One of the most critical decisions a small business owner makes at startup is choosing the right legal entity structure. This choice can significantly impact taxation, liability exposure, and the long-term success of the business.
Many small business owners, particularly those forming a Limited Liability Company (LLC), skip the step of drafting a written operating agreement — often because they’re the sole owner or believe verbal agreements are sufficient. This is a critical misstep that can expose the business to internal conflict, legal ambiguity, and unintended tax consequences.
When forming a business, many owners focus only on immediate concerns: reducing startup costs, minimizing taxes, or quickly getting up and running. While those are important, failing to align the entity structure with the business’s long-term goals can create major roadblocks down the line — from tax inefficiencies to limited growth potential to succession challenges.
One of the most common — and costly — mistakes small business owners make after forming their entity is failing to separate personal and business finances. While this may seem like a bookkeeping issue, it can have serious legal and tax implications, especially for LLCs and corporations where liability protection depends on maintaining a clear distinction between the owner and the entity.
In an effort to save time or money, many small business owners attempt to form their entity using online services or DIY templates — without consulting a CPA or attorney. While it might seem like a cost-effective shortcut, this approach often leads to costly errors that could have been avoided with professional guidance.
At Nordstrom & Associates, PC, we can point you in the right direction and provide professional tax guidance so that you can focus on growing your business with confidence.
