3 Common Mistakes Entrepreneurs Make When Registering Their LLCs

Starting a business is exciting but the administrative steps, like forming your LLC, can be less thrilling. Unfortunately, many new entrepreneurs rush through the process and make critical errors that can cost time, money, and peace of mind down the line.

Here are three common mistakes entrepreneurs make when registering their LLCs and how you can avoid them.

1. Choosing the Wrong State to Register

It might sound tempting to register your LLC in a "business friendly" state like Delaware or Wyoming, but doing so without careful consideration can be a mistake especially if you're operating in a different state.

Why it’s a problem:
If your LLC is registered in one state but operates in another, you’ll likely need to file as a “foreign LLC” in your home state doubling your paperwork and compliance costs. You could also face penalties for failing to register properly.

What to do instead:
Unless you have a compelling legal or tax reason, it's usually best to register your LLC in the state where you conduct most of your business.

2. Using the Wrong Business Name

You’ve come up with the perfect name, only to find out later that someone else already owns it or worse, that it violates a trademark.

Why it’s a problem:
Using a name that’s already taken or too similar to another company’s can lead to legal issues, rebranding headaches, and loss of credibility.

What to do instead:

• Conduct a thorough name search in your state’s LLC database.
• Check for federal trademarks on the USPTO website.
• Search domain availability if you plan to have a website.
• Consider reserving your business name if you're not ready to file yet.

3. Failing to Draft an Operating Agreement

Many single member LLC owners skip the operating agreement, thinking it's unnecessary. But this internal document can protect your interests and clarify how your business should be run.

Why it’s a problem:
Without an operating agreement, your LLC may be subject to your state’s default rules, which may not align with your intentions. It can also make it harder to open a business bank account or resolve disputes if you bring on partners later.

What to do instead:
Even if you're a solo entrepreneur, draft a simple operating agreement. It outlines ownership, responsibilities, profit distribution, and exit strategies. It also helps establish that your LLC is a separate legal entity important for liability protection.