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3 common mistakes entrepreneurs make during LLC formation

On Behalf of | Oct 25, 2022 | Business Litigation

Limited liability companies are a popular business structure. They offer personal liability protection, tax perks, less paperwork and more flexibility than corporations or partnerships while incorporating advantages from both.

However, budding entrepreneurs often make mistakes during the formation process.

1. Only filing Articles of Operation

One of the steps in forming an LLC is filing Articles of Operation. The problem arises when individuals, usually ones using an online formation service, stop there. New business owners also need to draft an Operating Agreement. Otherwise, their businesses end up fully governed by the state’s Oregon Limited Liability Company Act, which may not align with their entrepreneurial vision. The Operating Agreement is what specifies the company’s ownership and operating procedures and includes important sections such as nondisclosure or noncompete agreements.

2. Failing to register with the appropriate agencies

Those forming an LLC must file with multiple government agencies. It is not enough to file with one or some of them. For instance, new business owners need to file Articles of Operation with the Oregon Secretary of State but need to file other legal documents with other agencies.

3. Neglecting to get a business license

While not all industries require a license, many businesses need a specific business license to operate. Many individuals make the mistake of believing that forming an LLC is equivalent to obtaining one. However, a business license is a separate matter. Not acquiring the needed license can lead to serious legal consequences.

Forming an LLC involves many steps. It is imperative for beginner entrepreneurs to carefully check that they meet all requirements to avoid legal issues in the future.