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Mistakes to Avoid When Setting Up an LLC

Limited liability companies are some of the common business entities even for individuals who want to start businesses alone or together with others. They have a ton of advantages and convenience. For example, the owner can choose how to be taxed, can enjoy the protection of assets because their personal properties are protected and so on.

Although the process of setting up an LLC is involving and complicated, those who wish to form these business types can work with LLC formation services like ZenBusiness and others.

However, as earlier stated, some people make some costly mistakes when forming LLCs. Here are some of those mistakes to avoid:

Not Keeping Your LLC Compliant

not observing complianceWhile some people think that their work in maintaining compliance of the LLC ends when the company is formed, there is still so much that needs to be done to maintain the corporate shield. If an entity can prove you have not complied to maintain the corporate protection, you could be exposed and have your assets at risk. For example, you have to separate the company’s monies and yours, submit your annual reports as required by your state of incorporation and so on.

 

Incorporating in the Wrong State

incorporating on the wrong stateIt would help to consider some factors when choosing the state in which to incorporate your business. Some of the most preferred states for incorporating LLCs include Nevada and Deleware. The reason Delaware has become many people’s favorite to incorporate their LLCs there is that it has some of the most-flexible, most-developed and pro-business statutes in the entire country. On the other hand, Nevada has low filling fees and no state corporate income, personal and franchise income tax.

Nevertheless, these advantages work in favour of large companies with more than 5 shareholders. If your business is small, you are better off incorporating in the state where the company has a physical presence. When you incorporate outside your state, you may face high costs like having to hire a registered agent and problems opening bank accounts.

Incorporating Without Relevant Licenses

Some people assume that incorporating or forming an LLC is equivalent to obtaining a trading or business license. However, the business must obtain a state, federal or local business license according to the legal requirements. Therefore, it would be best when you incorporate your company to find out what licenses your business needs and obtain them. While most business licenses are inexpensive to get, operating without them could lead to high fines.

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Advantages of Limited Liability Companies (LLCs)

When most business owners are starting a business, they are not aware of the advantages of the various forms of businesses, but it would help if they considered opening limited liability companies or LLC.  Besides, the service providers offer other benefits that the business can enjoy.

Here are the advantages LLC offers to businesses:

Members Enjoy Tax Advantages

enjoy tax advantagesUnless an LLC applies for consideration as a corporation, they cannot be double taxed. The LLC law also protects the proprietor from paying some taxes which are required from corporations to pay from their salaries. Moreover, LLC’s do not have a federal law set to govern and thus they use the sole proprietorship laws. This allows them to be cushioned from the double taxing of partners as corporate and as individual imposed on corporations.

Have Flexible Membership

One significant advantage of LLCs is that they enjoy flexibility in membership. They can have more than 100 members, can have corporations and foreigners as shareholders and so on. Besides, all the shareholders of LLCs can enjoy pass-through taxation whether they are corporations or foreigners.

Less Paperwork and Formalities

Corporations require lots of paperwork and documentation of all formal meetings the minutes of all the meetings must n must all be recorded and documented for future reference. They also require numerous meetings, LLC however, does not need too much paperwork as members do not require many meetings. When LLC holds meetings its between partners, unlike corporations where its shareholders and the board of Directors.

An LLC is not required to file an annual report with the state, unlike big corporations. While corporations are required to hold annual shareholders meetings where they are required by law to inform their partners of the performance of the company in the financial year an LLC is not required to do the same and can hold a meeting any time of the year.

Enjoy Flexibility in Management

With corporations, the management structures are so fixed. There must be a board of directors charged with the execution of the policies. Also, there are executive members who are involved in the day-to-day running of the business. Owners or shareholders have to meet annually to elect directors and for other businesses. However, with LLCs, the structures are not fixed and owners can run it and make decisions as they wish.