4 Mistakes To Avoid When Setting Up An LLC

author-img By Arnab Dey 5 Mins Read November 15, 2022


What’s an LLC? It’s an acronym for Limited Liability Company and is one of the business structures you can adopt for your operations. This structure aims to protect the members from personal liability in case of business lawsuits and other liabilities.

How do you form an LLC? Different states in the United States of America have varying processes and it’s important to know what applies to yours for a correct registration process.

While setting up your LLC, a lot could go wrong today and in the future. These issues arise from mistakes you make during the process. As an entrepreneur looking to set up an LLC, what mistakes should you avoid with this business structure?

The answer to this question lies within this post. Read on to learn more.

1. Not Adhering To Laws

LLC registration

For a successful LLC registration, you must follow laws and regulations. By failing to do so, you’ll end up on the wrong side of the law, whether today or tomorrow.

One of the mistakes you can make is failing to get a license for your business. This mistake is common since some assume once they’ve registered their LLC in Florida or their preferred state, they’re good to run operations.

It’s not the case. Registration aims to recognize you as a business, while a license legalizes your operations; the two are different.

The other mistake is failing to register your business in certain states based on your operations. This rule doesn’t apply to all states, but you need to know them.

For instance, if you’re to offer your services or products to Texas, you ought to register your business there, even if it’s not your business headquarters. Such are the laws you should know to adhere to accordingly.

You can avoid making this mistake by learning all the laws regarding LLC registration in your state and the states where you plan to do business.

2. Choosing The Wrong LLC

As an entrepreneur, you might have heard of LLCs, but did you know there are different types of LLCs? It’s a fact that few people know, which might make you settle for an LLC option presented on the table.

This shouldn’t be the case. You might choose an LLC that’s not best suited for your business setup, denying you the chance to enjoy the benefits of the right LLC for you.

The common LLCs are single-member, composed of only one party, and multi-member with two or more partners. Besides the type based on the number of members, there are other LLCs based on management.

You can select one of your members or a third party to manage your operations; this LLC is referred to as manager-managed. On the other hand, you can manage your operations as partners without choosing a manager; you’ll identify as a member-managed LLC.

Did you know a family LLC also exists? As the name suggests, it compromises family members, where you appoint one or two members to manage operations.

Before choosing your LLC, consider all the types’ advantages, disadvantages, and operation mechanisms.

3. Not Having A Separate Bank Account

LLC aims

The introduction states that an LLC aims to protect the personal assets of LLC members due to business liabilities. Even as it does this, it might become challenging if you use the same account for your personal and business finance.

Suppose there’s a lawsuit filed against you, and the courts decide you’re liable and are to pay penalties. Most courts will set this percentage based on your business value.

One of the value determiners is your bank account balance. How will you prove to the judge that a certain amount is personal, with the other being for business? Without adequate proof, your personal finances are at risk.

You can avoid such occurrences by separating the two accounts.

4. Not Taking Insurance Cover

Insurance covers work to reinstate you to your previous financial position before the occurrence of an insured risk. There are different insurance covers you can take as a business or individual, based on the level of risk.

The mistake you can make when setting up an LLC is failing to take insurance coverage. Without it, lawsuits and other liabilities can run your company’s money dry. It’s not a position you want to be in as a business.

Suppose you’re to compensate an aggrieved party a certain amount of money. Paying it out of your business bank account reduces the money available to run operations, and you might go bankrupt, depending on the fine.

One of the covers you should take is general liability insurance coverage if you’re a service provider. While you or your workers are offering your services, you might damage the client’s property, and they might sue you.

The general liability coverage will pay for the fine, keeping your business finances intact. Find the appropriate insurance covers that apply to you.


An LLC is a business structure that has many advantages should you adopt it. Nonetheless, you’ll only enjoy these benefits if you follow the due process of registering one in your state.

The discussion above has highlighted the mistakes you might make during the process. It’s best to comprehend this guide and ensure you don’t fall victim to the same. By doing so, you’ll be up and running within no time.

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Arnab Dey

Arnab is a passionate blogger. He is very much passionate about social media. His special interests are in current affairs, business, lifestyle, health, food, fitness, etc. If you want to read refulgent blogs so please follow Online News Buzz.

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