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5 Mistakes to Avoid When Incorporating Your Business

Categories: Business Formation

The biggest advantage to incorporating your business, no matter what its size is today, is to protect your personal assets from business liabilities.  If your business is not currently operating under the protection of a limited liability company (LLC) or corporation, you could be exposing your personal wealth to unnecessary risks.

Incorporating your business is not a do-it-yourself project; you need to take care to avoid these five common errors:

1.  Choosing the wrong entity.  There are a number of corporate entities to choose from, and selecting the right one for your business is crucial when it comes to asset protection and taxation.  Get the help of an experienced business lawyer from the beginning so you can make the wisest choice for your business and start off right.

2.  Not having a founders’ agreement.  The movie Facebook illustrated the importance of having a founders’ agreement in place when more than one person is involved in a business.  Before you incorporate, be sure to put together an equity agreement and any other agreements that may be necessary (like a non-compete or non-solicitation agreement) to keep the partnership peaceful.

3.  Starting before you finish.  Don’t form your new business while still working for your soon-to-be former employer, especially if there are non-compete agreements in play.  This is particularly important if your new business relies on intellectual property – you don’t want your old employer to have any claim on what you are creating.

4.  Not following corporate formalities.  Operating  like an LLC or corporation doesn’t stop with filing your paperwork; it continues throughout the life of the company.  If you don’t follow the corporate formalities required by law, you lose your asset protection and other benefits – which was the purpose for incorporating in the first place.

5.  Not paying payroll taxes.  It is tempting for small businesses that are struggling at first to fudge on paying payroll taxes, but doing that will open yourself and your business up for very serious trouble with the IRS.  Your corporate asset protection will do you no good if you neglect to pay your payroll taxes – the IRS will come after the personal assets of any company owners associated with payroll.

If you’re a small or mid-size business owner, call us at (612) 206-3701 or fill out our contact form today to schedule a business consultation session.

Image courtesy of artur84 / FreeDigitalPhotos.net

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When it comes to business, ignorance isn't bliss; ignorance is risk.

There's a handful of legal topics that business owners should be familiar with, at least on a rudimentary level, to reduce the risk of having something horrible come out of left field.

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The first generation that buys a cabin enjoys it to the fullest and it’s a magical place where happy memories are made and families go for some much needed respite. Unfortunately, without thoughtful planning, the chances of the cabin staying a place of happiness and tranquility into successive generations is very, very slim.

If you haven’t done the planning in advance and made it legally binding, the family members (and their ex-spouses and new spouses) will have to work every detail out for themselves. If they can’t, what is likely to happen is a lawsuit called an action for partition that forces everyone to sell their interest. This lawsuit is expensive, and the costs of litigation will come out of the proceeds of the sale of the cabin, so to add insult to injury to those who wanted to keep the cabin but couldn’t afford to buy the others out, they are footing part of the legal bills in the lawsuit against them. Ouch!

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