Common Corporate Formation Mistakes (and How to Avoid Them)

Forming a company is more than just filing paperwork—it’s setting the legal foundation of your business. And if that foundation is cracked, it can cause legal, tax, and operational problems down the road. 

Here are the most common corporate formation mistakes we see—and how to avoid them. 

1. Choosing the Wrong Structure 

Each entity type comes with different tax rules, liability protections, and compliance requirements. Many business owners choose based on what’s popular—not what’s right for their situation. 

Fix it: Talk to an attorney or CPA before deciding on your structure. 

2. Filing Without an Operating Agreement or Bylaws 

Even though the state may not require it, failing to create an operating agreement (LLC) or bylaws (corporation) can lead to: 

• Internal disputes 

• Inability to add/remove owners 

• No guidance on decision-making or ownership transfers 

Fix it: Draft these foundational documents with clear roles, rights, and responsibilities. 

3. Mixing Personal and Business Finances 

Without proper separation, you risk piercing the corporate veil—meaning your personal assets could be exposed in a lawsuit. 

Fix it: Open a dedicated business bank account, keep clean records, and never co-mingle funds. 

4. Ignoring Tax and Regulatory Requirements 

Many new business owners forget: 

• To apply for an EIN 

• To register for local licenses or sales tax 

• To choose S-Corp election on time (if desired) 

Fix it: Consult professionals early to stay compliant. 

How We Help 

At Title Stream, we handle corporate filings, draft governing documents, and guide you through tax and regulatory steps—so your business is protected from the start.