Ten Fatal Mistakes Business Owners Make: Nos. 1 & 2 – Corporate Formalities

In a recent post, I outlined the Ten Fatal Mistakes that Business Owners Make. The first two mistakes are related, dealing with corporate formalities. Avoiding these two mistakes is fundamental to the success of your business.

Mistake No. 1 – Failure to Set Up a Proper Business Entity

Starting your business is an exciting event — so exciting, in fact, that many business owners fail to actually set up their business.

Are you operating your business as a sole proprietorship or as a general partnership? If so, you will someday regret your decision.

Real businesses operate with corporate formalities. When properly set up and maintained, both a corporation and a limited liability company protect you from liability arising from owning and operating a business. The law recognizes a corporation or limited liability company as a separate “person” with separate finances, assets, and liabilities. Any company obligations remain at the company level, and your personal assets are protected.

Setting up a formal business entity provides you with numerous other advantages. Formal business entities create wealth because the owners have something concrete (stock or membership interests) that they can sell. A formal business enterprise also enables the owners to bring in other owners by selling part of the business.

If you have not set up your business as a corporation or a limited liability company, you are waiting for problems that inevitably will come.

Mistake No. 2 – Failure to Maintain Corporate Formalities

If you go to the time and effort to properly set up your business using a corporation or limited liability company, be sure to take proper steps to maintain your corporate formalities.

Treat your business like a real business.

Open separate bank accounts for your business. Keep business and personal finances separate. Hold regular meetings of the shareholders, officers, and directors. Update corporate minutes each year.

In Arizona, corporations are required to file annual reports with the Arizona Corporation Commission. Update your contact information on file with the Arizona Corporation Commission as needed.

Treat your business like a real business because no matter what size it is, your business is important. Maintain the corporate formalities that will allow you to protect yourself from personal liability.

To read examples of how the Ten Fatal Mistakes commonly arise, download a free copy of my new e-book, “Ten Fatal Mistakes That Business Owners Make (And How to Avoid Them).” If you take steps to avoid the Ten Fatal Mistakes, your business will boom.

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