Mistakes to Avoid When Incorporating
Businesses make several mistakes but the ones made at the beginning go a long way in the lifespan of any company. Incorporating a business is a critical task as to where and how would a business be incorporated. Businesses need to go with a proper plan and work out on the decisions whether or not incorporating in a certain state would be feasible according to the nature of the business, further details such as initial capital and resource management also has to be clear about. Usually small business owners or first time entrepreneurs are not fully aware of the taxation procedures and business law that differs in each state thus making blunders at the infancy stage of their company.
1. Selecting a Business Type without Considering the Nature of the Business
Selection of business type is very important as the future of the business and its success greatly depends on it, the right choice is crucial. It’s the nature of the business that defines what type of business would be selected (partnership, corporation, LLC). Selecting a wrong type may result in double taxation, and various issues associated with it. There are very few states that allow companies to change their structure after incorporation thus choose wisely.
2. Ignoring the Need for a Business License
In order to incorporate a business, there’s a need for obtainment of licenses too. In some states it is a strict law and it is better to look up for the requirements and acquire business license (which is not very costly) rather than paying hefty amount of fines later.
3. Not Incorporating the Business
What big mistake in incorporating a business would be than not incorporating at all? Some business owners assume their company is too small to be incorporated, that’s a wrong idea. Even home-based businesses need to be incorporated. It is also important to separate personal assets and finances from those of the business so in case of any mishap, personal liability could be avoided. This provides the benefit of running a business smoothly in future.
4. Incorporating in The Wrong State
Some businesses fail to conduct a research on which state would be feasible for their business. Some businesses incorporate in Delaware due to flexibility of business laws or some incorporate in Nevada for the popularity and low fee for filing, these are very sound reasons but they work better for large corporations. Small businesses do not benefit from them as much and these states’ giant ventures might eat up the chances of high profits, in competition. It is advisable for small businesses to incorporate in the states where their physical presence is, and avoid the hassle of franchising cost and various other costs that come along with incorporating in a different state (filing, resident agent,etc.) when your business cannot afford it. And it may put extra pressure on the budding business at the time when it has to focus on the core business and running its operations.