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4 Mistakes to Avoid When Starting Your LLC

Leily Zhu
,
VPM Staff
Last Updated
April 8, 2022

If you plan to start or have already started a business, consider forming a limited liability company (LLC). As the name suggests, your liability will be limited so your personal assets will be safe from a creditor should a customer, vendor, or partner ever come after your business. In addition to that, you can enjoy flexible membership, easier management practices, and more credibility.

While forming an LLC can bring you great benefits, be careful to avoid these four common LLC mistakes.

Mistake #1: You Only Create Your LLC

You might think that you're done and that the money will come pouring in after you've filed your Articles of Organization and paid the fees through the Secretary of State. You're not.

The two elements that make the money come rolling in are an operating agreement and an EIN. The simplest way to think about this is that your LLC is born with the Articles of Organization, but the operating agreement and EIN will start nurturing and growing your business after it’s born.

Now, what is an operating agreement? It is a document that is meant for internal use within your LLC. It acts as a manual that sets the rules and regulations regarding the operation of your business. It should include detailed information about everything in your business, from ownership and structure to how financials will be handled. For a full list of what to include, read this article. An operating agreement is important because it sets a precedent for how your company should run.

What is an Employer Identification Number (EIN)? It is a unique nine-digit number assigned to your LLC by the IRS. This number is permanent. You will need an EIN to apply for business licenses, obtain business loans, and open a business bank account (more on this next). To learn more about how to apply for an EIN.

These are critical to the next part of making your LLC successful when it comes to controlling your money in relation to your business’s operations. You’ll often need an EIN and operating agreement to open a business bank account for your LLC.

Mistake #2: Not Opening a Business Bank Account

A business bank account is a magic ingredient for making your LLC work for you. Many new business owners don’t open a business bank account after forming their LLC because they don’t realize what it can do for them.

It offers them the ability to protect their business and personal assets, but also offers more opportunities to grow their business. If you don’t open a business bank account, you’re risking both your personal and business assets and not building your business financially. With a business bank account, a business owner can build more credit, get loans, and begin establishing vendor relationships that all add to existing revenue.

A business bank account provides a layer of protection that separates your personal and business assets. Think of this for example - you are sued because of a manufacturing error in one of your products, and the customer files a claim against you. Your hard-earned house, personal savings, and car are all safe because they are your personal assets and cannot be touched with a business bank account separating your finances. The takeaway here: if you haven’t opened your business bank account, you can equate that to mean you haven’t maximized your LLC’s potential.

Need a bit more guidance on how to open a business bank account? Read Steps to Opening a Business Bank Account For Your LLC.

Mistake #3: Not Using the Right Registered Agent

Every LLC is required to have a registered agent who is responsible for receiving service of process and official communications from the Secretary of State. One of the biggest mistakes in choosing your registered agent you can make as an LLC owner is being your own registered agent because when acting as a registered agent, you will be asked to provide an address for the state to reach you for legal and service of process needs.

Your first thought is often to use your home address, but don’t do it. Most owners like you use their home address because they don’t realize that it becomes public information. While it is legal to be your own registered agent, doing so risks your privacy and is dangerous.

The takeaway is that the address of the registered agent is public information, which means it can be accessed by anyone online. Imagine an angry customer that shows up at your house on a daily basis because they found your home address and want to threaten and sue you. Yikes!

In addition to the privacy issue, registered agents are required to adhere to certain rules. One of the main requirements is that a registered agent must be available to receive service of process during business hours. If you act as your own registered agent, this means that you must be present at all times during business hours, which can be limiting to your freedom. Say goodbye to lunch breaks or business meetings that you try to schedule outside of your home. Learn more about the risks of being your own registered agent.

Instead, you should use a registered agent service that can handle all correspondence and service of process needs for you. VirtualPostMail (VPM) offers a free registered agent service with all of its virtual mailbox plans. By using this service, you can go about your day and handle your business needs without worrying about missing an important delivery. As a virtual mailbox service, VPM will also send you same-day notifications of any deliveries that are received on your behalf. This way, you will never miss an important notice and risk your compliance.

