Legal Pitfalls in Business Formation: How to Avoid Common Mistakes and Setbacks

April 15, 2024
Jennifer Nichols

A good start is the best beginning. This is especially true when it comes to starting a business. Getting the right structure in place at the beginning can be a springboard to your future success, while choosing the wrong structure can become a stiff headwind as you move forward. If you’re starting a business, a business formation attorney can walk you through your options and help you create the entity that best meets your goals.

Starting a Business without Creating a Separate Entity

The biggest mistake you can make is to start a business without any corporate structure. When you do this, you are operating as a sole proprietorship. This means that you will be personally liable for all your business debts, liabilities, and obligations. If you are sued or your business becomes insolvent, your business creditors and claimants can force you to liquidate your personal assets in order to satisfy their claims.

A business formation attorney can set up your business entity and provide guidance to minimize your personal liability and help you reduce taxes. This allows you to grow your business without risking your life savings and saving money in taxes, benefiting you and your family.

Forming the Wrong Entity

Another of the most common mistakes is choosing the wrong entity for your business. However, there is no “right” entity that works for every business. Instead, choosing the right entity involves careful consideration of the following factors:

  • Your overall business plan and goals
  • The people who will be involved in starting and operating the business
  • The assets that you will bring to the business
  • Whether you will need to raise capital and bring on investors
  • How you would like the business to be taxed

Business owners often choose the wrong entity when they ignore these considerations or limit their consideration to only one or two factors. An experienced business formation attorney can ensure you choose the structure that will meet both your short-term needs and your future goals.

Doing It All Yourself

Invest in the success of your business by getting professional advice concerning its formation, structuring, and operation. An accountant can help you keep your financial records in order, file your tax returns, and suggest strategies to help you reduce taxes. A trusted insurance agent can help you find the insurance coverage you need at an affordable price. A business lawyer can help you create your business and provide guidance throughout its lifecycle.

Professional guidance will help you avoid many of the common mistakes that will jeopardize your business. Perhaps even more importantly, engaging professional help means that you can focus on your core business operations.

Call J Nichols Law, PLLC, to Talk about Your Business

Choosing the right structure for your business is an important decision. At J Nichols Law, we provide hands-on representation focused on finding solutions that meet your unique needs. To discuss your business plans and your options for formation, contact us today at 409-257-7878.