Common Mistakes When Starting an LLC

Why You’re Not Done Yet

Filing Articles of Organization, also known as a Certificate of Organization or Certificate of Formation, with your state gets your LLC recognized legally, but that alone won’t protect your business, keep you compliant, or help you pay the right taxes. Every state has additional steps you’re responsible for, and failing to take them could mean fees, audits, or the loss of your limited liability protection altogether.

Skipping the fine print now, such as annual reports, operating agreements, and tax filings, can cost you big later. Be sure to research and follow all necessary steps to ensure your enterprise's long-term success and protection. Failure to stay on top of these obligations can result in serious consequences for your business. 

Six LLC Formation Mistakes & How to Avoid Them

When starting an LLC, there are important considerations that many owners discover only after facing challenges. Here are the most common errors new founders make so that you can steer clear from the start.

1. No Operating Agreement

Even if your state doesn’t require it, skipping an operating agreement is risky. This internal document outlines how your enterprise will run, who owns what, how decisions get made, and what happens if a member leaves. Without it, you’re vulnerable to member disputes or default state rules that rarely end well.

2. Mixing Personal and Business Finances

Opening a business bank account isn’t just for good bookkeeping. It’s essential for your entity’s liability protection. If you co-mingle funds, courts can “pierce the corporate veil” and hold you personally responsible for business debts.

3. Not Applying for an EIN

An Employer Identification Number (EIN) isn’t just for companies with employees. Think you can get away without one? Not if you want a bank account or peace of mind come tax time. Apply online with the Internal Revenue Service (IRS).

4. Forgetting Business Licenses and Permits

An LLC doesn’t give you automatic permission to operate. Depending on your industry and location, you may need local, state, or federal permits or licenses. Skip this step, and you could face fines or get shut down entirely. 

5. Misclassifying Your LLC for Tax Purposes

Single-member LLCs (SMLLCs) are taxed as sole proprietors, and multi-member LLCs as partnerships by default. However, some eligible LLCs elect S-Corp status to reduce self-employment taxes.

6. Not Maintaining Proper Records

Your LLC isn’t just a title. It’s a structure. Keep records of business decisions, member votes, major expenses, and income. Solid recordkeeping doesn’t just help at tax time. It also protects you in court.

The IRS has a basic LLC checklist for starting a business, which is a great start. 

Common Pitfalls New Founders Should Avoid

To keep your business compliant, avoid these frequent missteps:

• Using your home address for everything—reduces privacy and may conflict with zoning laws.

• Skipping state publication requirements—some states, like New York and Arizona, require publication to stay active.

• Ignoring annual reports or franchise taxes—many states require them, even if you didn’t earn income.

• Backdating your formation incorrectly—may lead to penalties if done improperly.

• Relying only on social media handles—secure a web domain to protect your brand and credibility.

• Signing contracts personally, not as your LLC—creates exposure to personal liability, including lawsuits.

• Assuming the state will remind you of deadlines—most states will not send you reminders.

By staying organized and proactive, you can ensure that your LLC remains in good standing and operates smoothly. Taking these steps will help protect your business and avoid costly mistakes in the long run.

Do I Need a Lawyer to Form an LLC?

Not necessarily. You can file your LLC through your state’s Secretary of State website. But if you’re unsure how to draft an operating agreement, want to elect S-Corp status, or have questions about complying with your state’s specific rules, seeking the help of an experienced professional can help you avoid costly mistakes.

Filing LLC Taxes: What First-Timers Get Wrong

Your LLC’s tax obligations depend on how it’s classified. But no matter what, you must keep up with federal, state, and sometimes local taxes. Here are frequent tax slip-ups:

• Not setting aside money for self-employment taxes. LLC members are typically responsible for both the employer and employee portions of self-employment taxes.

• Failing to file the correct tax forms. SMLLCs use Schedule C while partnerships file Form 1065.

• Missing estimated quarterly payments. The IRS doesn’t wait for April 15. Most LLCs must pay quarterly based on expected income.

• Not collecting or remitting sales tax. This is especially important if you sell online or in multiple states.

• Overlooking state-level taxes. Some states have biannual filing fees (New York) or a franchise tax (California).

Staying on top of your books from day one helps avoid tax season chaos. Even basic accounting software can flag discrepancies and deadlines before they become problems.

Get on the Road to Compliance 

Starting your LLC is one thing. Running it properly is another. If you’re serious about protecting your business and doing it right, don’t go it alone. Bizee provides affordable services to support your next steps, including registered agent services, compliance reminders, and practical resources so your company doesn’t just exist, it thrives.

Resources

• 10 steps to start your business. U.S. Small Business Administration (SBA), link

• Starting a Business Checklist. California Secretary of State, link

• Forming a Limited Liability Company in New York. New York Department of State, link

• New Business Checklist. New Jersey Business Action Center, link

• Start New Business Checklist. Connecticut State Government, link

• LLC Formation Checklist. Small Business HQ,link