There’s plenty of trial and error that goes into starting a small business. But did you know entrepreneurs can avoid making certain registration mistakes?
Common Business Mistakes
What are some common business mistakes?
- Putting off incorporating or forming an LLC.
- Forgetting to conduct a name search.
- Waiting to obtain a tax ID.
- Acting as your own registered agent, even though you lack the availability.
- Filing an annual report past its deadline.
Let’s review how small businesses can avoid making these business mistakes.
1. Putting off incorporation.
Technically, entrepreneurs can still run an unincorporated business. Some businesses choose to operate as a sole proprietorship. This is a default entity formation. A sole proprietorship allows the owner to assume full responsibility for the business. However, a sole proprietorship is also considered an unincorporated entity. This means that the business is not separate from the owner or the owner’s assets.
Incorporating or forming an LLC allows small business owners to separate their professional and personal assets through limited liability protection. What does this mean? Limited liability protection ensures that personal belongings, like houses and cars, are kept safe and not negatively impacted in the event of an unforeseen circumstance.
Outside of limited liability protection, incorporating offers benefits to business owners. Incorporated businesses receive several tax benefits. This compares to sole proprietors which are considered self-employed and must pay income and self-employment taxes each year. It is also easier to build credibility and to receive investor interest and funding as an incorporated business.
Are you unsure which entity to incorporate as? Meet with a legal professional and discuss entity options together. After, you may incorporate as the entity that is the best fit for your business and receive limited liability protection right away.
2. Forgetting to conduct a name search.
Many entrepreneurs often think that the business name, logo, or design they came up with for their company is the first of its kind. However, it’s a common business mistake to not conduct due diligence for these types of trademarks. Do you plan to trademark your business name? Prior to filing a trademark application, you need to conduct a name search.
What is a name search? This is a search conducted through a trademark database. It allows you to see if any trademarks have been registered that are similar to your trademark, used on related products or for related services, or live. If you discover that your mark is already in use, you will need to brainstorm new ideas for your trademark.
Conducting a name search may be done on your own through databases available from the United States Patent and Trademark Office (USPTO). You may also conduct a name search through MyCorporation. Our team of professionals will verify that your trademark is unique before helping you file your trademark application.
3. Waiting to obtain a tax ID.
A federal tax ID is also known as an employer identification number (EIN). Many entrepreneurs associate EINs with hiring employees. However, you do not have to wait until you plan to hire to obtain a tax ID. The sooner you can obtain an EIN, the more your business benefits from having it.
Typically, the IRS issues EINs to businesses after they incorporate or form an LLC. An EIN is a nine-digit number that identifies employer tax accounts. Small businesses must have an EIN when hiring employees. Additionally, an EIN identifies your business on critical documents. You have the option to swap using your Social Security Number (SSN) and use your EIN as a safeguard. An EIN may also allow you to open a business bank account and establish business credit.
Best of all, there are no renewal documents for an EIN. It does not expire. Once you apply for and receive an EIN, you will have the tax ID in perpetuity.
4. Acting as your own registered agent, even though you lack the availability.
Some entrepreneurs may decide to act as their own registered agent. A registered agent is an individual or third-party that acts as the point of contact between the business and the state. An RA receives service of process, organizes the documents, and delivers paperwork to small businesses in a confidential, discrete manner.
You may work with a third-party registered agent or act as your own RA. Those that choose to be an RA must follow registered agent requirements. They need to provide a physical street address location. This location must be in the same state as their business. An RA needs to be available to accept service of process during general business hours. Typically, these hours are 8 AM to 5 PM Monday through Friday. A registered agent also needs to be diligent about meeting deadlines.
It’s a common business mistake for an entrepreneur to think they have the time to act as their own RA only to discover the role exceeds their bandwidth. However, there are options to fall back on if this is the case. You may work with a third-party registered agent. Designating a third-party service will take care of everything you need and allow entrepreneurs to receive extra privacy.
5. Late to File an Annual Report
Registered businesses must file an annual, or biennial, report with their state of incorporation. This document shares information about changes in the business throughout the year. Some of these changes may include moving to a new principal business address or changes in activities conducted by the business.
Filing an annual report past its deadline is a common business mistake. Late filings can subject your business to hefty fines and penalties. It may even lead to a possible involuntary dissolution by the state!
Check in with your local Secretary of State for your annual report’s deadline. File the report and pay the filing fee prior to the deadline. You’ll have the peace of mind in knowing your business is in good standing.
Let us help you avoid making these common business mistakes! Visit us at mycorporation.com or call us at 877-692-6772.