If you’re a small business owner, the decision to set up your own LLC is a big milestone—but it’s also one that can be fraught with anxiety. So many people who own their own businesses have a passion for what they do, but grappling with the accounting and legalities isn’t exactly in their wheelhouse. Here are some of the biggest mistakes small business owners make when establishing an LLC.

1. Not Forming Your LLC Locally

You see many big businesses that are incorporated in Delaware or Nevada—if it’s a good idea for them, it must be a good idea for you too, right? Well, not necessarily. 

It makes sense for larger businesses to incorporate in Delaware, which has many pro-business statutes on the books, and Nevada, with its lack of state corporate income taxes, but if you’re a very small business, the hassles of incorporating in another state outweigh any potential benefits.

2. Setting Up the Wrong Type of Business Entity

Maybe you shouldn’t be forming an LLC at all. It might be a better idea for you to set up as an S Corporation or a C Corporation. It’s important to take the time to learn about what each type of entity is and the potential impact it would have on your business to set up that way.

3. Forgetting About Business Licenses

Do you have a business license? Many small business owners aren’t aware that they even need one, but most businesses do—even if you’re a freelancer working solo from your own home. Skip getting the license you need and you may be subject to fines for operating without a license. While you’re working on forming your LLC, obtain a business license too if you don’t already have one.

4. Not Staying Compliant

The benefit of forming an LLC is that you have a corporate shield to protect your personal assets in case of a lawsuit. This corporate shield isn’t something bestowed upon you automatically when you establish an LLC—you have to comply with certain requirements, otherwise the corporate shield can be pierced. 

You’ll need to keep your personal bank account separate from your business, register a DBA (Doing Business As) name, send in an annual report or statement to your state, and use your business title whenever you sign a business-related document. There are other guidelines that must be followed too, so make sure you’re familiar with them and you abide by them, otherwise you lose the benefits of being an LLC.

5. Not Using an Attorney

You will be able to avoid all of these mistakes by starting the process of establishing an LLC with an experienced attorney. Hire a business lawyer and you can be assured that all of the legal details are taken care of, so you can focus on following your passion and doing what you love.

Get Help Establishing an LLC

Are you a small business owner trying to decide if you should form an LLC or incorporate? Do you need legal advice? Contact us today at 512-505-0053 to schedule a consultation.