Mistakes You Should Avoid When Choosing
a Business Entity

It can be an exciting endeavor when embarking on a new venture. If you’re an upcoming entrepreneur, setting up the legal structures will be the last thing on your mind. There are some that could choose to address the issue at all hoping it will take care of itself in the future. This rarely happens. There is a need to have proper legal structures in place. This will apply even if you’re searching for how to start a 501c3. Here are some of the common mistakes that a lot of people make when starting a business entity.

Not Understanding Taxes

Depending on the type of business, you’ll be required to pay taxes. Even if you’re nonprofit, there are some procedures you’ll need to follow to be tax-exempt. For sole proprietorship, you’ll be expected to file for taxes including on the profits that you make. The same applies to a Limited Liability Company. The only difference is that you’re a separate entity from the business.

Assuming You Don’t Need a Formal Business Entity

You might have started your business without following due process but it will reach a point where everything will need to be formalized. If it is a sole proprietorship, there will be no distinction between you in the business. Although you might pay less tax, you’ll be held liable for any losses which is the last thing you’d want to experience when running a business.

Thinking That The Business Entity Will Protect You From Liability

One of the main reasons for forming a legal business is so that your assets are protected in case you go bankrupt or, there is a lawsuit against your business. As much as it will offer some safeguards, there are some things that will be hard to hide from. You can’t be protected when you’re sued for negligence or a criminal offense. You’ll be personally liable in such cases. It can’t help in case a fire or a storm destroys your business. It is crucial that you’re having business insurance so that you’re protected in case of such eventualities.

Not Have an Agreement With Your Business Partners

You should never agree to a gentleman’s agreement as far as business is concerned. This is because you’re dealing with humans and it is easy for them to change their minds. A gentleman’s agreement is not legally binding. Don’t assume that you’ll work things out because of mutual trust. There should be a legally binding agreement that is signed by all the parties involved. Make sure to have the lawyer go through the agreement so that the terms are favorable.


Starting a business entity is always going to be exciting and challenging at the same time. It is crucial that you’re getting right from the onset to avoid potential problems down the road. There should be legal structures in place as that is the foundation of the success of the business. If you’d like to know more about starting a business, you can check out https://501c3go.com/how-to-start-a-501c3-nonprofit/ 501c3Go 12231 Academy Rd NE, Albuquerque, NM 87111 800-293-7490 Social Accounts: https://www.facebook.com/501c3GO/ https://www.youtube.com/channel/UCJkQHcm-Voyr2UnwoqmzU2w https://twitter.com/501c3go