Today I am going into a detailed explanation of LLC’s. LLC’s are a very important brick in the wall of legal protection for your business and I want to provide you everything you need to know to build your wall!
In this episode we will cover:
- What is an LLC and what does it protect?
- When you should file your LLC
- Tax treatments
- Multiple LLC’s
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Disclaimer:
The Legalpreneur Podcast is advertising/marketing material. It is not legal advice. Please consult with your attorney on these topics. Copyright Legalpreneur Inc 2022
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Episode 235: Everything You Need to Know About LLC’s Transcript
Andrea: [00:00:03] Welcome to the Legalpreneur podcast. I’m your host, Andrea Sager, founder and CEO of Legalpreneur Inc. As a serial entrepreneur and someone that works exclusively with small business owners legally protecting their business, I’m dedicated to covering common legal issues faced by business owners, providing you with the business knowledge you need to catapult your businesses growth and showing you just how some of the world’s most elite entrepreneurs have handled these legal and business issues themselves. In true attorney fashion, the information in this episode is not legal advice. This is for informational purposes only, and you should always consult with your attorney before implementing any of the information in the show. Hello there. Welcome back to another episode of the Legalpreneur podcast.
Andrea: [00:00:51] I’m super pumped about today’s episode because we’re talking about LLCs, limited liability companies. Basically one of my favorite topics, and I’m giving you everything you need to know. I’ve done a lot of episodes about LCS, but last week we talked about building the complete wall of legal protection. And so for the next several weeks, we’re going to be breaking down each layer of those bricks. And first up is LLC. So this is going to be a very thorough episode about LCS. It’s going to be longer than my typical 10 to 15 minute episode. So stay tuned because it’s going to be jam packed full of incredible information about what an LLC is. So what exactly is an LLC? It’s a limited liability company and it protects you, the owner, from the debts of your company. So if you have to go into collections, if you go into bankruptcy, you as an individual are protected from those debts in your company. If the company gets sued, you’re not personally getting sued. It is the company that is getting sued. So remember that the LLC is liability protection. You are legitimately, personally as an individual, being protected from the debts of the company. That’s what an LLC is. Now, I’m not going to cover an S corp in this episode that will be in the coming weeks, but. I will touch very briefly later on the tax structure that an LLC has, but just know that. It doesn’t matter what an accountant says, because I know that most accountants, most bookkeepers, people that give advice about an LLC will tell you, Hey, don’t don’t worry about filing an LLC until you’re making this amount of money, X number of dollars.
Andrea: [00:02:46] And so when that happens, you end up waiting. And what I’m going to explain is you’re really still leaving yourself open to a ton of liability. So just know that for the LLC you are getting personal liability protection. If you are a sole proprietor, which is what you are, if you don’t file an official business entity or if you file a DBA, essentially you’re still a sole proprietor. If you don’t file an LLC or a corporation, you are a sole proprietor. What that means is you are still. One and the same as your company is you as an individual. There’s your company, you are one in the same. You don’t want that to happen because that means you are still responsible for the debts of your company. What happens if you accidentally do something in your business? You post a photo on Instagram or on your website that you didn’t know. You couldn’t use. That is copyright infringement. And you can get sued in federal court for that. You’re just protecting yourself from these little mistakes. You’re protecting yourself. If shit hits the wall with business and you actually have to file for bankruptcy in the business, you’re not having to do that. Personally, it’s only for the business. I know this is sometimes hard for newer business owners to understand if they are the only owner because they think, Oh, it’s just me in the business.
Andrea: [00:04:10] I don’t need an entity. No, you need to separate yourself. You need that degree of separation, which is why we have the LLC. And it’s because you do not want to be responsible for the deaths of your company. Now. When should you file the LLC? I know that if you go into any Facebook group, you ask anybody, they will give you a million different answers about when you should actually file. Some people will say, Oh, wait until you’re making 50,000 a year or 100,000 a year or Oh, it doesn’t even matter. You guys file the LLC as soon as possible. That is coming from me. Andrea Sager, your favorite attorney, and I am here to tell you you want to file as soon as possible and just hear me out. I’m going to illustrate this. So let’s let’s say you hear from somebody, whether it’s an accountant or somebody else, and they say, don’t file your LLC until you’re making $100,000 a year in your business and you listen to them. And so. You are making money in the business, but you’re not an LLC. And so let’s say today, today is day one in the business. You’re not an LLC, you’re a sole proprietor. So you and your business, you’re you’re one of the same. You’re one, you’re one thing. Well, tomorrow day two, you post a video on Tik Tok and you go viral and things start going crazy and you start making all this money and things are going great.
