Top 10 Mistakes When Registering a Company

Registering a company feels like the risky step, yet the costly mistakes usually come in the months after the state approves it. A deadline or a letter slips by while you're busy with the business. A rejected filing costs weeks of waiting, but a missed report can cost the company itself. Florida, for example, dissolves an LLC whose annual report still isn't filed by the fourth Friday of September.

Most LLC mistakes cost little to avoid. The expensive ones start at $25,000, like a missed Form 5472 for a foreign-owned LLC. The mistakes we see most often fall into these groups:

• at filing: the wrong state and a vague business description
• setup: no operating agreement, paying for an EIN or applying too early
• deadlines: ignored registered agent mail, missed annual reports and state taxes
• money: mixed personal and business accounts, the wrong tax setup and owner pay
• foreign owners: missed filings that apply only to them
• licenses and state one-offs

They tend to show up in roughly this order, from the day you pick a state to the first year of running the company.

The ten LLC mistakes in one table

If you want the overview first, the table puts all ten side by side with what each one can cost.

1. Picking the wrong state because a blog called it cheap

The first mistake happens before anything is filed. You read that some state is cheap and form your LLC there. Then you run the business from somewhere else.

If the LLC "transacts business" in that other state, that state may require it to register there as a foreign LLC. So the company pays fees and files reports in two states.

Texas shows what this costs. A foreign LLC transacting business in Texas must register, and the fee is $750. An LLC that should have registered and didn't faces these risks:

1. it can't bring a lawsuit in a Texas court until it registers
2. it may face an injunction
3. it can owe a civil penalty equal to the fees and taxes it would have paid
4. it pays late fees if it registers more than 90 days after it first transacted business

Texas law doesn't define "transacting business". So from the outside it's often hard to tell when an LLC has crossed that line.

A state other than your own can still be the right choice. Count the second set of fees and reports before you file. The comparison is in Best State to Form an LLC: Fees, Taxes and When Your Home State Wins.

2. Filling in the form: a description so vague the state rejects it

Once you've chosen the state, you sit down with the form. In the activity field you write something like "general business" or "consulting", because you'll figure out the details later. In our work with clients, a vague or incomplete activity description is the usual reason a state filing is rejected.

A rejection costs more than the time to fix the form. The corrected filing goes back into the state's queue. And everything that needs an approved company waits with it. The fix is a plain, specific description of the real activity: what you sell and to whom.

3. The approval arrives: skipping the operating agreement

The state approves the company, and since you're the only owner, a rulebook seems pointless. An operating agreement is the LLC's internal rulebook. It sets out who owns what share and who makes decisions. It also covers what happens if a member leaves or dies.

The US Small Business Administration (SBA) says whether you need one "depends on the state in which it was formed". Many states don't require it, and the SBA still advises having one. Without an agreement, the state's default rules apply. The SBA warns that the LLC may then look like a sole proprietorship or a partnership.

New York is stricter than most. Members must adopt a written operating agreement at one of these points:

• before filing the Articles of Organization
• at the time of filing
• within 90 days after

The company keeps the agreement, and it isn't filed with the state. Delaware works the same way on the filing side. The Division of Corporations doesn't keep operating agreements; the company does.

Under that California text, an operating agreement can be oral, written or implied. A written agreement makes sense even for a single-member LLC. It only has to match how the business really runs.

4. The first months: mail from the registered agent goes unread

The operating agreement stays in your files. Mail from the state goes somewhere else first. A registered agent is the person or company named to receive official and legal papers for the LLC in the state. Delaware, for example, requires every entity to have a registered agent with a physical address in Delaware.

The trouble usually starts after the agent forwards something. A notice about an annual report or a tax arrives in your inbox. You're busy with clients, so nobody opens it, and the deadline passes.

Your LLC needs an agent in its state of formation and in every state where it registers as a foreign LLC. And it needs someone on your side who reads what the agent sends.

5. Due dates nobody wrote down: annual reports and state taxes

Much of that mail is about money the state expects from you. Keeping an LLC in good standing costs money every year. The yearly filings are small, so owners forget them. The table shows what four states require and what happens when you miss the deadline.

