Mistakes to Avoid When Starting a Limited Liability Company

Starting a new business can be both exciting and intimidating at the same time, especially if you are doing it for the first time. You are bound to make mistakes, some of which may determine the success of your business. By choosing to create a limited liability company, you will have already avoided one of the main mistakes. However, there are some possibilities of making mistakes when setting up an LLC business. Some of the possible mistakes you can make are highlighted below.

Choosing the Wrong State

If you choose to create an LLC, you have to decide where to register it. Most entrepreneurs usually register their companies in the state where they live, mostly because of the tax benefits they stand to gain. However, that is usually not always the best idea, especially for smaller companies. Incorporating your business in the state where your business is based will likely give you more benefits than the tax benefits you might gain when you incorporate it in your home state.

Choosing the Wrong Name

To ensure you choose the best name for your company, you need to do extensive research. The priority should be to ensure another company is not already using the name you choose. Failure to do so can result in you violating the trademark of another company, which can get your business in a lot of trouble. Name disputes can result in time-consuming and expensive lawsuits. Losing the lawsuits might result in you losing your goodwill and brand recognition.

Not Creating Corporate Governance Documents

Another common mistake is creating an LLC without creating corporate governance documents. That is quite common among entrepreneurs who start their business with family members or friends. Governance documents usually lay out all the rules to be used whenever an unpleasant situation or disagreement arises. The rules can help to protect partner’s investments, relationships between partners, and the entire business. The two most important documents to start with are a buy-sell agreement and an operating agreement.

Not Hiring Legal Help

The process of registering an LLC is usually quite easy such that you can do it yourself. However, experts recommend hiring a lawyer, especially if you plan to operate in different states, take money from investors, or have different partners. Hiring a lawyer might add to your costs, which is why people make the mistake of not hiring one. However, the value of getting professional legal assistance is usually worth more than the cost for such cases.