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Looking to incorporate? Avoid these three mistakes.

On Behalf of | Nov 16, 2023 | Employment Law

Getting an idea for a product or service is one of the most important parts of starting a business. Once you have this concept in place, taking steps to protect it is important. One of the more important steps is incorporation.

What is incorporation?

Incorporation is the process of choosing a structure when starting a business. There are various options, and each comes with its own risks and benefits.

How can I avoid common mistakes when starting a business?

You can better ensure success by knowing and avoiding common mistakes. Three of the more common when it comes to incorporation include:

  1. Failing to incorporate. Not having a legal entity behind the business can leave you open to financial and legal risks.
  2. Choosing the wrong structure. Sole proprietorship, partnership, limited liability, or corporation? There are many options to consider when starting a business. It is important to consider each and find the one that best lines up with your goals.
  3. Not having the right documentation. State law provides guidance on how to set up each structure, and a failure to meet these requirements can mean that the business will not survive a challenge.

For example, a mistake in articles of incorporation documents can mean rejection of the application.

How do I know what is the right structure for my business?

It is important to consider all the benefits and risks when making a choice. Failing to consider liability protection can put your personal assets at risk, while not looking at the tax implications of each option can mean a surprise bill at the end of the year.

Business owners often consider the use of a corporation because it can offer financial flexibility and increased liability protection, but they are more difficult to set up compared to other business structures. One example of the difficulty that comes with a corporation is that of the articles of incorporation. Articles of incorporation are necessary for a corporation and are complex legal documents. They often contain contact information for a registered agent as well as information about stock. The business then files this information with the Louisiana Secretary of State. Although the state provides guidance on what to include within these documents, it notes that the recommendation is minimal and additional provisions are often advisable.

It is also important to note that the implication of state laws is just one part of the conversation. Additional federal rules and regulations may apply depending on the nature of the business. As such, it is wise for business owners to seek legal counsel to help tailor these documents to their business needs and mitigate the risk of any issues in the future.