Common Incorporation Mistakes
You’re ready to take your company to the next level, but making any of these common incorporation mistakes could end up costing you everything. Many small business owners dream of incorporating one day. After all, it’s a surefire sign that you’re on the right track. But, before you jump in headfirst and file for an LLC, make sure you study the laws so that you don’t end up making a very costly—and often devastating—error. Watch out for these common mistakes:
Picking a Misleading Company Name
Did you know that the name of your business matters to more people than just your customers? There are rules you must follow before you register a business name. First and foremost, you must select an original name. Make sure another company didn’t already claim the name you want. Your company name must also reflect the nature of your business so that you don’t mislead the public.
Not Filing All the Required Paperwork
Incorporating a business is a lengthy process and requires filling out a ton of legal paperwork. Even forgetting to file a single document may delay your application or cause problems down the road. You must submit all paperwork to the state, and it needs to be free of any errors. It would surprise you to learn how many people have had their applications denied because of simple data entry mistakes. Remember to proofread every document before you submit, and it doesn’t hurt to have an additional set of eyes look things over either.
Picking the Wrong Business Structure
Before you incorporate, you need to select the right business structure, but this isn’t as easy as it sounds. Your company must meet certain requirements before you can declare a structure, and choosing the wrong one can open a huge can of worms.
The IRS recognizes several different types of businesses, including:
- Limited Liability Corporation (LLC)
- S Corporation
- Sole proprietorship
If you don’t know these differences between these five main business structures, you should ask for help. Selecting the wrong structure when you incorporate may lead to both legal and tax problems down the road.
Not Having an Exit Plan
Even though you may not believe it right now, there may come a time when you want to leave your business. Many life changes can affect how your company operates. After you incorporate, it’s not that easy to just get up and walk away—at least not in the eyes of the IRS.
If you need to restructure your business for any reason, you need to have an exit plan in place. It’s important to prepare for anything. You may lose a partner or need to remove someone from their position. Even an unexpected illness or death may significantly impact your company. An exit strategy is a must for all business owners.
Get Expert Advice Before You Make One of These Common Incorporation Mistakes
Incorporating a business is a huge step and not one to take lightly. When done the right way, incorporating may offer you much-needed tax benefits and liability protection. However, if you make even the smallest mistake, these benefits may become null and void. If you’re ready to take this leap, Incompass Tax, Estate & Business Solutions can help you file your paperwork correctly. Schedule a consultation with us to make sure you avoid the most common incorporation mistakes.