Andrea: [00:05:43] And you’re like, Oh my gosh, I’m making all this money. And then day three, you’re you, you remember, Oh, I’m making 100,000 a year now. I hit that revenue number. I’m going to go file the LLC. So day three, you’re you filed. And so now you’re an LLC. So you have that degree of separation. And then day 100 comes along and you get sued or you get a cease and desist letter for something that happened on day one or two. You get that letter, you get the notification of the lawsuit. We’ll just say you’re getting sued. You get notification of the lawsuit? And you see it and you’re like, Oh, no big deal. I’m an LLC. Like, Yes, this sucks. I have to pay for my defense and get out of it. But it’s not the end of the world because I’m an LLC. My personal life will be okay. The business may not be okay, but I’m okay. Well, guess what? If it happened on day one or day two? Which was before you filed the LLC. You actually do not get the LLC protection. And this is for whatever reason, you know, maybe you posted a photo, maybe you have a brick and mortar store and somebody came in and they tripped and fell. And whatever whatever reason, something that happened before the date you file the LLC, you do not get the LLC protection. That is why you want to be an LLC as soon as possible.
Andrea: [00:07:18] You never know what’s going to happen in business. You don’t. You absolutely don’t. And you don’t know all the laws. And so remember, go back to that wall of protection. You’re laying down all these bricks to have this wall so high. And this is really the foundation. The LLC, the entity is the foundation of your business because it’s. Protecting you is the foundation of the protection protects you as an individual. So file as an LLC as soon as possible. In order to get that protection for anything that happens. Business. Any time something accidentally happens, you as an individual will be protected from the debts of your company. So got that. Got that situated. So you know, you need to be an LLC and you want to be an LLC as soon as possible. Now, what about the tax treatment? I’m not going to go into huge detail here because you really should chat with your CPA, but just know once you file the LLC, you’re still filing your taxes the same way you would as if you were a sole proprietor. As a sole proprietor, you’re filing a schedule C on your taxes. There’s not a separate tax return. You’re only filing a schedule C, which is the same thing you file as a sole proprietor. This is how I illustrate to people. Look, you literally, literally the only thing an LLC does is limit your liability. There’s no tax difference. It is limiting your liability. So taxes are still the same. Now and you actually have more deductions because if you paid money to file the LLC, the government filing fees you paid, if you paid an attorney or a third party company like Legalpreneur to file your LLC.
Andrea: [00:09:12] All of those can be deducted on your taxes. The only time the tax treatment changes for an LLC is if you elect to be filed as an SE corp. An SE corp is not actually an entity in and of itself. It is a tax filing status. When you make this election, you’re signaling to the IRS, Hey, I want my business to be treated separate. From me as individual for tax purposes. It still flows through, but there’s a lot of differences. And this is something you do want to chat with your accountant about. I will actually do a separate episode on this, but just know that in SE Corp is what you can elect to be taxed as when you are an LLC, you have to you do have to be making a certain amount of money. This is why a lot of accountants will say Don’t worry about the LLC until you’re making X number of dollars 60, 80, 100,000. I’ve heard it all. And they say that because they intertwine, they consider it one in the same as filing an LLC and making the SE Corp election. They do not have to be done at the same time. Once you file the LLC, you have a certain amount of time to make that escape election. If you don’t make it, then you have to wait until the next year and you have I don’t quote me on this.
Andrea: [00:10:45] I think it’s like 60 days after the beginning of the next year and there are some ways around it. I think some accountants can like backdate it, like write a letter. I don’t know the details of that. Go chat with your accountant about it, but just know that the SE corp does not have to be done. At the same time you file the LLC. The LLC is for liability protection, the S Corp is for taxes. They are two completely separate things. They do not have to be done at the same time. I wish I could just like yell that at every single accountant because so many of them just want to treat it as the same. So but just know it doesn’t have to be the same. Now. I know I get the same questions every time I teach this stuff. One of the questions is, Hey, do I need multiple LCS? Or what I do. And maybe you have multiple businesses. And the question always comes up. Do I need multiple losses? Very high level answer is it depends. But what it depends on very lawyerly answer. I know it’s annoying, but the very precise answer is it depends on the risk levels of the companies. It depends how related they are. Now, an extreme example when you absolutely want separate entities is one. You have a real estate company, or maybe you have a rental property that is in an LLC and then you have an e commerce business, or maybe you have a brick and mortar store.
