Today we are going to go over something that is near and dear to my heart; forming a corporation.
Specifically, forming a LLC.
There are many ways you can incorporate your business (beyond even what they teach you in school).
Corporation (Inc), Limited Liability Company (LLC), Limited Partnership (LP), General Partnership (GP), Limited Liability Partnership (LLP), Sole Proprietorship…the list goes on and on…JUST for California alone.
Each state has different options and more appear each day (because lawyers need to make a living).
Which is why today, I am only going over the strategy behind how I form a LLC.
Why a LLC?
Because a LLC is easy to form, simple to understand and is a good fit for almost all new businesses whether offline or online.
Below I am going to go over WHY you should form a LLC, the best state to form your LLC in, the company I use to form my LLCs and then my opinion on LLC “stacking” for best privacy and asset protection.
BUT before I get to the fun stuff, I have to do this….
BIG HUMONGOUS DISCLAIMER #1
I am NOT a lawyer, I have no legal qualifications (beyond a love of arguing and a few pre-law classes in college) and CANNOT give you legal advice. Before implementing ANYTHING you see below, please consult with a qualified legal professional.
BIG HUMONGOUS DISCLAIMER #2
I am also NOT a accountant. I have no accountant qualifications (beyond terrible math skills and a deep rooted fear of numbers not in cash format) and CANNOT give you financial advice. Before implementing ANYTHING you see below, please consult with a qualified business accountant.
Let’s get to it!
Section 1: Why should you form a LLC?
The long answer is you are not your company (in all senses of the word).
I know this is a crazy thing coming from a serial entrepreneur who works 24/7 BUT you you need to treat your company like your child. You will help it grow into the awesome, world changing giant it will be one day but it has to eventually strike out on its own. Therefore, it must be as separated from you as possible.
Also, you do NOT want to be the smartest person at your company which means you need to expand and hire (or partner) with smart, intelligent individuals.
These individuals will take actions that sometimes don’t align with your personal values, etc which means you need to seperate yourself from them.
NOTE: You don’t have to like your business partners. Some of my most effective partners are people I personally would never spend time with outside of work. We are a great team but are definitely different people. It is also difficult to find good business partners and you will go through a few of them in the beginning most likely. I see FAR too many companies that explode shortly after launch simply because the there is no legal separation for partners.
After protecting yourself internally, there is the external component.
Your business may fail. You may need to declare bankruptcy. Obviously not ideal but something that needs to be considered.
The average entrepreneur fails 9 times out of 10, never forget that.
Having a LLC allows you to tie off failures and start a new business with no loss of personal assets.
Last, you WILL be sued. It does not matter what type of business you are in or how careful you are, it’s not a matter of it, it’s when. Lawyers and a certain type of individual LOVE to sue businesses. They see businesses as these impersonal targets that are full of expendable cash which allows the end to justify the means. From people purposely crashing into your company vehicles to abusing your products or services just to try get a settlement, there is no limit for some people.
My advice is NEVER use a personal vehicle, house, building, property or address for your company. That type of data is kept forever and will be used for nefarious purposes if possible.
I have a friend who started a multi million dollar company out of his home, expanded to offices around the globe and somehow 5 years later a disgruntled customer tracked down his PERSONAL address and banged on his door at 11:30pm at night to complain.
You can NEVER be too careful.
A LLC is a simple, extremely effective way to protect yourself and your loved ones.
Section 2: What State should I form my LLC in?
Great question! The answer is almost NEVER your own state.
Seriously, a LLC is a separate identity and can “live” wherever it needs to.
Even better (thanks to the internet) you can live in California and form companies in New York without ever PHYSICALLY going to New York.
So where SHOULD you form your LLC?
In my opinion, the best state currently to form a LLC in is Wyoming.
The reason for this is 1) Wyoming does not disclose the names of business owners and 2) it’s EXTREMELY cheap to form a LLC in there.
Wyoming is just a good place to do business. It’s a very conservative government that stays out of your business and there is NO personal income tax. The bison state also take great pains to keep the Federal Government from being able to annoy you too much.
It is currently rated the #1 Best State in the 2018 Tax Index by TaxFoundation.org.
As of the time of this writing, forming a LLC in California will cost you roughly $1500 dollars (depending on who you use and how you file).
In Wyoming, you can form a LLC for $175.
Same protection, $1,325 savings.
Register in Wyoming and invest that $1,325 into marketing.
Section 3: What should I name my LLC?
For your first LLC, always start with a very general brand name. The reason for this is you most likely DON’T live in Wyoming which means you will need to create a DBA in whatever state/county you plan to operate in. People will see your DBA, not your LLC name so take your time on the DBA name.
For your first LLC, I always advise using a family name plus “holdings” or “investments” or something similar. Example: Smith Investments LLC. I advise doing this because you have more important things to spend your time on and this LLC is NOT going to be your “public” company aka nobody will see this name.
To see if your business name is available to register in Wyoming, CLICK HERE.
Section 4: HOW do I register my business in Wyoming?
As mentioned above, I’m not a lawyer and I don’t play one on the internet.
In fact, I don’t even register my OWN businesses.
I use a registered agent.
I’ll let LegalZoom handle this one (no affiliation, I just like the company).
