A "top 10" list of avoidable incorporation mistakes, applicable to all states and types of businesses.
1
Choosing the wrong business entity.
There are business, legal, and tax reasons that all must be considered before choosing a business entity. Sometimes, particular business entities are not permitted for certain occupations and businesses, or the apparent tax and limited liability benefits of the chosen entity are illusory. Sometimes the best business entity is the sole proprietorship, where you do not have to form a new business entity at all!
2
Choosing the wrong corporate name.
The name may already be taken, or there may be a conflict with common law rights of competitors, local or professional fictitious business name filings, state entity filings, or federal trademark filings. Don’t put yourself in the position of having to reprint and rebrand your entire business because nobody checked for a prior conflicting use of the name. Please see my legal guide "Safely Choosing a Tradename for your Business."
3
Choosing the wrong time to incorporate.
Filing your entity at the wrong time of year can cost you more taxes and/or an extra tax return. Use of a non-calendar tax year (if available) also impacts this decision. This can be a $2,000 mistake or more.
4
Choosing the wrong state of incorporation.
Paying taxes and filing fees in more than one state is not necessary if you do business in only one state, but is the result of incorporating in a state other than the one in which you conduct business. Companies promoting Delaware and Nevada corporations rarely explain this.
5
Choosing the wrong tax status.
Sole proprietorship, partnership (LLC/LLP), S corporation and C corporation are all available, and it is essential to consider the pros and cons of each one. Nobody wants to pay unnecessary taxes.
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