Many entrepreneurs make business formation mistakes that cost them time, money, and headaches in the long run. If you are looking to start the business of your dreams, you need to make sure to avoid these mistakes.
Luckily, you do not have to do it alone. Jurado & Associates, P.A. can help you, and that is precisely why we put together the guide below.
Here is a list of 5 common business formation mistakes and how to avoid them:
Mistake #1: Not Doing Enough Research
Before you decide on a business entity, you need to do some research on the market, the industry, the competitors, and the regulations that will apply to your business. You also need to consider your goals, your vision, your values, and your risk tolerance. Doing enough research will help you determine the best fit for your business and avoid potential pitfalls.
- If you want to operate in multiple states or countries, you may need to register your business in each jurisdiction or choose a more flexible entity.
- If you want to attract investors or partners, you may need to choose an entity that allows for easy transfer of ownership or equity.
- If you want to minimize taxes or liability, you may need to choose an entity that offers certain advantages or protections.
Mistake #2: Choosing the Wrong Entity
There are many types of business entities to choose from, such as sole proprietorship, partnership, corporation, limited liability company (LLC), and more. Each one has its pros and cons, depending on your specific situation and needs.
Choosing the wrong entity can have serious consequences for your business, such as:
- Exposing you to personal liability,
- Limiting your growth potential,
- Complicating your tax obligations, or
- Restricting your management options.
Therefore, you need to weigh the benefits and drawbacks of each entity carefully and consult with a professional before making a final decision.
Mistake #3: Not Following the Rules
Once you have chosen a business entity, you need to follow the rules and regulations that govern it. This may include:
- Filing the necessary paperwork with the state or federal authorities,
- Paying the required fees or taxes,
- Obtaining the appropriate licenses or permits,
- Maintaining proper records and books,
- Holding regular meetings and elections, etc.
Failing to follow the rules can result in fines, penalties, audits, lawsuits, or even dissolution of your business. Therefore, you need to be aware of the rules and follow them diligently. Of course, the best way to do this is to hire a skilled and experienced business lawyer.
Mistake #4: Not Updating Your Entity
As your business grows and evolves, so should your business entity. You may need to change or update your entity to reflect changes in your ownership structure, management style, tax status, liability exposure, or operational needs.
- If you started as a sole proprietorship but now have employees or partners, you may want to switch to an LLC or a corporation to protect yourself from personal liability.
- If you started as a C corporation but now want more flexibility or tax benefits, you may want to switch to an S corporation or an LLC.
- If you started as an LLC but now want to go public or attract more investors, you may want to switch to a C corporation.
Updating your entity can help you adapt to changing circumstances and take advantage of new opportunities.
Mistake #5: Not Getting Professional Help
Forming a business is not a DIY project. It requires legal expertise, financial knowledge, and strategic planning. Trying to do it yourself can result in costly errors, missed deadlines, missed opportunities, and even legal trouble.
Therefore, it is wise to get professional help from a qualified attorney who can guide you through the process and help you avoid common pitfalls.
Jurado & Associates, P.A. Can Help You Avoid Business Formation Mistakes
If you are thinking of starting a new business or changing an existing one, Jurado & Associates, P.A. can help you. We are a law firm that specializes in business formation, and we have the experience and expertise to help you choose the right entity for your business goals and needs.
We can also help you with filing the necessary paperwork, obtaining the required licenses and permits, complying with the applicable laws and regulations, updating your entity as needed, and protecting your interests in case of disputes or litigation. We are here to make your business formation process easy and hassle-free. You can reach us by phone at (305) 921-0976, by email at [email protected], or by WhatsApp at +1 (305) 921-0976.