Company descriptions mistakes to check before submitting

Company descriptions mistakes often involve a mismatch between the plan and a public record, rather than a flaw in style. A reviewer may compare the business’s name, address, license information and website with what the plan says. That makes this section a place to lose credibility—or protect it.

Almost every serious fault here is a mismatch between what the plan says and what a record says. Some fixes require an agency inquiry or filing, and requirements, fees and processing times vary by state and filing.

What to take away

The record errors

The legal name is not the filed name. A missing suffix, an ampersand instead of the word, an old name kept after a change. The application, the plan and the filing should carry the same string of characters.

The trading name was never registered. Operating under a name that is not your legal name may require registering a DBA ("doing business as"), also called an assumed, fictitious or trade name. Requirements and the filing office vary by state and sometimes locality. Check the official Secretary of State or Division of Corporations website, and the county or city office if it handles trade names where you operate. Look for the applicable DBA or fictitious-name registration instructions and state the status in the plan either way.

The address in the plan is not the address on file. Businesses move and forget to update their state record. Search the entity on the Secretary of State or Division of Corporations website and compare the plan with the address field on file. Check that you are comparing the same address type: a registered agent address and a principal business address can be different.

The entity type is described loosely. A tax election is not an entity type, and the structures themselves are described plainly enough to copy the right word. Check the formation filing—such as Articles of Incorporation for a corporation or Articles of Organization for an LLC—and use the entity type shown there. For an LLC, compare ownership details with its operating agreement or ownership schedule; for a corporation, use its current ownership schedule. How the entity is taxed is a separate sentence.

Ownership percentages do not add up. Usually because a promised share was never documented. Compare the plan with the LLC's operating agreement or the business's current ownership schedule or cap table, and resolve any discrepancy in writing before stating percentages. It is a small arithmetic error in the plan and a real problem in the business.

The registration has lapsed. An annual report unfiled, a fee unpaid, a status showing as anything other than active. Check the entity's status on the official Secretary of State or Division of Corporations website. Annual report due dates and fees vary by state and entity; use that office's current annual-report instructions to confirm the deadline and amount, and follow its reinstatement instructions if the record is not active.

The classification code does not match the activity described. Check the North American Industry Classification System (NAICS) using the U.S. Census Bureau's NAICS search. For example, NAICS 722511 is Full-Service Restaurants; compare the code with the business's actual activity and update the plan and any applicable filing if they disagree. Codes get chosen once and never revisited. A code that says one thing while the plan says another invites a question about which is true.

A pending license is described as held. Write applied for, with the date and the issuing authority. Check status in that authority's official license lookup or permit portal. There is no single license register for every U.S. business: depending on the license, the issuer may be a state licensing board or a city or county permitting office. The difference matters enormously to a reader and costs you nothing to state.

The disclosure errors

These are not inaccuracies. They are omissions that look like inaccuracies once found.

Related entities left out. A separate company owning the building and charging rent, a spouse's business that is also your main supplier, a second entity holding the equipment. All ordinary, all fine, all damaging when a lender meets them first in your accounts.

An owner who does not work in the business, unmentioned. Readers care about who can block a decision, not only about who turns up, and the team section is where that gets explained.

A prior business, especially one that failed. If a reader will find it, and they usually will, a plain clause from you is worth far more than their discovery.

A dispute, lien or judgment against the business. Same reasoning. Disclosure with a status beats silence, and silence here is what turns a manageable item into a reason to decline.

The writing errors that still matter

Aspiration in the present tense. Locations planned described as locations operating. This is the fastest way to lose a reader in the whole document, because it makes every other sentence a question.

The section sells. Once identification turns into persuasion, the reader stops taking any of it as fact. Keep the company description to verifiable facts about the business, its activities and its current status. For related material, see the company descriptions guide and the description examples.

The founding story outruns the ownership paragraph. A reasonable test of proportion: if the origin narrative is longer than the facts about who owns what, the section has the wrong shape.

The customer described here is not the customer sized later. Whoever reads both sections will not ask which one is right.

How a reviewer checks, in five minutes

None of that requires expertise, and it happens before anybody engages with your argument. Running the same five checks on yourself first is the highest-value half hour in the whole document. For more on drafting this section, see how to create company descriptions.

The repair, in order

Fix the record before the prose. For a lapsed registration, an unfiled name or a stale address, use the instructions on the responsible state or local office's official website. Check its current filing requirements, fee and processing information; timing varies, so do not assume a correction will be complete before you submit.

Where something cannot be fixed before you submit, write one sentence naming it, its status and the expected resolution date. That sentence is not a weakness. It is the thing that makes the rest of your document credible, and it also happens to be true, which the alternative is not.

Common questions

My registration lapsed years ago and the business kept trading. What do I write?

State the current position accurately and what you are doing about it. Then contact the state's Secretary of State or Division of Corporations and, if there is any exposure, an attorney. Do not describe the entity as active in a document going to a lender while the record says otherwise.

Do I have to disclose a business that closed owing money?

Anything the reader will encounter in diligence or on a credit file should come from you first, in one factual clause. Ask your accountant what your specific application requires you to declare, because that is a question about the form, not about the writing.

Is it a mistake to describe the business as a family business?

Not at all, as long as the facts follow: who owns what, who works in it, and who has authority. The phrase on its own tells a reader nothing, and if it appears without those facts it reads as a substitute for them.

What if two owners disagree about the split?

Then the plan cannot state one, and writing a figure to avoid the awkwardness is the worst available option. Settle it in writing first. Every number downstream, including what each of you is personally guaranteeing, depends on it.