LLC Naming Mistakes to Avoid

As an LLC, you have a lot of flexibility when it comes to choosing your business name — within certain rules and regulations. These rules include making sure the name is not already in use by another business entity in your operating state.

Conducting a Dunn & Bradstreet database search, related business directory searches, and a state corporation/LLC name database search is essential. Otherwise, you could run into legal trouble down the road.

1. Not Getting Legal Advice

When forming an LLC, it is important to get the right legal advice to ensure that the entity name you choose meets all state business entity naming rules. This includes including required identifiers and avoiding restricted words. The identifiers typically include words or abbreviations that identify the company as an LLC, which is necessary for legal and tax purposes. It is also a good idea to avoid restricted words, which vary by state, but commonly exclude words that indicate a company is a governmental organization or a banking institution or insurance agency unless the business holds relevant licenses for these activities.

In addition, it is a good idea to check whether your chosen name already exists as an LLC by conducting a comprehensive search on your state’s business registration database. It is possible to change an LLC’s name in most states, but the process involves certain legalities and formal procedures. When jewelry designer Nina Berenato changed her business name from Psyche Jewelry to Nina Berenato Jewelry three years ago, she found that her website and brick-and-mortar sales increased.

2. Not Keeping Your Operating Agreement Up-to-Date

A written LLC operating agreement sets out the terms and conditions of ownership. It isn’t required in all states, but it is a good idea to have it in place. It can help to prevent misunderstandings and disputes. It can also help to clarify legal procedures. For example, it may stipulate that any member who wants to change the name must be approved by all members. It can also include information about how voting rights are transferred between members or new members are added.

It can also state whether the LLC can use words that falsely suggest it’s a bank, insurance company or other type of entity. For example, the operating agreement could specify that your LLC name cannot contain the word “bank” or “trust.” Keeping this document updated can be critical to preserving your business’s limited liability status and preventing personal assets from being at risk of attack in case of lawsuits. The operating agreement can also help to ensure that your business remains compliant with state laws.

3. Not Keeping Personal and Business Funds Separate

In the excitement of learning how to form an LLC, many business owners get so focused on their goal that they forget small details that could have a significant impact. One of those details is keeping personal and business funds separate.

While it is legal to use your own funds to start a business, the best practice is to open and maintain independent bank accounts for your LLC. This will prevent bookkeeping confusion, make it easier to file taxes, and protect your personal assets from being targeted if your LLC is ever sued.

You should also be sure to document all money transfers between you and your company. For example, Mel might lend her LLC $10,000 to help it get started, but if this isn’t properly documented, it may be considered employment income and subject her to significant tax penalties. In addition, if the corporation is ever sued for any reason, this can pierce the corporate veil and expose her to personal liability.

4. Not Taking Advantage of All the Tax Benefits

When you start an LLC, you’re legally considered a separate entity from yourself. This separation of personal and business assets provides a lot of protection against lawsuits and other risks. In my experience, this protection is only effective if you follow proper legal and financial guidelines, such as keeping your personal and business finances completely separate.

This also includes avoiding using your name or another word that indicates you are an individual owner in your LLC’s name, as this could cause problems if you need to transfer ownership in the future. It’s important to consult a legal professional to make sure you are establishing your LLC properly.

If you’re ready to take the next step toward protecting your personal assets and enjoying tax benefits, click the video below to learn more about forming an LLC! I’ll walk you through critical steps like choosing a business name, getting your EIN for free, and obtaining insurance. Plus, you’ll get our weekly newsletter with legal nuggets & biz tips.

Steven Barron

Steven Barron

Steven Barron is an expert in many fields like tech, education, travel, finance, games, cars, and sports. He started his career in the tech industry, where he learned a lot and got good at spotting tech trends. Steven then moved into writing. He loves technology and is great at telling stories. His articles cover topics like new gadgets, education, and finance. They are full of detail but easy to read. Steven loves to travel and is a big sports fan. This shows in his travel and sports writing, where he draws in readers with clear descriptions and smart insights.

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