COMMON Mistakes To Watch Out For In Your LLC: Expert Tips For Business Owners

What are the big mistakes that you want to avoid making before you register for your LLC or your limited liability company? If you are an online business owner, you've got plenty to worry about, and messing up your business incorporation isn't on that list. I'm Attorney Brittany Ratelle, and I'm here to help you walk through exactly the mistakes that you want to avoid before taking that next big step and getting your LLC or your company registered or incorporated. First of all, a little disclaimer: while I'm an attorney, I'm not your attorney. This is not an attorney-client relationship, and this is not official legal advice. But I hope it will be helpful and educational to you. So let's dig into what are these huge mistakes that we want to make sure you're not making as you try to grow and scale and protect and get legally legit your online business. Number 1, you need to make sure that you don't pick a business name or an LLC that's already taken. As you start to set up your LLC, you're going to want to go on to your state website. It's usually a Secretary of State or Secretary of Commercial Division website, and it'll ask you, what do you want to name your LLC? Now, some of these websites have a search function to do a search beforehand. If so, 'Oh, that's great.' And you should look up your name and make sure that it doesn't match the exact name as someone else within your state. It also shouldn't be too close, especially if you're in a similar industry or you sell related goods or services. You want to make sure that there won't be any mistake that you'll have mail sent or government filings or heaven forbid a lawsuit that will be confused between you and another business. Now the part of this that's tricky is if your state doesn't provide a search, then you want to go and do this on your own. And so you want to look at your Secretary of State website. There should be a portal for you to be able to search other LLCs and put in the name that you're thinking about, making sure that it's clear and available and again not too close. This means if you plan on adding something like Limited or Corp or Partners or Agency before or after the business name, it might not be distinguished enough and your state might think it's too close, even though this is nowhere close as official as a trademark search. So pick something unique, even if it's a boring legal name like Smith Holdings, and make sure that it could be yours and you want to remember and that you can use again and again. Make sure to remember that this does not have to be the actual front or forward-facing name of your your business. Like I said, you can pick a boring name like Smith Holdings, and then you can also file a DBA, or doing business as, also known as a fictitious name in some jurisdictions, that will link the forward-facing, or like the shop name, back to your LLC on the other side. This is basically satisfying the legal requirement that your state says that, hey, if people do business and sell and provide goods and services in our state, we want to make sure we know who's the actual human being behind a business. And so we want to require that you link those two with that DBA, or doing business as. You'll note that A lot of companies might set up an LLC initially and then file multiple DBAs underneath that, and that's completely legal and normal. For example, if you decide to form that LLC under Smith Holdings but you wanted to open an Etsy shop called Creative Contracts— by the way, that's one of my stores, I don't recommend you use that name, but say that was a name that you wanted, that's fine. You would say, hey, state, I am Smith Holdings is DBA, or doing business as, Creative Contracts, and that is what's going to show up on people's storefronts or on an online marketplace or wherever it is that selling your online goods and services. Make sure that your name is a solid name, a name that you like, but don't waste too much time on this. The second mistake that we want to make sure that you don't make is address drama. We want to make sure that if you're operating from home, that you're giving yourself the best chance possible of preserving your own privacy and making sure that you're not just throwing up your home residential address at risk of being doxxed on the internet. We all know that it's easier than ever to try to find out people's address, especially if you live a very public life or if you've been living somewhere for a while and have lots of filings or tax records. We don't want to make this any easier than it may already be for someone who might not have less than altruistic purposes in using your address. If you are a home-based business or a virtual business and you don't have a commercial storefront, you don't have an actual office, you do everything from your desk like I do, then here are some steps you want to take before you file your LLC. You want to get what I called a virtual mailbox. This is an online mailbox service. You should pay about $10 a month. I like Anytime Mailbox, and you'll see the link in the comments below. You also want to sign up for a commercial registered agent service. Commercial registered agent means this is the legal representative that can sign on your behalf if you are sued and receive official service of process in a lawsuit. We hope this never happens, but just like in the movies, we don't want this to be a dramatic thing if someone shows up at your doorstep and says, you've been served. Instead of someone showing up at your home, we want to make sure that they go somewhere else that's all legal and above board and that we're compliant with the law, but that we're not overly exposing ourself and maybe putting the safety of ourselves at risk. I find this to be particularly important for my business owners like you who might be woman-owned business or someone else who feels like they might be particularly vulnerable or live by themselves and want to make sure that you're taking whatever steps you can to protect your safety and your privacy as you're moving around on the internet. Those two tools that you need are a virtual mailbox. You can also set up a PO box, but I like virtual mailboxes better because they give you a real-looking street address. It doesn't scream PO box. And then a commercial registered agent services. Both of these are services you will need to pay for them. I think the investment is well worth it. And remember, expenses like these are tax deductible because you're running a business and this is just the cost of doing business. So get all that address drama sorted out before you take the steps and move forward and file your LLC. Step number 3 is we want to keep our money separate. We want to make sure that as we're setting up our LLC, we don't immediately shoot ourselves in the foot by messing up our money. Because the law says that if the money is being commingled in an LLC, the risk or liability is being commingled. And honestly, we don't want to be commingling any assets unless it's on the dance floor. So the way that you can preserve and actually use this great gift that you've been given in terms of a limited liability protection is to make sure that money stays separate. This means that you should be prepared to set up at least one or more bank accounts in the name of this business. And so as you're going through this LLC process, make sure you have that in mind and you have an idea of where you want to bank, whether it's at a local bank, a national bank, a credit union, or an online banking service. There's lots of options these days, but make sure that you have that step and that you're ready to go and that you're committed to the process and the system of keeping that money separate. That means you're going to need to be diligent about paying things from your business out of your business bank account. And I recommend that you get a business credit card that links to that account and that you're really good about not swapping and mingling back and forth. That means you buy business stuff with your business bank account and business card. You buy personal stuff with another card. Please avoid the trap of using the same PayPal address or the same online credentials just because things are saved or convenient or because they're auto-billing. Really try to get yourself out of that habit from day one. Talk to yourself about this. Use a little mantra that, look, you're running a business. I'm going to treat this like a real business. I want to own my numbers and own my money. And that there's no way that I'm letting anyone else have access to my personal assets. I want that full limited liability company protection, that full LLC asset protection status, and we do that by keeping that money fenced up. And the last step is that we want to make sure that we have an operating agreement. I see this mistake with a lot of entrepreneurs. An operating agreement is sometimes also known as a founder's agreement or a partner agreement, but it's really the clubhouse rules for how you're going to run your business. And this operating agreement should include things like who gets what kind of membership or equity into the LLC, who Who is doing what and putting in what money? What happens if someone wants to leave the LLC? Is this set up as a true asset protection and that the liability of the company is different and you're not taking on a personal liability or guarantee for the actions of the company? The business stays with business and what you do personally is limited and is separately. You're actually setting up a new separate legal identity as you create an LLC. And we want to make sure that we're closing the loop on that and finishing up with an operating agreement. This is the most important thing you can do if you have partners in your business.. If you're a one-person business or LLC, it's usually not required. However, there are some banks that like to see this, especially if you're going to think about getting business financing, and some states even require you to have an operating agreement on file. So it's a great idea to go through the steps of setting one up, filling it out, and making sure that if other people want to come into your business or leave your business, you already have that outline of what's that going to look like. Make sure you grab an operating agreement. If you don't have one, I have a really solid template in my shop over at Creative Contracts. You can see the links below, and that way you can download it, fill in the paint-by-numbers color field and be on your way within the time it takes to watch your favorite show. Thanks so much for joining me, for getting these tips. Make sure you like and subscribe if you want more information. And you're actually now ready to go set up your LLC. Make sure you check up the video that we have above to help you get your business legally legit and protected.