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Feb2023
Common Mistakes To Avoid When Choosing A Business Entity - Businessmen and Businesswomen discussing documents and ideas in

Common Mistakes To Avoid When Choosing A Business Entity

  • By Arcadier, Biggie & Wood, PLLC
  • 173

Business Formation Lawyer

Starting a business can be an exciting endeavor. However, in the midst of all the excitement, do not forget the important details, such as choosing a business entity. Selecting the proper entity may protect your business from liabilities down the road. 

Here are a few common mistakes to avoid when choosing a business entity. 

Neglecting to Form an Entity

One of the biggest mistakes you can make is not choosing an entity at all. If you do not select an entity, your business will be considered a sole proprietorship by default. However, as the legal professionals at Eric Lindh Foster Law, LLC can confirm, this might not be the best option for your unique business. You will be considered liable for everything. If someone decides to sue your business and you do not have the money, they can take your home, vehicle and other assets to cover the costs.

Not Educating Yourself About the Different Business Structures

Before you can choose the appropriate structure for your business, you first have to learn about the different structures available for you. The four types of structures are corporations, LLC’s, sole proprietorships and partnerships. Take the time to learn what each structure entails and the positive and negative aspects about it. The more informed you are, the more likely you are to make the right decisions about how to structure your business.

Not Focusing on Long-Term Plans

When it comes to choosing a business entity, it is best to look toward long-term goals, not short-term ones. For instance, if you are thinking about having investors in the future, you may want to consider forming a C corporation. It lets you keep profits and losses within the corporation and issue multiple classes of shares, which is necessary for investors.

Using Online Company Formation Services

When you are first starting a business, you want to save costs as much as you can. However, choosing a business entity is not something you want to skimp on. If you use an online company formation service, you will not be able to receive legal advice about choosing an entity. You might choose the wrong entity and end up paying more in taxes. That is why it is so important to work with a qualified business formation lawyer. A lawyer will help you select the proper entity.

Not Having a Business Plan

Before you can choose the appropriate business structure, you have to first come up with a business plan. This plan will include the budget you need to fund your business and the income you expect to make from it. If you have a proper business plan in place, you may have an easier time selecting the right business entity.

If you need assistance choosing a business structure, you should schedule an appointment with a business formation lawyer as soon as possible. You may receive sound legal advice and have peace of mind.

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