When creating a corporation (like an LLC), there are many factors that may determine the success of your business venture. Hiring a business law attorney to assist you from the start can help make sure that your form the right type of business entity. Two mistakes business owners make during the incorporation process are neglecting the paperwork and using personal bank accounts for company finances.
To avoid lawsuits, protect personal assets and create legal contracts, a business attorney is a must-have.
Don’t neglect or skip over paperwork
To create a legal corporate entity, articles of incorporation are filed with your state. But this is only the first set of paperwork your attorney must process. You must have an organizational meeting where you elect the board of directors (which in some states, can be just you.) Additionally, you have to approve corporate bylaws and authorize the issue of capital stock. After that, you’ll need to have a board meeting to elect officers and make corporate resolutions. Those minutia must be documented minutes from meetings, consents in lieu of meetings, etc.
This extra paperwork is often missing when incorporating on your own. Without it, the IRS might view your corporation as a sham and you will lose the limited liability protection.
Don’t use your personal bank account.
The corporation may not be viewed as a separate entity by the state or the IRS if it doesn’t keep separate financial records. You’ll also want to keep professional financial records. Those records must show you don’t mix shareholder funds, such as your personal checking account, with corporate funds. Otherwise, you could threaten the identity of your corporation, and the IRS could challenge you for commingling of funds. To learn more about this topic, read “What is the purpose of opening a Florida business bank account?”