| Now that you've decided to start a business, you'll | | | | the major reasons new businesses fold up. If you base |
| want to take a positive step and form an LLC to | | | | your need for credit on your lack of cash flow, |
| protect your personal assets. Forming an LLC and | | | | chances are that you'll walk away from the lender |
| starting your business off with a strong foundation (vs. | | | | empty handed. Clean up your personal credit now so |
| a sole proprietorship) will be one of the most important | | | | you can build a foundation of credit worthiness for |
| decisions you will make when establishing a business | | | | your business later. |
| entity. | | | | 4. Failure to recognize the business as a separate |
| If you're in the beginning stages of forming your | | | | entity. Don't ever mix business expenses with personal |
| company, conduct some research about individual | | | | expenses. It not only becomes an accounting |
| business structures and the pros and cons of each | | | | nightmare, but you can face legal issues down the |
| entity. An LLC is often the best option for small | | | | road if you don't treat your LLC as a separate |
| business owners. Do it right, and you'll build the | | | | business structure. |
| foundation for a successful business. Go about it the | | | | 5. Failure to include all the proper documents when filing |
| wrong way, and your LLC can cost you time, money, | | | | LLC documents. Because your business is a legal, |
| and most importantly, your livelihood. | | | | separate entity from you, it's essential to include all the |
| Here are 6 common mistakes to avoid when forming | | | | proper documents when you file. Otherwise, your |
| your Limited Liability Company: | | | | paperwork may get rejected, and the filing process |
| 1. Failure to know how the LLC is taxed. The LLC can | | | | may be delayed. Be sure to include all compulsory |
| be taxed in four different methods; disregarded, | | | | information when you file, such as the principal office |
| partnership or an S or C corporation. Unfortunately, | | | | address and the required information about the |
| most have no idea, especially when forming one online, | | | | registered office and agent. |
| what the differences are. Plus you must have the | | | | 6. Failure to complete an LLC Operating Agreement. |
| proper operating agreement to match how the LLC is | | | | When you form an LLC, you'll need to structure your |
| taxed. There is a big difference between a single | | | | financial arrangements and working agreement in a |
| member LLC taxed as an S corporation vs. a | | | | way that is compatible with the co-owners of the |
| multi-member LLC taxed as an S corporation. Make | | | | business. This agreement includes but is not limited to |
| sure you file the proper federal tax forms when | | | | the percentage of ownership in the business, each |
| making the S election federal. | | | | individual's share of profits or losses, the individual rights |
| 2. Failure to properly structure your business entity. | | | | and responsibilities of each owner, and a statement of |
| Unfortunately, many people fail to get the proper | | | | what will happen to the business if one of the owners |
| counsel before structuring their businesses. They may | | | | leave the company. |
| rely on family, friends, or other business owners for | | | | Forming a Limited Liability Company can be a positive |
| advice. It's essential to talk to a professional who | | | | step forward. Avoid the headaches and novice |
| specializes in business entity structures before forming | | | | mistakes by consulting with a specialist who can walk |
| your business. Knowing the essentials can save you a | | | | you through the process. Once you form an LLC, your |
| lot of money and headaches in the future. | | | | business will gain credibility in the eyes of the public and |
| 3. Failure to establish a business line of credit before | | | | the law. |
| you actually need it. Insufficient capitalization is one of | | | | |