Common Mistakes When Creating an LLC and How to Avoid Them
Starting a business is extremely exciting. One of the most important decisions you will have to make is how to structure your business. Many business owners today are choosing to form a limited liability company (“LLC”), or if you are a licensed professional, a professional limited liability company (“PLLC”). LLCs and PLLCs offer a professional structure, flexible taxation, and owner liability protection. Unfortunately, it is not enough to just simply form an LLC. It is important to have a basic understanding of this structure, the important steps to take, and the common mistakes to avoid. Below, our Utah business law attorney explains further.
Not Drafting an Operating Agreement
In an LLC, the owners of the business are known as the members. An operating agreement is an agreement between the members that outlines how the business is run, including ownership interests, the allocation of profits and losses, and procedures for handling a member’s exit or transfer of their ownership share.. Even if you are the only member, it is still important to draft an operating agreement. Without an operating agreement, the courts may determine how your business is run. Likewise, it is also a mistake to download a generic template, as there are certain legalities that are required. Your business is unique and so, your agreement should be, too.
Selecting the Wrong Name for Your Business
Your name not only identifies your company and portrays what you are about, but it can also cause legal issues if you are not careful. You cannot choose a business name that is already in use. Further, if you create a business name that is very similar to another company in the state and infringe on their intellectual property rights, the company may force you to stop doing business with that name and could lead to potential legal action. If this happens you will have to rebrand your business, which can cost unnecessary time, effort, and expenses. It can also confuse your clients. Choosing a good and unique business name is important because it shapes your brand identity, attracts clients, and sets the first impression of credibility and professionalism.
Using Your Own Bank Account
An LLC gives you a great deal of liability protection, but it is not absolute. There are certain factors that can “pierce the corporate veil” and eliminate the protection of owner liability. One mistake is mixing your personal finances with that of the business. Always keep a separate bank account that is used for business income and expenses. This will ensure your accounting is clear while also protecting your personal property if someone sues the business.
Not Obtaining the Necessary Business Licenses
In addition to forming your LLC, you may need a business license. Forming an LLC does not give you permission to do business or perform business activities. Depending on what your company does, you may need to obtain certain licenses to legally operate. For example, if you run a daycare, a real estate business, or a food truck, you must meet certain licensing requirements that extend beyond forming an LLC. In most states, a business license is required even if you run a professional business from your home, The exact requirements depend on your city, county, and state, as rules vary widely, which is why hiring Utah business law attorney, can help guide you through this process..
Our Business Law Attorney in Utah Can Help You Avoid These Mistakes
Unfortunately, the above mistakes are just a few of the most common mistakes people make when forming an LLC. At AGS Law, our Utah business law attorney can help you determine if this is the right structure for you and guide you through the process so your business is set up properly and gives you the best start possible. Call us now at 801-477-6144 or contact us online to request a consultation and to learn more.
Source:
utah.gov/business/starting/structure.html
