As a business owner, it is up to you to decide what’s best for your business’s success. If you are thinking about forming a California LLC, you need to ensure you don’t make some of the most common mistakes.
The best way to avoid making these mistakes is to know what they are. Keep reading to learn more.
Choosing the Wrong Business Entity
The most common types of business entities for small business owners today include the LLC, the S corporation and the C corporation. LLCs are the right option if you want liability protection, but also want reduced paperwork and formality. The S corporation is for a small business searching for a pass-through entity for federal taxes, and C corporations file their own tax reports.
Be sure you carefully consider each option and know what they offer. This is the only way you can make an educated decision regarding which one is right for you. If you aren’t sure which one is right for you, seek professional help and guidance. Making this mistake can cause serious issues for you down the road.
Not Incorporating in the Right State
There are many businesses that are incorporating in Nevada and Delaware. This is due to the flexibility and tax benefits offered in these states. However, the benefits are really only offered to bigger companies. If you have a business with five or fewer shareholders, then it is best for you to incorporate in the state where your business is actually located.
If you don’t do this, then you may have to deal with quite a few fees and hassles you could avoid altogether. Operating out-of-state requires you to have problems opening business bank accounts, and you will have to pay fees for operating your business as a “foreign entity” in the state you are located.
Not Having the Proper Business Licenses when Incorporating
It’s important to note that an LLC or corporation isn’t the same thing as a business license. If you run a business, you are going to be required to seek some type of formal federal, state or local license. The majority of business licenses are affordable and simple to maintain. Also, they are much cheaper than having to pay fines due to operating your business with no license.