It is quite normal to make mistakes when starting a business. However, some mistakes may waste your time and money. Here we discuss 4 common mistakes made by start-ups so that you can see they are quite easy to avoid.
The State Where Business Will Be Started
Probably the most common mistake made by start-ups is about choosing the best state to start a business. Delaware is traditionally accepted as the best choice by entrepreneurs. Regarding that, Delaware is the most popular state for start-ups. It is, actually, the sole option for venture capital investments.
The biggest advantage of starting a business in Delaware is that it holds the most powerful and up-to-date corporate law system. Therefore, Delaware also holds the most effective property protection system among all 50 states in the US. Basically, the State of Delaware puts a strict wall between your business entity and personal properties. So, you never risk your personal properties by starting your business in Delaware.
Sometimes, the mistake of starting your business in another state can be solved just by changing the state. However, some states do not allow such changes, which makes you get stuck in the state you started your business. Leaving everything behind and starting another business from the beginning can also be time-wasting and quite expensive. So, we recommend you to think it through beforehand and solve this problem by starting your business in Delaware in the first place.
Type of Business
Choosing the business type wrongly is another common mistake. A start-up with the intention of collecting capital starts a C-Corporation usually (you can find more information about C Corporations through articles in our website). In such situations of collecting capital, starting an LLC or another company type with no purpose of income contrasts with the basic aim of your business. (You can find more information about company types through other articles in our website.)
In such situations like holding a personal/private property, however, the best choice is an LLC. business.
The type of business should be considered carefully before starting a business. So, do not hesitate to ask for help!
Number of Shares
Issuing proper amount of shares is of great importance. If your business has more shares than it should have, you have to pay a bigger Franchise Tax. However, an insufficient amount of share selling may cause bigger problems. In such a case, there should be amendments in your certificate of the establishment, which is quite costly.
Name of Your Business
It may sound irrelevant in the first place, but the name you chose for your business can end up being a great problem afterward. You should answer those questions before preparing your Certificate of Establishment:
- Is the domain name matching the name of your business available?
- Is the name of your business appropriate for use in the state you’re started your business?
- Is the name you chose appropriate for use in the states you will potentially operate?
- Is there currently a business entity you are violating its corporate name?
You need to make careful researchers about the name you are planning to choose before starting your business with that name.
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