LLC startup mistakes can cost a small business more than they should when the business is sued or hits a rough spot. LLCs (Limited Liability Companies) are a good foundation for business, they protect assets, are easy to run and offer great tax advantages. However there are a number of common LLC startup mistakes that must be avoided if you are to stay out of trouble and gain full monetary advantage. The information below can help you can avoid a few of these errors.
LLC Startup Mistakes Overview
The first of the LLC startup mistakes is to begin business before your put your LLC in place. It is not uncommon to have a great business idea, and charge out and start selling product. In your zeal to start it seems like there is not time to put a formal business structure in place. It just may not seem important. Then you just get too busy chopping the wood to sharpen the saw. When something goes wrong, say you get sued or the company goes under, you can lose everything, because it is all held in your name.
Sure it takes some time to put a business structure in place. You may not know how to do it. However the LLC is the easiest business structure to put in place. It only takes an hour or so to fill out the forms. I see too many LLC startup mistakes and so I want to do something. I understand it is hard to know what to do and how to get the information. I have included it all on this website. The LLC Articles of Organization are only a two or three page form, which most states have available online. You can download the forms, or fill them in online and file them electronically. It is really not too hard if you just review a few basics first, like name registration, how to get a Federal Tax ID, etc.
Another LLC startup mistake is giving out too much information on your forms. When you fill out your LLC Articles of Organization form, do not provide more information than is requested. Your LLC becomes a matter of public record once it is filed, so it is best to avoid giving any unnecessary information.
It usually only requires a couple of hours or less to complete your LLC Articles of Organization, register a name, and get your Federal tax ID number, and hit the submit button to your state. Do not put all of your personal assets in jeopardy for the sake of a few hours of effort.
Not Filing a Tax Election is another of the LLC Startup Mistakes
With an LLC you can choose how you want to be taxed. You only have 90 days to file this election after you start your LLC or you will make another of the LLC startup mistakes. This election will let you choose to be taxed in the form of partnership or a corporation. You can read more on the IRS website. Do some research and decide on which entity will save you the maximum amount of taxes. Then submit in a timely manner the “election” document with the IRS. Don’t make the LLC startup mistakes of forgetting to file. If you forget to file the form, your LLC will be taxed the way the I.R.S. determines to tax you.
Here’s another tip. If you file to be taxed as an S Corporation, your chances of an IRS audit diminishes. This is because the pool of IRS auditors who can handle corporate returns is much smaller than those who can handle a regular business audit.
Poor Company Formalities Another of the LLC Startup Mistakes
Don’t make one of the worst LLC startup mistakes of not keeping up your company formalities. I know an attorney who claims that he can pierce any company’s protection, just by getting hold of the company records. People are just sloppy when it comes to keeping company records. They co-mingle funds, forget to get or keep receipts, overlook their company meetings, or forget to keep records. All this attorney has to do is find a couple of these mistakes and he can sue the owners personally. Take the time to keep your company formalities in order. I know that it is hard to “fit” it in, but it can save your bacon.
If you have an LLC, or are just starting one, now is the time to make certain that your company avoids these LLC startup mistakes. These mistakes can cost your small business more than they should when the business is sued or hits a rough spot. Be sure and do a little homework to avoid the problems. You can get more information at HERE.