3 LLC Mistakes New Business Owners Must Avoid

Danielle Brent-Bownes
Aug 18
3 min read

Updated: Aug 20

Starting an LLC is one of the most common first steps in launching a business. But many new business owners don’t realize that simply filing your Articles of Organization isn’t enough to protect your brand or keep your business legally compliant. In fact, small missteps in how you manage your LLC could completely undo the liability protection it’s meant to provide.

Whether you're just learning how to set up an LLC or you've already formed one, this post covers the three most common (and costly) LLC mistakes entrepreneurs make and how to avoid them.

Mistake #1: Skipping the Operating Agreement

One of the most overlooked LLC setup mistakes is not creating an Operating Agreement especially for single-member LLCs.

Your Operating Agreement is your LLC’s internal blueprint. It outlines how your business is managed, how profits are divided, how disputes are handled, and what happens if the business changes hands.

Why it matters: Even if your state doesn’t require it, not having one puts you at legal risk. Courts, banks, and investors often request it. Without it, your LLC could be treated like a sole proprietorship, which can pierce the liability shield you thought you had.

Don't have an Operating Agreement yet? Grab our attorney drafted template below.

Single Member LLC Operating Agreement | BBLAW

Mistake #2: Forgetting Your Annual Report

After forming your LLC, one of the key compliance steps is filing your Annual Report and it’s one many new business owners forget. In North Carolina, the annual report is due by April 15 each year and can be filed online through the NC Secretary of State's website. Skipping this step can lead to administrative dissolution, which means your LLC will no longer be legally recognized.

Pro Tip: Set a calendar reminder every year and file early. Reinstating a dissolved LLC can be expensive.

Mistake #3: Using a Home Address or Mixing Personal Finances

It might seem like a minor thing listing your home address on your LLC paperwork or swiping your personal card at Office Depot for your business. But these small missteps can come with major consequences for both legal protection and building your business credit.

Using a Personal Address for Your LLC

When you register your LLC, the address you use becomes public record. That means anyone can look it upincluding clients, customers, and spam mail marketers. While privacy is a concern, there’s another reason this matters: your business credibility and funding potential.

Your business address plays a critical role in establishing trust with banks, vendors, and lenders. Many business credit bureaus use your address as a verification checkpoint. If your business address is a residential home, a known PO Box, or a flagged virtual mailbox (like some Regus or iPostal1 locations), your business may not look “real” to credit bureaus or lenders even if you’re completely legitimate.

Pro Tip: Use a physical office address, coworking space, or a reputable virtual office provider that offers a unique suite number (not a generic mailbox). Make sure the address matches across your:

Articles of Organization
EIN application
Bank account
Business credit applications

Consistency matters.

Mixing Personal and Business Funds

If you’re swiping the same debit card for groceries and graphic design services, we need to talk.

Commingling funds means you're using personal money for business expenses or vice versa. This is one of the fastest ways to pierce the corporate veil and lose the liability protection your LLC is supposed to give you.

If you’re ever sued, or audited by the IRS, and you haven’t kept your finances separate? A court could rule that your business isn’t really separate from you and suddenly, your personal assets (like your savings account, car, or home) are on the line.

What to Do Instead:

Open a separate business checking account in your LLC’s name.
Only pay yourself through owner draws, payroll, or distributions not random transfers.
Use accounting software like QuickBooks or Wave to track income and expenses.
Save at least 25–30% of your business income for taxes (depending on your income level and state).

By cleaning up your business address and finances, you're not just checking off legal boxes you’re building a brand that banks, partners, and clients can trust.

Want to Be 100% Sure You're Doing It Right?

Most small business owners never get taught how to properly set up or maintain their LLC. That’s why we created the LLC Health Check a simple, no-fluff guide that covers everything from: