6 Common LLC Registration Mistakes That Could Make Your LLC Practically Pointless

Don't make these mistakes when starting your business as an LLC. As a business lawyer, I speak with people every single day that make these detrimental mistakes when starting LLCs themselves, and here are the top 6 that I see. And by the way, these mistakes can result in the LLC protections being removed. They can also result in you having major tax issues, and they can take weeks or even months to fix. So the first mistake is not having a separate business bank account for the LLC. This is very easy to do, so make sure that you do it because it is required in order to keep the protections. The second mistake is commingling personal with business. You're going to want to make sure that everything related to the business is operated out of the business bank account, and similarly, you're going to want to make sure that anything that's personal is operated out of your personal accounts. You don't want to mix the two. The third mistake is not following the proper LLC formalities. These formalities include not following the rules in your operating agreements, not recording meeting minutes for major decisions that the LLC makes, and not signing business-related contracts in the name of the LLC. The fourth mistake is not adequately funding your LLC and keeping enough money in the LLC bank account. Not keeping your LLC adequately funded can trigger something called the alter ego doctrine, which is essentially a way for a judge or an attorney to pierce the LLC protections and go go after you personally. Generally, you'll want to keep around 3 to 4 months of business operating expenses in the account. And the fifth mistake is not having a general liability insurance policy or an umbrella policy. The purpose of an insurance policy is to protect your business in the event that it's sued. So for example, if your business is sued for $100,000, then the person suing you would be able to go after your business assets to satisfy the debt, which would be the $100,000. But if you had the business insurance policy,, then typically that would kick in and the insurance company would pay the $100,000 instead of your business having to pay for it. It's also beneficial because if the LLC veil of protection is pierced because you didn't follow various formalities, then the insurance policy will kick in and pay that $100,000 instead of you personally having to pay for it. And the sixth mistake is choosing to have your LLC taxed as an S corporation too early on. Typically, you only want the LLC to be taxed as an S corporation once your business is making enough money.