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Dispelling Business Formation Myths

McCarter | East PLLC April 29, 2024

Business Team Working Together in OfficeStarting a business can be one of the most exhilarating and rewarding journeys for any entrepreneur.

Whether it's launching a cutting-edge tech startup, opening a quaint café, or offering professional consultancy services, the opportunities for starting a business are as diverse.  

Proper business formation requires a solid foundation. Establishing your business correctly from a legal standpoint not only safeguards your personal assets, but also sets the stage for sustainable growth, compliance with state regulations, and establishing credibility with customers, investors, and partners. 

At McCarter | East PLLC, located in Murfreesboro, just a few blocks from the courthouse, and Woodbury, Tennessee, we understand the critical importance of proper business formation. We also know that all the steps and legalities involved with setting up a business can be difficult to grasp, especially when there are so many myths about the process. That's why we're here—to provide some clarity by dispelling common misconceptions surrounding starting a business.  

Myth #1: Only Large Businesses Need to Choose a Business Structure 

Many entrepreneurs and startups mistakenly believe that business structures like LLCs or corporations are only necessary for large companies with complex operations. However, even small businesses can benefit significantly from choosing the right business structure.  

Sole proprietorships and partnerships do not offer personal asset protection, which means your personal assets could be at risk in case of any legal action against your business. Additionally, different business structures offer unique tax benefits and implications. It's important to consult with a legal professional to determine the best structure for your business, regardless of its size. 

Myth #2: Forming an LLC Completely Protects Your Personal Assets 

Forming a limited liability company (LLC) is often touted as the go-to solution for protecting personal assets from business liabilities. While an LLC does provide a layer of protection, it's not bulletproof. If you engage in fraudulent or illegal activity, fail to maintain the separation between personal and business finances, or personally guarantee any business debts, your personal assets may still be at risk. 

Myth #3: Online Legal Services are Sufficient for Business Formation 

With the rise of online legal services, many entrepreneurs and new business owners turn to DIY platforms for their business formation needs. However, online legal services cannot take into account the specific circumstances of each individual business, and any mistakes made during the formation process could have significant consequences in the future.  

While online registration may seem like a quick and easy way to register your business, it often leads to mistakes or incomplete filings. The expertise of an attorney can help you understand the legal requirements for business formation in Tennessee and make sure that all the necessary documents are filed correctly. 

Myth #4: You Can Only Form a Business in Your Home State 

Thanks to the internet and advances in technology, businesses can operate globally from anywhere in the world. This has led to a misconception that you must form your business in the state where you reside. Many entrepreneurs choose to incorporate their business in states with more favorable tax laws or business climates. It's essential to consult with a legal professional to determine which state is the best fit for your business goals and operations. 

Myth #5: Business Formation Is a One-Time Process 

Business formation is not a one-and-done process. As your business grows and evolves, you may need to reevaluate your chosen business structure and make changes accordingly.  

Additionally, there are ongoing compliance requirements that businesses must adhere to, such as filing taxes, annual reports, and shareholder agreements. It's essential to stay up-to-date on these requirements to avoid any legal or financial repercussions. 

Myth #6: Business Formation Is Too Expensive 

Contrary to popular belief, forming a business does not have to break the bank. Options like forming an LLC offer more affordable solutions for new or first-time business owners. While you will have to make some level of investment no matter what, keep in mind that the long-term benefits of choosing the right business structure far outweigh any initial costs.

The guidance of an experienced business attorney can help you make sure your business is formed correctly from the start, saving you time and money in the long run.

Additional Tips for Business Formation 

In addition to dispelling common myths surrounding business formation, various other tips can help with setting up a business effectively and efficiently. 

  • Do Your Research: Before starting a business, it's essential to do thorough research. This includes understanding the market, competition, and target audience for your business. It's also crucial to research the legal requirements and regulations for business formation in your state. 

  • Seek Professional Guidance: While online resources can provide some guidance, it's best to seek the advice of a legal professional when forming a business. They can help you understand the legal requirements and make sure your business is set up correctly from the start. 

  • Understanding State-Specific Requirements: Tennessee law has unique legal requirements for business formation, including the appointment of a registered agent and specific filings with the Secretary of State. 

  • Develop a Solid Business Plan: A well-developed business plan not only helps secure funding but also serves as a roadmap for success. It should include detailed information about your products or services, target market, marketing strategies, financial projections, and more. 

  • Consider Your Future Needs and Growth Potential: When choosing a business structure, consider your future needs and growth potential. For example, if you plan on bringing in partners or investors, an LLC or corporation may be a better option than a sole proprietorship. 

  • Maintain Good Record Keeping: Keeping accurate and up-to-date records is vital for any business. This not only helps with tax filings and compliance, but it also serves as a valuable resource for making informed business decisions. 

Remember, proper business formation is not a one-time event but an ongoing process that requires attention to detail and compliance with legal requirements. Professional guidance can help you stay informed and make sure your business is on the right track from the start.  

Seek Experienced Legal Counsel 

Proper business formation is crucial for the success and sustainability of any business. By debunking these common myths, we hope to provide entrepreneurs and new business owners with a better understanding of the legal aspects of starting a business.  

At McCarter | East PLLC, our experienced team is dedicated to providing personalized legal services to help you through the business formation process and set your business up for success. Contact us today to schedule a consultation.