Top 10 Mistakes People Make When Setting Up an LLC (and How to Avoid Them)
Setting up your LLC should be one of the most empowering decisions you make as a business owner—but too many people unknowingly make costly mistakes when they do it. Whether you’re launching a side hustle, managing a rental property, or running a full-blown business, getting your LLC right is critical to protecting your assets, optimizing your taxes, and avoiding unnecessary headaches. In this episode of the Main Street Business Podcast, attorneys Mark J. Kohler and Mat Sorensen break down the Top 10 mistakes people make when forming an LLC—and exactly how to fix them. Whether you used LegalZoom, did it yourself, or paid a pro, this episode will help you spot gaps in your setup and avoid costly issues down the road.
Watch the full episode of the Main Street Business Podcast for the complete breakdown.
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The 10 Most Common LLC Setup Mistakes
1. Setting Up Your LLC in the Wrong
State Many entrepreneurs mistakenly choose Nevada, Wyoming, or Delaware thinking it’s a tax-saving move. Unless you actually do business there, it could lead to double fees, state penalties, and legal exposure.
Pro Tip: Set up your LLC in the state where your business operates, employees work, or where your rental property is located.
2. Listing Yourself as Registered Agent
While it’s tempting to save a few bucks, listing yourself exposes your name and address to the public—and can mean getting served legal documents at home.
Use a professional registered agent for privacy, speed, and legal compliance. Main Street Business Services offers this in all 50 states.
3. Overpaying for Registered Agent Services
Don’t get gouged by big-name platforms. Many charge $300–$400 per year for something that should cost closer to $125.
4. Using Your Home as the Company Address
Even if you hide your name as the agent, using your home address for the LLC still puts your location on public record.
Consider a privacy address service to keep your home address out of the spotlight and manage business mail securely.
5. Not Completing Your LLC’s “Guts”
An LLC isn’t just one form. If you skipped:
- Operating agreement
- Initial meeting minutes
- Membership certificates
- EIN setup
- Company book…
…then you’re missing the legal structure that gives you protection. We offer a complete LLC cleanup package to get you caught up fast.
6. Skipping the EIN or Banking Setup
You need a Tax ID (EIN) and business bank account to keep your LLC separate. This is crucial for asset protection and tax reporting.
7. Choosing the Wrong Tax Election
Many new LLCs default to sole proprietorship taxation—costing them $9,000 or more per year in self-employment taxes. An S Corp election can save you big if you’re making over $50K/year in net income.
Need help switching? Book a strategy call with one of our tax advisors.
8. Forgetting Annual LLC Renewals
Every state requires a business renewal to stay in good standing. If you miss the deadline, your LLC could be shut down—and you’ll pay penalties to reinstate it.
Let us manage this for you with our Company Compliance Service (CCS). We file your renewals, minutes, and keep you IRS- and state-compliant.
9. Not Holding Annual Meetings
LLCs should hold annual meetings, even if it’s just you. This supports asset protection and is often required for audit defense.
Bonus: your annual meeting trip, dinner, and discussion could become a tax-deductible event with proper documentation.
10. DIYing Your LLC Without Expert
Help We’re all for DIY—until it costs you more in cleanup, penalties, and time. Whether it’s fixing a bad setup or starting fresh, the right help can save you thousands.
Need to Clean Up an Existing LLC?
If you’re thinking, “Uh oh… I did that,” don’t stress. Most mistakes are fixable—and we’ve helped thousands of business owners clean up their LLCs quickly and affordably.
Want to Learn More Without Guessing?
If you’re a business owner constantly stuck between asking your lawyer or your CPA, or worse—Googling for hours and still unsure—you’re not alone. That’s why we created the Main Street Business Owner’s Situation Room, where you get:
- In-depth, trustworthy answers from a seasoned CPA and attorney
- Support on legal and tax questions without having to schedule endless appointments •
- Peace of mind knowing you’re on the right path
Learn more about the Main Street Business Owner's Situation Room here »
Want to Become the Trusted Advisor?
If you’re a tax preparer, CPA, EA, or financial pro tired of seasonal burnout and undercharging, the Main Street Tax Pro Certification helps you:
- Charge more
- Work with fewer, higher-quality clients
- Offer year-round advisory instead of just tax prep
Get certified and level up your practice »
Whether you’re starting your first LLC or cleaning up an old one, the key is to stop guessing. Mistakes in setup, maintenance, and tax strategy cost small business owners thousands every year.
Take control. Get the right structure, support, and strategy—and protect what you’re building.
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