Save over $100 or more a year versus using a traditional registered agent service with VPM’s FREE registered agent service. You can also learn more about the benefits of combining your registered agent with a virtual mailbox.

Mistake #4: Using Your Home Address as Your LLC’s Business Address

Do you care about protecting your privacy? Is your home your sanctuary? Do you want that space of feeling safe between you and your business? Then don’t use your home address to double as your business address. If you use your home address, it’ll be public information.

Your business address will be posted on your public website, used on marketing materials and customer correspondence, and will show up anytime someone Googles your LLC. Do you want that address to be your home address? In a worst-case scenario, you could be inviting stalkers to gain easy access to where you live. You also risk angry or overwhelming customers showing up at your door more than you’d like. No one wants that invasion of space.

So, as you consider other business address options, enjoy this bonus tip: skip the PO box because it is not an acceptable form of address for an LLC. Instead, opt for one of the following business address options.

Virtual Office

A virtual office provides a physical address that you can use as your business address and administrative services that are often useful in an office environment. Many startup owners choose this option because they get to avoid the pricey overhead of a long-term lease, but still enjoy a physical space and office-related services.

You can have your mail delivered to your virtual office address and use the address on your business sites. A few services that you can enjoy with a virtual office include phone services, meeting rooms and private offices, and a live receptionist.

While a virtual office can help you save money on a brick-and-mortar lease, it is still a more expensive choice compared to other business address options (which will be explored in the next section). Since they are often inflexible about the amount of time you can stay at the office, and you will end up paying for the space during times that you do not need to use the space, you may end up spending more money than necessary.

If you are a business owner that will require a physical space to meet with your team or clients, then a virtual office may be an ideal choice for you.

Virtual Mailbox

A virtual mailbox offers a permanent physical address at which you can receive mail and packages. You can also use this physical address as your business address. Once mail is received, the virtual mailbox service will scan your mail so that you can view it from any digital device via your account. Then, you can request what you want to do with the mail and packages.

Virtual mailboxes offer a number of services including mail and packaging forwarding, same-day notifications, mail scanning, and mail shredding. Certain virtual mailbox services, like VPM, offer additional services such as check depositing and registered agent services.

A virtual mailbox address does not provide a physical office space separate from your home, so it is a more affordable option compared to virtual offices. You can use the virtual mailbox address as a separate business address so that your home address and privacy are protected.

Virtual mailboxes are ideal for business owners who do not need a separate physical space but still require a separate address. If you are someone who can work from home and run your business, then a virtual mailbox service is the perfect solution for you.

Conclusion

Forming an LLC can be a great first step toward building a successful business. It offers you limited liability and asset protection, as well as certain tax benefits. However, just because you have created an LLC does not mean your work is done. You need to make sure you avoid the most common mistakes LLC owners make. Create an operating agreement and get an EIN to ensure that you have clear rules and regulations for your business and can obtain permits and licenses. Open a business bank account! Without one, your personal and business finances will intermix which can cause problems in your future should your assets ever be seized.

Most importantly, do NOT use your home address for your registered agent or LLC business address. It’s not worth risking your privacy, reputation, or business image. Instead, look into getting a registered agent service and separate business address.

VPM offers you the perfect solution to solve both of those problems. With a virtual mailbox plan, which provides you with a permanent address that you can use for your business, you can also get a registered agent for FREE. Now that you know what mistakes to avoid when forming your LLC, follow this step-by-step guide to form your LLC!

https://www.virtualpostmail.com
Leily is a corporate journalist at VPM with expertise in the topics of remote work, small businesses, and startups. Her writing style is in the art of conversational marketing with a journalistic approach. She has experience from writing for her university newspaper and freelancing writing.
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