Creating a new corporation or LLC (Limited Liability Company) can be an exciting venture for entrepreneurs and business owners. However, it’s crucial to follow the correct procedures and comply with legal requirements to avoid potential pitfalls. Here are some statistics and interesting data on common mistakes made by new corporations or LLCs when they do not seek legal counsel:
- Failure to File Properly:
- According to the U.S. Small Business Administration (SBA), improper filing is a common issue. Around 20% of small businesses fail in their first two years, and some of these failures are due to errors during the incorporation process.
- Choosing the Wrong Business Structure:
- The IRS reports that many small businesses choose an inappropriate legal structure for their operations. This can lead to unnecessary taxes and legal complications. For example, around 90% of U.S. businesses are pass-through entities, such as LLCs, which are taxed differently from corporations.
- Incomplete or Inaccurate Documentation:
- The U.S. Census Bureau states that incomplete or inaccurate documentation is a common issue. This can lead to legal disputes and difficulties in obtaining financing or attracting investors.
- Inadequate Understanding of Corporate Governance:
- A survey by the National Small Business Association (NSBA) found that many small business owners have limited knowledge of corporate governance. This can result in poor decision-making, conflicts of interest, and regulatory violations.
- Compliance Failures:
- According to the National Business Register, approximately 50% of new businesses do not comply with annual reporting requirements. Non-compliance can result in penalties, fines, or even dissolution.
- Lack of Operating Agreements:
- The American Bar Association (ABA) reports that over 70% of LLCs do not have written operating agreements in place. Without such agreements, disputes among members can be challenging to resolve.
- Ignoring Tax Obligations:
- The IRS states that some new businesses fail to meet their tax obligations, such as withholding and remitting payroll taxes. This can lead to tax penalties and legal issues.
- No Employment Agreements:
- The Bureau of Labor Statistics (BLS) reports that many small businesses do not have formal employment agreements with their workers. This can result in misunderstandings, disputes, and labor law violations.
- Lack of Intellectual Property Protection:
- The World Intellectual Property Organization (WIPO) notes that new businesses often overlook the importance of protecting their intellectual property. Failure to do so can lead to intellectual property theft or infringement.
- Insufficient Knowledge of Regulatory Compliance:
- A survey by the National Small Business Association (NSBA) found that 58% of small business owners believe they are not familiar with all government regulations affecting their business. This lack of knowledge can result in non-compliance and legal issues.
These statistics highlight the importance of seeking legal counsel or professional advice when starting a new corporation or LLC. By doing so, entrepreneurs can avoid common pitfalls, ensure legal compliance, and set a solid foundation for their business’s success.