Andrea: [00:12:22] Those are two completely separate businesses and you 100% want to have two separate entities for those. Now, on the other extreme is let’s say you have a retail clothing company and then you start selling wholesale. And some people wonder, hey, should I have this under the same entity or should I separate them out? That’s one that can actually go either way, because obviously they’re very, very similar and you actually have different customers, but you’re still selling the same exact thing. It’s just a different revenue stream coming from different customers so that one can go either way. One that I tell people can stay under the same entity for sure is let’s say you have a coaching company, you coach other business owners and you have a podcast. Do you want the podcast and the coaching company under the same entity? And I typically say yes, as long as because a lot of times the podcast is actually feeding the coaching company. So it’s completely fine to keep them under the same entity. Now, let’s say you have a coaching company and your podcast is about so you’re coaching business owners on how to make $1,000,000 and you have a podcast about how to plant and how to grow a garden. Now if they’re completely separate topics, they don’t feed into each other. That might be a different scenario. You may want different entities for that.
Andrea: [00:13:55] Let’s say the podcast is blowing up and you’re making $1,000,000 a year from ad revenue, and maybe you have other businesses that actually branch out from that. You’re selling seeds, you’re selling different. I don’t know what garden people sell, but it can quickly become multiple businesses. From one podcast you have the ad dollars, maybe sell swag or products. That’s when you want to explore having different separate entities for that. But if their services. So a podcast is a service, coaching is a service and they feed into each other, you can probably keep them under the same entity. A lot of times I do tell clients that’s fine. Now there’s a million different scenarios, everything in between, what I just told you, the examples. And so that is really when you do want to bring in an attorney and give them the full picture of what you’re looking at in your life, your businesses. And that way they can determine the best route to go when actually determining how many entities you need, how many different revenue streams you have. So. That’s when it does get to the point where you actually do need to work with an attorney one on one. So that is my little spiel on LLCs. If you have questions, do not hesitate to reach out. I want to make sure that you are getting the full picture. I like. I put tidbits here and they’re everywhere. So I finally was like, Hey, I need to do one full episode on LCS and next week we’re going to do a one full episode on corporations.
Andrea: [00:15:35] And then after that it’ll be esports and we’ll move on to the next layer of bricks, which is contracts, and we’ll just keep going. So if you have not listened to the last episode about what I’m even talking about as far as this layer of bricks, you should definitely go back and listen to it. And if you need help, if you just have a quick question like, Hey, like, what do I like? What is the law around this? Shoot me a DM on Instagram or TikTok, whatever, or you can email me Andrea. Andrea Sager If you know you need an attorney. The legal Preneur membership is what you need. You get all access to your own attorney, unlimited emails, a phone call every month, document review, access to all of our contract templates, plus you get a discount on any additional services in there. We start you off with a business audit to tell you, Hey, this is what you currently have in your business. This is still what you need to be legally protected. So we give you all the answers and then you get it done. That’s the Legalpreneur membership. The link is there in the show notes. Go sign up. Everything’s done in the My Legalpreneur app. All your attorney client communication and. Yeah. That’s what I got for you this week. I would love your feedback. Let us know if you have any questions, Miss Nixon.
Andrea: [00:16:56] Here at Legalpreneur, we’re committed to providing a supportive legal community for all business owners. I know how scary the legal stuff can be. If you found this information helpful, I would be so grateful if you could share it with a fellow business owner. And quite frankly, it doesn’t cost anything to rate, review or subscribe to the show. Your support helps me reach more listeners, which allows me to support more business owners in their entrepreneurial journey. Have any questions or comments about the show? Feel free to drop me a line on Instagram. I promise. I read all of the messages and comments, and if you want to be a guest on the show or know someone that would make a great guest, simply fill out our application form and a team member will reach out if we think it’s a good fit. I’ll see you in the next episode.
