Starting a business is a scary and exciting undertaking. New business owners have several factors to consider, including the type of business to form.
Today, there are several options. Business owners can choose a sole proprietorship or partnership, or they can start a corporation or LLC. When choosing the latter, learning the 24 Key Issues In Starting A Tech Company is important. Along with that, knowing the most common mistakes made when forming a corporation can prove beneficial. Keep reading to learn what those mistakes are right here.
Failing to Seek Advice from a CPA
Each state has different requirements and tax considerations, according to realtimecampaign.com. These factors vary based on the type of corporate entity formed. For example, business owners can choose S corporations, C corporations, or an LLC. Unfortunately, trying to form a corporation without input from a CPA may cost someone in the long run. Why? Because there are different ways to treat LLC and corporate income.
Also, in some states, companies are unable to change their structure once it is decided. Therefore, it is so important to choose the entity properly, the first time. Usually, it is good to get personal liability protection with tax advantages for a specific situation. Also, only a good “numbers person” will be able to help a business owner decide what business entity is best.
Believing a Forming a Corporation Provides Unlimited Liability Protection
Even though a corporation offers some liability protection, it does not provide protection for instances of fraudulent practices, criminal acts, or using the corporation to help further the individual’s personal interests, such as taking money from corporate accounts to cover personal expenses.
Put simply, there is no such thing as a “free ride.” This is especially true in the business world.
Incorporating without Acquiring the Required Business Licenses
Just because a business is incorporated, it does not mean that they do not have to follow the local municipality guidelines when it comes to acquiring the necessary permits and licenses. In many cases, business owners discover they are not compliant with the local business ordinances, even if they are incorporated properly. This can result in them having to pay thousands of dollars in back taxes, fines, or a combination of both that carry seemingly unending penalties.
Not Filing the Proper Tax Paperwork Required by the State
After incorporating, some level of follow-up and maintenance is necessary to keep the operations compliant. Usually, this means any ownership updates, change in the resident agents, new corporate offices, and tax liabilities for the municipality or state. If the required paperwork is not filed, serious penalties and fees may be applied. This is especially true if there are workers who are subject to payroll taxes at the federal or state level.
When it comes to forming a corporation or LLC, there are many factors to consider. A company like Inc Authority can help with this and ensure that the business owners take the right steps to form a company the right way and meet all the requirements in place.