9 Mistakes to Avoid With an LLC

The discussion begins with a critique of the perception that purchasing expensive asset protection plans or attending high-cost seminars is the guaranteed solution to asset protection. The hosts, Matt Sorenson and Mark Kohler, introduce the Main Street Business Podcast, promising an engaging and educational episode focused on discussing common mistakes in setting up an LLC.

Matt and Mark emphasize that most listeners likely own an LLC and express an intention to educate on avoiding or fixing mistakes made while setting up an LLC. They offer reassurance, acknowledging that setup errors might often stem from poor advice or weak instructions, rather than ignorance on the part of the business owner.

The primary tip given is to choose a manager-managed LLC instead of a member-managed one to ensure more privacy and flexibility. The hosts explain how this choice can affect ownership discretion, as it doesn’t require the owner’s identity to be public. They outline privacy and operational benefits, such as easier transfer of ownership and simpler dealings with banks.

The conversation shifts to discussing the importance of setting up an LLC in the correct state. The classic error exemplified is setting up an LLC in a state like Nevada for an operation primarily in a different state, due to misconceptions about asset protection benefits. The recommendation is to create the LLC in the state where business or property transactions will occur.

They further elaborate on tax implications, especially state tax considerations, and operational businesses needing the correct state identification for payroll and FICA compliance. An additional common mistake described is setting up an LLC when an S corporation would be more financially beneficial for tax purposes.

The next mistake highlighted is filing minimal paperwork to establish an LLC without proper supportive documents such as operating agreements and minutes, which could lead to issues during legal disputes or financial audits. Absorption of small, repeated practices in asset protection, akin to consistent exercise for fitness, is likened to successful business setup practices.

A metaphor is used to illustrate that more LLCs aren’t always better, similar to the idea that excess of a good thing can lead to inefficiency and additional costs. Maintaining a lean and manageable number of entities is emphasized as a smarter strategy.

They discuss the need for customizing LLCs for specific situations, rather than relying on one-size-fits-all solutions. Tailor-fitting LLCs is compared to fitting a suit; each business scenario can require unique structuring for optimal benefit. They stress the importance of consulting knowledgeable professionals for this task.