Creating a business is a goal many people only dream of. Those who realize that dream, however, often make one or more beginner’s mistakes. Forming an LLC (Limited Liability Company) is easy, but taking care of all its other aspects can prove to be stressful and often complicated. Here are some things to take note of and avoid when creating a business.
Not Knowing How the LLC is Taxed
There are four different methods LLCs get taxed. It could be a partnership, disregarded, S corporation, or C corporation, all of which are very different. Montana LLCs should always have the proper operating agreements. For example, a single member LLC taxed as an S corporation is very different from a multi-member LLC also taxed as an S corporation. Filing incorrectly may cause your company unnecessary spending. Make sure you file correctly, and get the correct tax forms.
Not Separating Business from Personal Expenses
Never mix your business expenses with personal ones. Not only is it a headache to manage them together, it also increases the chances of your company facing legal action in the future.
Not Having a Proper Business Line of Credit
People often do not have a proper business line of credit ready. Clean up your personal credit, and make sure you also have enough capital to start your business. A lot of companies fold because of insufficient funds.
Incomplete LLC Operating Agreement
When you form an LLC, you have to fix your financial and working agreement to make it compatible with that of the co-owners. Not having one may cause you lots of legal problems in the future. This agreement includes each owner’s share of profits or losses, the percentage of ownership, individual rights and responsibilities, and a statement of what will happen to the business should a co-owner decide to leave.
Incorrectly Structuring Your Business
Many people do not get enough advice before starting a business. More often than not, people rely on friends and family for help. However, it’s better to seek advice from business experts and consultants. It saves a lot of money and potential future headaches.
Business owners can get help from business consulting companies to get more information on correctly forming LLCs.