Advice from the Experts: What You Need to Know to Found an LLC

Compared to other business models, forming an LLC is generally the least intensive option; it’s affordable, there’s limited paperwork, and the barriers to entry are low. That being said, plenty of things can still go wrong. Before you dive into the LLC process, be aware of these common mistakes—and talk to a few experienced founders. They’ve traveled this road before and have lessons to share.

Mind Your Money

One of the most common mistakes that new LLC founders make when they’re starting out is mixing personal and business finances, and while a few misplaced checks may seem like a minor thing, for an LLC, it’s a much bigger problem. That’s because the whole premise behind this business category is that it provides your personal assets with protection in the case of serious financial issues. When you intermingle your finances, you lose those protections. Even if you’re just trying to avoid transferring money around or making an extra trip to the bank, don’t blend your funds. Business money should always be processed through your business account.

Consider Your Category

When deciding how to incorporate your company, you have plenty of choices, and not all businesses will thrive as an LLC. That’s why it’s important that you consider what category your business falls into and whether an LLC is right for you. For example, businesses of any size can incorporate as LLCs, but certain types of businesses aren’t permitted; LLCs can’t be insurance companies or banks and there are additional restrictions depending on the state. California, for example, doesn’t permit healthcare providers or architects to register as LLCs, but such business formations aren’t restricted.

Strategizing About Your State

Speaking of state-based regulations, it’s important that you consider what state you live in when starting an LLC because you have options about where to incorporate and while the most obvious choice might be to incorporate in the state where you live and operate your business, it’s not always the best option. Some states, such as Delaware, have more robust LLC laws than others, but licensing your business in another state can also mean paying out of state fees. Since LLCs are regulated at the state level, each state will have slightly different rules and expectations for your business.

Do Your Homework

Finally, when it comes to starting a business, it’s not enough to have a good idea. You also need to do your homework. Research your state’s business requirements and those of surrounding states, talk to other business owners, and use online business resources to learn more about what to expect when you’re getting started.

There are also a lot of great books about starting LLCs and other types of companies, so head to your local library. You’ll find everything from general guides like Noam Wasserman’s “The Founder’s Dilemma,” a text on common business mistakes, to “Setting the Table” by restaurateur and food industry giant Danny Meyer. Meyer’s book focuses on hospitality, but its lessons will translate to anyone in the service sector.

You can recover from mistakes made early in the business formation process, but it’s easy to let these errors knock your confidence. When you start out on the right path, on the other hand, you let your abilities shine and show potential customers that, while you may be new to the business world, you’re ready to lead.