Starting a business is not as complicated or expensive as some people may believe. If you have an idea and the motivation to pursue it, you can be your own boss in as little as a few hours. The hard work of making your dream business successful begins after formalizing the organization.
Common LLC setup mistakes can derail your plans for success. Millions of people start LLCs annually. But many of them make costly errors that start them off on the wrong foot.
Here is how to guarantee a smooth setup and ensure your LLC will last for years to come. Continue reading to learn more!
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1. Inadequate Record Keeping
Without proper records, it is hard to prove the ownership and identity of the people within the LLC and make important decisions quickly. To avoid this mistake, it is important to keep detailed records of all financial transactions and business decisions.
Additionally, it is important to maintain records of any ownership interests, membership meeting minutes, and other important documents.
These records should be kept securely and should detail who is responsible for any actions taken. Finally, it is important to have a well-planned filing system and to review records regularly to ensure that they are accurate and up to date.
2. Ignoring the Annual Report
When an LLC is formed, the members may choose to file annual reports with the state to ensure their LLC remains in compliance with state regulations.
These reports may be required on an annual, biennial, or triennial basis, depending on the state. Failing to submit annual reports on time can lead to expensive fines, possible dissolution of the LLC, or even criminal penalties in some states.
Entrepreneurs can avoid this mistake by making sure to read the laws and regulations for the state in which their LLC is operating, as well as setting a reminder to file an annual report on time. Promptly filing these documents should ensure the LLC remains compliant and in good standing with the state.
3. Omitting State LLC Registration
It is important to recognize that registering your LLC with the state is a key step in the LLC setup process of establishing a legally-recognized business entity. The process is also important to ensure that your LLC is compliant with local laws and regulations.
To avoid this mistake, it is important to do your research on the best LLC service. Talk to advisors and consult with legal professionals to make sure filing requirements are met in order to form a valid LLC in the state of formation.
4. Underfunding the LLC
This happens when the necessary capital is not available for the business to function at its full potential. With an underfunded LLC, the owners of the LLC do not have enough money to properly launch the business and fulfill the needs of their clients.
To avoid this mistake, entrepreneurs must be aware of the start-up costs of their businesses and plan accordingly. They should research costs ahead of time and plan how much money they need to launch the business and develop an operational budget.
Understanding LLC Setup Mistakes
Common LLC setup mistakes are easy to make and costly to correct. Before filing an LLC, take time to understand the laws pertaining to LLCs in your state, and be sure to consult with a licensed professional on complicated matters.
Doing so will ensure that your LLC is set up and maintained correctly. Begin now, and avoid making costly mistakes.
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