California's extra fee applies above $250,000 of California income. Florida dissolves the company if the report still isn't filed by the fourth Friday of September.

We worked out the Florida numbers ourselves from the fee page. A report filed after May 1 costs $138.75 plus the $400 late fee. That's $538.75 instead of $138.75. If the report is still not filed, Florida dissolves the company at close of business on the fourth Friday of September.

California's $800 applies to every LLC doing business in the state or organized there. So an LLC with no activity still owes it. The first year's tax is due by the 15th day of the 4th month after the LLC is filed with the Secretary of State. The first-year exemption covered only tax years that began from 2021 through 2023, though some older guides still mention it.

We did this arithmetic ourselves. A California LLC that sits idle for three years owes $2,400 in annual tax alone. Once total California income passes $250,000, an LLC fee is added on top:

• $900 for $250,000 to $499,999
• $2,500 for $500,000 to $999,999
• $6,000 for $1,000,000 to $4,999,999
• $11,790 for $5,000,000 or more

In our work with clients, we regularly see companies dissolved because state reports and taxes were missed. Reinstatement is often impossible or comes with a large penalty. Some owners end up forming a new company instead. And if the bank isn't told what happened, the bank account can become a separate problem. State deadlines are collected in LLC Annual Report: Requirements, Fees and Due Dates by State.

6. The first payments: one account for you and the company

Fees and reports are about the state. The next mistake is about your own money. The first client pays, and the money lands in whatever account you gave them, often your personal one.

Many owners ask whether they can lose their house if their LLC is sued. This mistake sits behind that worry. The SBA says LLCs protect owners from personal liability "in most instances". Then it adds that "that protection has limits".

Mixing money is one way to reach those limits. The SBA calls separating finances "pivotal for protecting your own assets and credit". It says mixing them risks "forfeiting the legal protections that entity structures offer". So the SBA recommends a business checking account and a business credit card, used only for the business.

7. Searching for the EIN: paying for it or applying too early

A separate account usually needs an EIN, so you search for how to get one. An EIN (Employer Identification Number) is the LLC's federal tax number. The IRS issues it for free. It says so directly: "You never have to pay a fee for an EIN". And it warns, "Beware of websites that charge for an EIN".

Timing is the second common error. The IRS says to form the LLC with the Secretary of State first. An application sent before that may be delayed.

The third error concerns foreign owners. The online application needs the responsible party's SSN or ITIN, so an owner without either has to apply another way. The details are in What Is an EIN (Employer Identification Number)?.

8. When profit grows: the wrong tax setup and the wrong pay

A few months in, the business makes money, and someone mentions an S corp. Until you choose otherwise, the IRS taxes the LLC in a default way. An LLC is a legal form, and the IRS can tax it in several ways:

1. A single-member LLC is "disregarded as separate from its owner" for income tax by default.
2. It's still a separate entity for employment tax and some excise taxes.
3. A multi-member LLC is taxed as a partnership by default.
4. An LLC can choose corporate taxation by filing Form 8832.
5. It can also elect S corporation status with Form 2553.

The Form 8832 election generally can't take effect more than 75 days before the filing date. It also can't take effect more than 12 months after it.

The S corp window is short. Form 2553 must be filed no more than 2 months and 15 days after the start of the tax year it should apply to. You can also file it any time during the year before.

Owners watch this deadline because the SBA treats LLC members as self-employed. Self-employment tax is 15.3% (12.4% for Social Security and 2.9% for Medicare) once net earnings reach $400. Some owners elect S corp status to change how that tax applies, and some of them miss the window.

Whether to pay yourself a salary

Then comes the question of how you take money out. The answer follows from the tax setup:

• Partners aren't W-2 employees, says the IRS. They're paid through distributions or guaranteed payments and get a Schedule K-1.
• In an S corporation, owners who work in the business must get "reasonable compensation" as wages before other distributions. If they don't, the IRS can reclassify payments as wages.
• In a corporation, an officer is generally an employee, and officer pay should match the duties.

