/People (contracts, NDAs, onboarding templates)

• Product/Operations (supplier agreements, shipping docs, SOPs)

• Investor Relations (pitch decks, cap table, SAFEs)

💡 Pro tip: Use a “_README” file in each folder that explains what’s inside, in plain English.

2. Create an Audit Trail for Decisions

Start documenting why you made a call, not just what call you made.

Whether it’s a pricing shift, supplier switch, or firing a vendor,  write a 2-line note in a dated doc or Slack channel.

In 3 months, when a client asks “Why did you raise prices?”you’ll have your answers ready.

3. Track Renewal Dates and Regulatory Deadlines

Use tools like Notion, Trello, or even Google Calendar to set reminders for:

• Annual report due dates

• License renewals

• Registered agent changes

• Tax deadlines

• Business insurance policy renewals

4. Store Signed Documents As PDFs Immediately

Don’t leave contracts in Docusign limbo. Once signed, save the PDF with the date and parties involved.

Digital signatures are legally binding, but only if the document is preserved and accessible.

11. Failing to Research Licensing and Permit Requirements

You can set up the cleanest LLC. Hire the best compliance team. Open your business bank account on day one. And still, without the right licenses and permits… you’re not legally operating.

Your business isn’t a single-layer structure. It’s layered, federal, state, county, city, even industry-specific. So, you may need different licenses. 

For example, a general business license, plus seller’s permits, plus home occupancy permits, plus health department clearances if you’re in food, plus professional licenses if you’re offering regulated services.

Why It Matters (And What It Can Cost You)

• Fines from local or state regulators

• Delayed product launches if your category needs clearance (cosmetics, food, supplements, etc.)

• Losing customer trust if you’re shut down or outed for non-compliance

• Losing time trying to untangle legal issues mid-growth

How To Avoid This Mistake  (Quietly And Thoroughly)

1. Start From Your Business Model, Not The Permit List

What do you sell? Where do you operate from? Are you selling physical products, services, digital goods? Are you selling B2B or direct to consumers? Each of those has a different implication. 

For example, a skincare brand shipping from home in Brooklyn is regulated very differently from a Delaware-formed dropshipping brand targeting California.

2. Go Deeper Than Your State Website

The majority of compliance requirements are established at the city or county level, which often presents challenges for individuals.

Plus, business licenses are not issued by your LLC formation portal. They’re issued by your local government,  your city, your county, and sometimes, even your specific zip code.

So, here are some official portals to check for business licenses:

State	Main Licensing & Permit Portal	City-Level or County Requirements You Shouldn’t Miss
New York	NY Business Express	NYC: NYC Business — sales tax, signage permits, home-business rules
California	CalGold	LA: LA Office of Finance — seller’s permits, fire codes, conditional use permits
Texas	Texas.gov Business Page	Houston: Houston Permitting Center; Austin: zoning + occupancy permits
Florida	Open My Florida Business	Miami-Dade: County Licensing; Tampa: dual registration at city + county level
Illinois	Illinois Business Portal	Chicago: BACP — licenses for retail, service, and home-based businesses

And for international founders using U.S. addresses or third-party warehouses,  sales tax nexus may apply even if you never step foot on U.S. soil.

3. Call Your City’s Small Business Division

When in doubt, don’t hesitate to call. A single phone call can clarify what five Google searches can’t. Be honest about your business model, your location, and your revenue. They’ll walk you through exactly what’s required.

4. Create A Compliance Map

Start a simple tracker, be it a spreadsheet, Notion, Airtable, whatever you use. Track these key things:

• License type

• Jurisdiction (city/state/county)

• Date filed

• Renewal schedule

• Contact info of the issuing authority

5. Recheck Every Time Something Changes

Businesses often undergo changes that can affect their compliance obligations. For example, moving to a new location, introducing a new product line, or expanding sales channels can alter the regulations a business needs to follow. 

It’s crucial not to assume that what was compliant in the past still applies in the present. 

Therefore, it’s important to review compliance requirements every time a significant change occurs within the business.

Next Steps: Avoid the Guesswork, Start Your LLC the Right Way

At doola, we specialize in simplifying the LLC formation process for global and U.S.-based founders, eliminating the need to decipher complex legal jargon or stress about compliance deadlines. 

Our comprehensive service handles everything, allowing you to focus on your business.

Here’s how doola helps:

• Correct LLC Formation: We ensure your LLC is correctly formed in your desired location, including all county-specific requirements.

• EIN Acquisition: We obtain your EIN from the IRS, even if you don’t have an SSN or ITIN.

• Real New York Registered Agent: We provide a legitimate New York Registered Agent, so you don’t have to use your personal address or rely on the government.

• Deadline Tracking: We meticulously track all your compliance deadlines, including biennial reports, publication deadlines, and tax reminders.

• Official Document Delivery: We send you perfectly formatted official IRS and business documents, ready for use with bank accounts, Stripe/PayPal, and investors.

• Expert Live Support: Our team of real humans provides live support, understanding both U.S. regulations and the unique challenges faced by global founders.

Ready to see doola in action? Take a 1-minute product tour.

FAQs

What’s the best state to form an LLC if I Don’t live in the U.S.?

If you’re a non-U.S. founder, Delaware or Wyoming are the most common picks due to business-friendly laws, privacy, and low maintenance costs. 

But here’s the catch: if you plan to hire U.S.-based employees, open a physical office, or store inventory in a particular state, you’ll likely need to register there as a foreign LLC,  which means double fees and paperwork. 

Tip: Choose the state where you’re actually doing business.

Can I start an LLC without a social security number (SSN)?

Yes. You don’t need an SSN to form an LLC in the U.S. To get your EIN (Employer Identification Number), which is required to open a U.S. business bank account , you’ll need to file IRS Form SS-4 by fax or mail. 

Services like doola can help non-U.S. founders handle this smoothly, without delays or rejections.

What documents do I need to start an LLC?

At minimum, you’ll need:

• Articles of Organization (filed with your chosen state)

• Operating Agreement (not always mandatory, but essential)

• EIN from the IRS

• A valid Registered Agent in your formation state

• Business address (not a PO Box in most cases)

What happens if I forget to file my annual report?

Every state has its own annual (or biennial) reporting requirements. If you miss the deadline:

• You may face late fees or penalties

• Your LLC can be administratively dissolved (i.e., shut down by the state)

• You’ll lose good standing, which can affect banking, funding, and contracts

Services like doola send you deadline reminders,  so you never miss a filing.

Do I need a business bank account immediately after forming an LLC?

Yes. Mixing personal and business funds is one of the top legal red flags for LLCs.

Without a separate business bank account, you risk:

• Piercing the corporate veil (losing liability protection)

• Messy tax filings and inaccurate bookkeeping

• Open a business bank account as soon as you get your EIN.

How much does it cost to form an LLC properly?

It varies by state, but here’s a general breakdown:

• State filing fees: $50–$500

• Registered agent services: $40–$300/year

• EIN filing (if done through a service): Free–$100

• Operating agreement + compliance tools: Varies