The 4 Most Common Mistakes Made When Setting Up an LLC

Publicist Team

Setting up an LLC is a step forward in the direction of taking your business to new heights. Whether you’re a freelancer or entrepreneur, it may just be the best decision you’ve ever made. That is if you set it up properly. Unfortunately, too often, individuals who opt to form an LLC make mistakes along the way, ultimately costing them time, money, and a headache to accompany it. Luckily, we’ve outlined some of the most common mistakes made when setting up an LLC so that you can be sure to avoid them. So, if you’re preparing to form an LLC and want to ensure that you go through the entire process smoothly, this article is for you.

The Four Most Common LLC Mistakes 

Because forming an LLC is always a new venture (those who set up an LLC have likely never done so before), it’s not uncommon to make some mistakes along the way. That’s why it’s important to consult a professional who can hold your hand during the process.

With that said, some mistakes are much more costly than others, and those will be the ones we’ll be focusing on in this article.

Below are the four (4) most common mistakes made when setting up an LLC: 

  • Failing to Hire Legal Assistance

  • Templating the Entire Process

  • Opting in to the Wrong Type of LLC

  • Remaining Compliant Post-Formation


Failing to Seek Legal Assistance

As mentioned, it’s imperative that you seek legal assistance when forming an LLC, especially if you’re new to the entire process. Of course, there are parts of the process where you’re more than encouraged to proceed on your own, from filling out the necessary documents and otherwise.

However, when it comes to more complex contractual notes regarding partnerships, business operations, laws based on state, and other agreements pertaining to the LLC itself. 

It’s understandable, especially as a new business owner or freelancer, to want to avoid expenses at all costs. Hiring legal assistance, then, may not sound convenient. However, the opposite tends to be true in the long term. 

It needs to be understood that seeking professional advice will likely save you truckloads of money in the future and will help you avoid any headaches now and in the future as well. If you’re able and willing, seeking legal assistance is more than encouraged. 

Templating the Entire Process 

Thanks to the accessibility of information on the internet, it’s not uncommon for individuals to take the resources they’ve found at face value and trust that they’re bound, reliable, and accurate. 

Unfortunately, more often than not, this isn’t the case, especially when it comes to the documentation necessary to form an LLC. 

While there are certainly templated documents and resources available to use at your discretion, and while it may be more convenient to do so, it’s highly recommended to avoid this templated approach, especially when forming LLCs that involve partnerships, operations in multiple states, and otherwise. 

If you proceed to use the templates found online, at the very least do your due diligence, read the legal verbiage and fine print, and ensure that such templated documents are suitable for your business. This again is where seeking legal assistance comes in handy…

Opting in to the Wrong Type of LLC

While it might sound as easy as setting up a generalized LLC, there are actually several types of LLCs to choose from, from single-member and multi-member to S-corp; a tax designation. 

Choosing the type of LLC will depend largely on the benefits you’re hoping to receive and the features that are most relevant to your business structure. 

If you’re an independent freelancer, for example, a single-member LLC is likely the most sufficient; allowing you to avoid all the unnecessary paperwork while still benefiting from the liability protection.

If you’re still uncertain as to what type of LLC suites your business the most, it’s once again recommended to seek legal assistance and/or professional advice from someone who is well-versed in the area. 

Remaining Compliant Post-Formation 

The final most common mistake future business owners make when forming an LLC is failing to recognize that obligations and responsibilities continue to be necessary after the LLC has been formed. In other words, forming an LLC doesn’t end after submitting the paperwork. 

The following compliance regulations are all things to keep in mind after you’ve formed the initial LLC; Use company name on all documents and invoices, remember to submit annual reports, and ensure that you separate your business revenues from your personal finances. 

Additional compliance protocols will depend on the state(s) that you plan on doing business out of. For the final reiteration, this is where seeking legal assistance comes in handy! 

In short, it’s up to you and your partners to ensure that you dot your “i’s” and cross your “t’s”. The first step, however, is becoming aware of the most common mistakes and learning what to do to avoid them! Hopefully, this article helped with that…

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