According to LegalZoom.com, “If you own and/or run a small business, chances are your state requires you to have a registered agent—most do. But even if your state doesn’t, strongly consider getting one. A registered agent is a responsible third-party in the same state as the business, who can receive service of process notices, correspondence from the Secretary of State, and other official government notifications—usually tax forms and notice of lawsuits—on behalf of the corporation or LLC.”
This goes back to my earlier statement about separating yourself from your company. You should NEVER be registered as a public agent of the company if you can help it.
Hire someone to handle that stuff, you are worth more.
So with that in mind, here is the company I hire to handle all aspects of registering my LLC’s.
Wyoming Registered Agent Services.
I seriously love these guys. Family run business and they don’t take themselves too seriously.
To see what I’m talking about, just read their About.
Using Wyoming Registered Agent Services, you can setup your LLC in less then 5 minutes.
Simply go to their order form, fill out the necessary forms and pay with a credit card.
They overnight the paperwork and answer all questions almost instantly.
It’s awesome and I cannot recommend them enough.
Also, I am not affiliated with them (aka I get no money for recommending them). I just love their services.
Section 5: How do I get a business address?
To get around this I use what’s usually private mailbox service. These are usually private businesses that will act as your “mail agent” receiving and signing for mail.
You can find a local private mailbox with a simple Google search BUT Wyoming Registered Agents will also act as your private mailbox service!
I pay $30 per month per business and get a dedicated phone number and scanned mail daily. It’s awesome.
I do however suggest you get a second “business” mailing address local to you, usually through your local USPS office. The reason for this is I always have at LEAST one P.O. box for business purposes because I have found that its expected and companies will sometimes dig a little too much if they see a private mailbox service as your primary mailing address.
I use a USPS box for all “general” mail and use a private mail service for banking, government, etc.
Again, addresses can come back to haunt you so make sure to get this setup immediately so you NEVER send business mail to your personal address.
Section 6: How do I open a bank account?
After you form your LLC, you need business bank accounts (so you can keep your personal money separate from the business). Something that most people don’t consider is the difficulty of opening a out of state business bank account.
Each bank has different policies but my current favorite bank is BBVA Compass bank.
Their ClearConnect Business checking is a zero balance, no monthly fee checking account that you can open in any state no matter where your business is physically located.
Again, I’m not affiliated with them, I just highly recommend them for new entrepreneurs to save some money.
You can learn more about their business accounts by CLICKING HERE.
Section 7: How do I take this to the next level?
I’ll share with you some advanced strategies, tactics and the “why” behind my usage of LLC’s.
NOTE: You do NOT need to do everything I show below. In fact, if you are just starting out I would advise you just set up your first LLC, activate a bank account and get cranking. The strategies I show below are better suited to those with extra capital.
First, let’s review what I call “LLC stacking”.
I preach “you are not your business” and I live that saying.
To do this, I have my top level companies that I then use to startup and operate my sub level companies.
As I suggested above, you should create a single LLC with a general family name and then use a DBA to run your business. Once you get capital, use that top level LLC to form OTHER LLCs to expand your business and/or open other businesses.
I also open some LLCs not for business purposes but to simply protect assets.
For example, I have multiple LLCs setup just for vehicle ownership.
NOTE: Registering your vehicle under a company is a fantastic way to protect your privacy. People who lookup your VIN and/or License Plate number will see a company and nothing more. Also apparently police are less likely to pull you over if they see the vehicle registered to a company (not entirely sure about that, just what I hear from sources).
I have property LLCs for the same reason. Anywhere I rent or own, its under a LLC. This is a tactic that celebrities and other famous people use travel and live safely.
Some of the biggest companies out there also use lots of LLCs. If you are ever bored, take a look at how large companies such as Apple or Microsoft structure their corporations.
For both tax organization purposes, what may appear to be one company is actually several. One company could be the accounting department, one could be sales. Sometimes there are companies JUST for the trademark, etc. These companies “pay” each other accordingly which can help out with taxes beyond just legal benefits (hint hint).
This process can get insanely complicated but again, this information most likely doesn’t apply to you yet.
By the time you get to the point where you need to implement this type of information, you’ll have the funds to hire a top level accountant and lawyer who can advise you properly.
Second, let’s review a common misconception about business ownership.
You can own a business you are an employee of.
That’s right, you can take dividends from a company AND a monthly salary.
Which leads me to this…..
Seriously, you are going to be busting your ass, make sure to compensate yourself.
You are the company’s greatest asset in the beginning, so make sure you protect your ass-et.
This is also important because the matter of “personal money” is a huge issue when it comes to the legal protection of a corporation.
One of the worst things that can happen to a LLC is called “piercing the veil”.
Basically this means that a lawyer put together enough of a case to push through the veil of legal protection offered by a LLC and go after the owner’s personal assets.
One of the easiest ways to do this is by catching the owner using company funds for person use.
This is why you should never “dip” into a company account to pay your bills or buy food, etc.
This is another reason to be careful when tracking expenses (it’s just just for the IRS!).
In the above content, I just gave you a small glimpse into what you can do with a properly structured and strategize corporation hierarchy. I unfortunately need to cut off there as any further information can be construed as legal advice.
So I will leave it at this.
Do your own research, test and explore and I guarantee you will find many amazing things you can do with a cheap LLC.
Most of all, remember that you are not your business.
Good luck, and I can’t wait to see you impact the world beyond your wildest dreams!