Owning a business is exciting, but making mistakes when incorporating can end up costing you everything. Make sure you understand the ins and outs of the process before you sign on the dotted line.
Most companies can’t wait to become an LLC, but too many business owners make mistakes when incorporating. While some of these blunders may not seem like a big deal at first, you may be one error away from ruin. The laws are strict, and it’s tricky to navigate all the paperwork alone.
Be on the lookout for these common mistakes:
Failing to Separate Business from Personal
Why do you want to incorporate? If you’re like many business owners, you want the liability protections that come along with it. However, if you don’t pay attention to every detail, you may create blurred lines between your business and personal lives. The IRS calls this piercing the corporate veil, and it can create legal problems if you’re not careful.
Before you incorporate, make sure to differentiate any business assets from personal ones. If you don’t, a court may not be able to distinguish you from your corporation. And a judge may find you personally liable if another party sues your company. Some people call this creating an alter-ego. It’s relatively simple to avoid this problem, but it can be tedious. To begin, you should remove your name from any business assets. It’s also wise to open separate financial accounts.
Forgetting to Create an Exit Strategy
Even if you plan on staying in business for the unforeseeable future, you still need to write an exit strategy. This document spells out what to do if any members decide to leave. You’ll also need it if you ever want to restructure your business. A rock-solid exit plan will prepare your company for the unexpected. Unfortunately, many people forget about this critical incorporating step.
Picking the Wrong Business Structure
When incorporating, the IRS will ask you to select a business structure. Although choosing one may not seem like a big deal at first, making the wrong choice could land you in legal hot water. Your business structure determines how your company can operate and lays out your tax liabilities. Here are your options:
- Sole proprietorship
- S Corporation
- Limited Liability Company
There are specific rules and regulations for each business structure. If you don’t know which one applies to your company, don’t be afraid to ask for help. This seemingly simple decision can either make or break your business down the road.
Taking an Online Incorporating Shortcut
Everyone likes to save money, but the cheapest option isn’t always the best one. And when it comes to incorporating online, this theory holds true. Sure, there are a ton of places that claim to simplify the process for a lower cost. But you may end up dropping more cash later to fix errors. It’s best to choose a professional who can lead you in the right direction from the start.
Incompass Tax, Estate & Business Solutions makes it easy to incorporate your business. We have 30 years of experience, and our team will make sure you fill out every form correctly. From choosing a business structure to writing an exit plan, we will guide you through every step of the process. Get in touch today to make sure you don’t make any mistakes when incorporating.