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.
I am, first of all, a husband and father. Rebecca and I have been married 23 years; we have four children ages 21, 19, 18, and 15. My family is my greatest joy in life. For 24 years, I have practiced business law in Arizona, the past eleven as the managing partner of Gibson Ferrin, PLC. We help businesses and their owners meet their business and personal goals. My practice focuses on the intersection between intellectual property law and employment law. I help businesses prosper by properly managing their intangible assets.
I am licensed to practice law in Arizona only. Though I believe the advice in BiziBoom™ is based on sound legal principles, the law of your jurisdiction may be different. The advice given on BiziBoom™ is informational only; it may not be applicable to your specific situation. You should seek the advice of competent counsel in your jurisdiction, someone who knows the particular legal requirements of your jurisdiction. Until you have signed an engagement letter with Gibson Ferrin, PLC, neither the Firm nor I are acting as your legal counsel. Nothing on BiziBoom™ creates an attorney/client relationship between you and the Firm.