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5 Common Mistakes in Setting Up a LLC For New Businesses

Published on
July 14, 2022
New businesses should accomplish many things, including setting up a Limited Liability Company (LLC). It is a business structure in the United States protecting business owners from being personally responsible for a company’s debts and liabilities.
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5 Common Mistakes in Setting Up a LLC For New Businesses

New businesses should accomplish many things, including setting up a Limited Liability Company (LLC). It is a business structure in the United States protecting business owners from being personally responsible for a company’s debts and liabilities.

However, since signing up for an LLC comes at a time where experience is limited for business owners, there are instances where they may commit mistakes during the setting up process. But what are the common errors in creating an LLC for new businesses? Here are some ideas.

1. Selecting an Incorrect Entity

A business owner must know what entity they are signing up for. For example, it may be a sole proprietorship, a partnership, a corporation, or a limited liability company. However, businesses need to establish their LLC only when they want to protect personal assets from business liabilities. A company should just operate as a sole proprietorship if it does not wish to separate emotional and business support.

2. Incorporating in the Wrong State

It is another common mistake in setting up an LLC for new businesses. While most business owners tend to sign up for an LLC in the state they are based in, they should also check out other states where they can establish a business entity.

While not all states can provide the same benefits of the LLC, it is still essential to check out if there are states that offer advantageous tax structures and other benefits. Additionally, the LLC formation process required in some states is more complicated than in others.

3. Forgetting to be LLC Compliant

New business owners make another common mistake in setting up an LLC. After creating an LLC, business owners enter the paperwork and start operating as if they are LLCs. However, this does not mean that an LLC is compliant.

Businesses need to be aware of the requirements to be an LLC, including the best time to do this. For example, different states have different LLC filing deadlines, including those based on a business’ location.

4. Using Legal Documents Found Online

Online legal forms may be very tempting. Not only do they save business owners time and money, but they can also provide an easy way to set up an LLC or other business entity quickly.

But these online forms are not as helpful as some may think. For one thing, they fail to consider every business's unique situation. Additionally, they do not give business owners the legal guidance they need to make the right decisions.

5. Not Keeping Records

Keeping records is another common mistake in creating an LLC for new businesses. After signing up for an LLC, business owners may think that it is the job of their legal adviser to keep essential documents like records, books, and ledgers of their business.

It is a severe mistake, considering that keeping records is the responsibility of business owners. Unless the business is based on providing legal services, business owners must keep all of the business records. Not doing so can lead to unnecessary penalties and taxes.

Conclusion

It is not too difficult to create an LLC for a new business. But before setting up an LLC, business owners need to know the legal structure of their business. They also need to learn about the various benefits of establishing an alternative business structure like an LLC.

Doola aims to reimagine how business owners start their companies worldwide. We help clients unlock the potential of human entrepreneurship and democratize access to wealth creation. As we help in DAO LLC incorporation, never waste on paperwork and do tedious tasks in setting up a business. Speak to our DAO experts and work with us today.

Doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.
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BIO
Arjun Mahadevan
CEO and Co-Founder
Co-founder at doola, previous Product Manager at Dropbox, and an alum of the Wharton School of Business. He’s personally processed over 100 applications and spoken to 500 customers.

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