Top Mistakes To Avoid When Forming a Business in Tennessee
Starting a new business can be a thrilling and rewarding experience. However, it can also be a challenging and overwhelming one. Starting a new business is something that should not be taken lightly. Many entrepreneurs in Tennessee hurry through this process or depend on DIY online forms, only to run into costly financial and legal issues later. Many make mistakes that can hinder the success of their businesses. Working with a skilled entity formation attorney can help you avoid these mistakes. However, even before you talk to an attorney, read on to learn some of the most common mistakes to avoid when forming a business in Tennessee.
- Selecting the Wrong Business Entity
Among the most critical decisions when forming a business entity is choosing the type of entity. Unfortunately, many people get it wrong from this early stage. Every business structure, from a limited liability company (LLC) to a partnership, to an S corporation (S-Corp), to a sole proprietorship, has different liability protections, tax consequences, and compliance requirements. Choosing the wrong business type can result in unexpected tax burden and liability risks. For example, a common mistake is forming an LLC when an S-Corp would better minimize taxes, or an S-Corp when ownership flexibility is a priority.
- Not Conducting Market Research
Another common mistake new business owners make is failing to conduct enough market research. Before starting your business, it is vital to identify and understand your target market and analyze your competition. By carrying out thorough market research, you can better understand your industry, recognize potential risks and opportunities, and build a strong business plan.
- Not Having a Business Plan
A business plan is a document outlining the goals you have for your business. This document is a roadmap to your company’s strategies and financial projections. It is not advisable to launch a company without writing a business plan. A business plan, which includes a financial, marketing, and operational plan, will guide you on how to achieve your goals. Without a business plan, you risk making a lot of costly mistakes.
- Not Creating Proper Governing Documents
Many small business owners ignore creating essential agreements. Without proper governing documents, conflicts are likely to occur, which can disrupt operations or even lead to the closure of the business. For instance, partnerships require clear agreements outlining profit distribution, decision-making authority, and responsibilities. On the other hand, corporations require bylaws that explain how directors and officers are appointed and how decisions are made.
- Failing To Obtain Necessary Registrations and Licenses
In Tennessee, businesses must obtain proper licenses, tax identification documents, and other documents before beginning operations. Skipping this step can lead to fines, delays, or even forced closure. Ensuring compliance from the start can protect your business and establish a strong legal foundation for long-term success.
- Ignoring Long-Term Planning
Many new business owners are only focused on immediate needs and don’t plan for the future. You must consider unexpected changes or future growth. For instance, what happens if a co-owner leaves or dies? A buy-sell agreement, for example, can help prevent disputes that can harm the business.
Contact a Knoxville Entity Formation Attorney
Ready to get started? Contact our skilled Knoxville entity formation attorneys at Reynolds, Atkins, Brezina & Stewart, PLLC today to secure your business’s future.
Source:
investopedia.com/terms/b/buy-and-sell-agreement.asp
