4 Mistakes to Avoid when Forming Your Corporation

Have you ever asked the question, what is a C Corporation? If so, you definitely aren’t alone. However, if you currently have a sole proprietorship and want an affordable more flexible business entity, then it may be time to make a change.

The fact is, forming an LLC or a corporation is something that is more affordable and easier than it has ever been in the past. If you want to make this change, then there are a few things you need to avoid to help ensure you successfully get your corporation off the ground. When done properly, your business will keep growing.

Learn about what you need to avoid when forming a corporation for your business, here.

  1. Not Seeking the Advice of a CPA

Each state has its own requirements and unique tax tables for corporations. Also, since there are different types of corporate entities (i.e. C corporations, S corporations, etc.) forming a corporation without seeking the advice and help of a qualified CPA can wind up costing you money in the long run.


The answer is simple – because of the various ways that LLC and corporate income can be treated. Also, there are few states that allow you to change your business structure once you have decided on one. As a result, it’s crucial that you choose your entity wisely the first time around.

When setting up your business, you want to get the most personal liability protection with the best tax advantages for your unique situation. Only a professional numbers person (i.e. CPA) will be able to look at your current situation and your long-term goals to help you determine what corporate setup is right for you.

  1. Believing the Corporate Veil Provides Unlimited Liability Protection

While forming a corporation provides some level of liability protection, it will not extend the protection to fraudulent practices, using the business to further your personal interests or criminal acts. In short, there’s no such thing as a “free ride.” You can’t believe that the corporate veil is going to provide you with an unlimited source of protection.

As a result, you need to make sure you fully understand the liability protection provided, and what isn’t covered. This will ensure you don’t overstep that invisible line.

  1. Not Acquiring the Right Local Business Licenses before Operating an Incorporated Business

Just because you decide to incorporate, it doesn’t mean you don’t have to follow the proper guidelines outlined by your local area when it comes to what permits and licenses you need. In many cases, owners find out they aren’t compliant with the local business ordinances – even after they are incorporated. This can result in thousands of dollars in back taxes and fines – or both. Make sure you follow the letter of the law to avoid these high costs.

  1. Not Having Sufficient Capital when Incorporating

Even though every business owner can benefit when they protect their personal assets from business liabilities, it’s important that owners understand that a lack of capital can actually be detrimental to corporations that want to maintain their corporate veil.


If you are sued as a corporation and you don’t have plenty of insurance, capital, assets or revenue to cover your liabilities, then there are some courts that will being to aggressively pursue you (the owner and consider you personally liable.

A CPA or attorney can let you know the amount of capital you need to avoid the aforementioned situation.

If you want to successfully incorporate your business, be sure to keep the most common mistakes that are listed here in mind. This will help you avoid making these serious and often costly mistakes.