How to Avoid These 4 Costly Mistakes When Incorporating

You want to steer clear of mistakes when incorporating. We’ve got your back with four errors to know and avoid.

Taking that bold leap into the future is exciting, but are you making mistakes when incorporating your business? It pays to know the biggest errors businesses make so you can avoid them yourself, and prevent that great leap forward from becoming a great big mess instead.

#1: Choosing the Wrong Business Structure

Any business has many structures from which to choose, and most businesses have more than one choice. If you work alone, for instance, you can choose to incorporate as a sole proprietorship or an LLC. Depending on the nature of your products or services, you might do best with a limited liability company, which reduces the amount of damage to you personally should something go wrong in your business. It would be a mistake to opt for the sole proprietorship anyway on the basis that it’s easier and less spendy to form.

That’s just one example, and there are definitely others. The best way to avoid this mistake is to take a measured approach and speak to a tax consultant before moving forward.

#2: Failing to Check All the Boxes When Forming Your Business

Each business formation has its own rules and requirements. For instance, sole proprietorships require minimal setup and maintenance. Other than the licenses and permits required to operate your business, there’s not much to do. LLCs, however, require that you file your business name with the state, pay filing fees at the time of registration, and keep up with annual fees over time.

If you are a detail-oriented person, no doubt you can manage to stay on top of your formation’s specific requirements. Each state has its own rules for LLCs, for instance, so make sure you keep up on what’s needed every year. If you tend to miss those details, do your research and plan your renewal dates on your calendar for the next year or two.

#3: Incorporating a Business While Still Working for Someone Else

What could be more natural than starting your communications business while working for a communications firm? How else are you supposed to go out on your own, after all?

Unfortunately, while this makes sense on your end, your employer thinks it’s a big no-no. In fact, they almost certainly made you sign a non-compete agreement when you came on board, certifying you would not go after the same clientele they serve. Incorporating states your intention to do just that, and can get you in big trouble with your employer, resulting in:

  • Bad relations
  • Losing your job
  • Lawsuits

In other words, disappointing people who have been kind enough to employ you for your services is the best case scenario here.

#4: Forgetting Local Rules and Regulations

When you incorporate, you have to pay a lot of attention to state and federal rules and regs. While we applaud you for keeping up on that, it’s a mistake to forget about local requirements. Always keep an eye on what your city requires of its entrepreneurs, or you may find yourself facing some very unwelcome consequences.

Hoping to avoid a few of the biggest mistakes when incorporating your business? We’d love to help you do it. We serve the Sacramento area as well as Northern California and are here to pick up your call today. Simply dial (916) 974-9393 or, if you prefer, get in touch with us via the website. Best of luck with your first or next incorporation!

Categories: CORPORATIONS & LLCs.