Avoid These 5 Mistakes When Incorporating Your Business

Avoid These 5 Mistakes When Incorporating Your Business

Incorporating your business is most definitely not a do-it-yourself project; you need to take care to avoid these five common mistakes:

1. No founders’ agreement. The very public squabble among the various parties claiming responsibility for starting Facebook — which even made it to the silver screen — points up the importance of having a founders’ agreement. To keep the partnership peaceful, draw up agreements (equity, non-compete, etc.) before you incorporate.
2. Incorporating when working for someone else. If you incorporate your new business while you’re still working somewhere else, you open yourself up for litigation from your former employer if you have a non-compete in place. If you use that company’s resources to develop intellectual property for your new venture, the ownership of that IP could be open to question as well.
3. Failing to follow corporate formalities. One of the major benefits of incorporating is to protect your personal assets from potential business liabilities. If you don’t follow the rules of your corporation or LLC, you’ll lose that protection.
4. Neglecting to pay payroll taxes. While it may be tempting for fledgling ventures to skip payroll taxes a time or two, but don’t do it. The IRS can come after your personal assets as well as those of other company officers.
5. Failing to research corporate entities. Get the advice of a qualified business attorney about which corporate entity would work best for your business. Each offers different tax structures; you want to choose the one that offers you the most benefits as an entrepreneur.

One of the main reasons to incorporate or form an LLC is to protect personal assets; if your corporation or LLC does not observe the legal formalities that rule the governance of your company, you muddy the legal waters between personal and business assets.

A Florida business attorney can assist business owners with the right corporate structure for their business and ensure you are following the legal requirements for each, including executing a Corporate Shareholder or LLC Operating Agreement, keeping meticulous records on corporate meetings, drafting by-laws and resolutions, and more.

When a corporation or LLC is not managed under the proper formalities, a court may find business owners in breach of their fiduciary duties since the court would be unable to ascertain if the corporation or LLC is truly separate from the owner and his or her personal assets. If a court finds that the business is not separate – known as “piercing the Corporate Veil” – the business owner will not be protected from liability or creditors of the company. In that case, a business owner’s personal and business assets could be seized in a lawsuit.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

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