The case that causes trouble is an S corp owner who takes only distributions and no salary. It looks like a saving until the IRS reclassifies the payments. So decide the tax classification and your pay together and early, ideally with an accountant. The comparison is in LLC vs S Corp.

9. Running it from abroad on advice written for US residents

Most of the advice above is written with US residents in mind. If you live outside the US, you'll run into three issues that most LLC guides skip. They are Form 5472, the S corp election and the BOI report.

Start with Form 5472. A foreign-owned US LLC may need to file it with the IRS. The penalty for not filing a complete and correct form on time is $25,000 for each failure. Say the IRS sends a notice and the form still isn't filed within 90 days. Then another $25,000 is added for each 30-day period, with no maximum. The rules are in Form 5472 for Foreign-Owned US LLCs: Who Must File, Due Date and Penalties.

Next is the S corp election. An S corporation can't have nonresident alien shareholders. So an LLC owned by a nonresident alien can't elect S corp status. A tax plan built on that election doesn't work for a foreign owner.

Last is the BOI report. BOI stands for beneficial ownership information. It's a report about a company's owners filed with FinCEN (the Financial Crimes Enforcement Network at the US Treasury). US-formed companies have been exempt since an interim rule in March 2025, even when the owner is foreign.

On August 11, 2026, FinCEN issued a final rule that permanently removes BOI reporting for US companies and US persons. Only companies formed under foreign law and registered to do business in a US state still report.

10. Taking the first job without a license

The last mistake affects every owner, wherever they live. You have an approved LLC, and a client is ready to start. But an approved LLC is a legal entity, and it doesn't replace a license.

The SBA says that "most small businesses need a combination of licenses and permits from both federal and state agencies". County or city licenses may be needed too. Which ones apply depends on your industry and location.

Some states also have one-time steps after formation. New York is the clearest case. After the $200 Articles of Organization fee, the LLC must publish a notice in two newspapers. The county clerk picks them: one weekly, one daily. The notice runs once a week for six weeks in a row.

Then the LLC files a Certificate of Publication, which costs $50, within 120 days of formation. If it misses that, its authority to carry on business in New York is suspended. A later filing ends the suspension. Contracts stay valid, and members aren't made personally liable because of the delay.

Fixing LLC mistakes you've already made

Maybe you're reading this after the fact. Several of these mistakes have a formal fix. But it usually costs more than avoiding the problem would have.

• A late S corp election can get relief under Rev. Proc. 2013-30. The request must come within 3 years and 75 days of the intended effective date.
• Other late S corp cases generally need a private letter ruling, which carries a user fee.
• A New York suspension ends once the Certificate of Publication is filed.
• A company formed in the wrong state usually has to register in a second state or form a new LLC.
• A company dissolved for missed reports may be impossible to reinstate, or may come back only with a large penalty.

Avoiding LLC mistakes yourself or getting help

Whether you can avoid all ten on your own depends mostly on how simple your case is. Say you're the only owner and you live in the US. The LLC works in one state and keeps default taxation. Then handling these filings yourself is realistic. The cost is mostly your time, spent on the state's rules and on a calendar of deadlines you keep every year.

The risk grows in these cases:

1. You live outside the US. Form 5472, the EIN without an SSN and the S corp limit all apply at once.
2. Your company operates in several states, each with its own fees and reports.
3. You plan an S corp election. The window is short, and pay rules follow from it.

Hiring help doesn't move the legal responsibility. The state and the IRS still hold the LLC and its owners to the deadlines. If you hire someone, ask which filings they handle and which stay with you. When we form an LLC as part of a US launch, the state choice and the activity description are the first things we check.

What to do this month

If you haven't filed yet, check two things first: the state you form in and the activity description. After approval, put every state and IRS date into one calendar. Read everything your registered agent forwards, even when it looks routine.

Keep the business money in its own account from the first payment. If you live outside the US, get Form 5472 right first, because its penalty is the largest here. State deadlines are collected in LLC Annual Report: Requirements, Fees and Due Dates by State.