Online Event Archive Recorded February 9, 2023
Unlock the path to legalizing your business with our informative pre-recorded webinar series: “Making Your Business Legal.” If you’re embarking on a business venture, understanding the essential steps to legal compliance is crucial. Tune in to this insightful 2-part webinar which will walk aspiring entrepreneurs through the process of registering their business and delve into the subsequent steps.
- Part II: You’ve Gone Through the Business Registration Process, Now What?
Having navigated the initial registration, it’s time to explore the next phase. Part II of this webinar series will provide valuable insights into what comes after business registration. From ongoing compliance considerations to essential next steps, this session aims to empower you with the knowledge needed for a successful and legally sound business journey.
Transcript:
NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.
Speaker 1 0:00
So I’ll always say once you become a, get your LLC, or whatever entity you register with, you could kind of get like this virtual world card. And it’s like, to me it’s like a membership and in like membership, everything has its privileges. And so how do you keep your privileges I’m going to talk about that in a few. But I also want to go over some of the things I called the Big 10 after. And this is things that I recommend that you have done after you have registered your entity, whether it’s with DCRA Domingo de LCP, in DC, or your state secretary’s office. And so is, number one, get any licenses and permits, check your state, or if you’re in DC, check the LCP to see if your specific industry requires you to have any licenses and permits. If you are in DC, all business regardless, gods of the industry has to have a basic business license, not all states do. Some only require certain industries. So you want to check to make sure, get your EIN number, which is your employer identification number. What does that mean? Just like you you as a person, you have a social security number, now your business has an EIN number, or your taxpayer identification number, that’s going to be your unique number to your business, you’re going to use that EIN number on bank accounts, you’re going to use it on if you try to get business credit, if you try to get into the SAM system, where that’s where you do government contracting, they’re gonna ask for this EIN number, it goes along with getting a business bank account, you want to make sure once you become a registered entity, especially the ones that have the asset protection, one of the ways that you can, you can lose your assets, protection if you commingle your funds. So you have to have a separate bank account from your personal and your business. Now, if you are sole proprietorship, that doesn’t apply to you. But if you are either LLC, or SOC Corp, or even a nonprofit, a 501, C three, you have to have a separate business account from your personal, you have to register with the state tax office, check with your state and see what the requirements are. Even if you got to be an employer, you still have to have a withholding account. So check with your state to see what that requirement is. Write an operating agreement. There’s not a requirement in some states, but some states do require it. But some states don’t have operating agreement. It just basically outlines it’s like your blueprint for your your your new entity, how’s it going to be operated? How is it going to be funded? What happens if we have to dissolve it, it’s important to to have it because if you are a single member was sole proprietor, and something happens to you somebody needs to be to pick up this operating agreement and see what they need to be doing to help you out. Or if they have to dissolve it, it gives some instructions in that set up your bookkeeping, that’s very important. That’s the one thing they look at too. If you ever get in some trouble, and you have to prove that you’re a real business, having a bookkeeping system. I don’t care if it’s an Excel spreadsheet, you have a journal, or you use QuickBooks wave accounting, gusto zero, enter those things, get yourself a bookkeeping system, ensure your business when you have an LLC or SOC Code, you get the limited liability protection. But what it does is only protects your personal assets, you can still have your business assets taken in and also lawsuit or settlement insurance will pay out if you have general liability insurance, or professional liability insurance, kind of like malpractice insurance, it will cover you if you have to have a judgment. I know that if you go to our website, we’re going to be having a session on business insurance the next couple of weeks. So if you want to learn more about business insurance, um, please sign up for that training. Meet with a tax advisor. Now you need to know what your tax responsibilities are not only for the state, but for the IRS. Keep good records. actually keep the records number nine is very important because it’s in the code Limited Liability Company and SOC Corporation is governed by state statute and under the state statute, which is weathers the limits or Limited Liability Act or the Corporation Act. One of the languages in there it says one of the sections is keeping records. So you need to keep all your records keep I recommend get you a quote a notebook, a binder or your formation documents in there. Your articles of incorporation or your trade name, certificate, Certificate of Good Standing you ei number, which is going to come in the form of a CP 575. notice from the IRS, you’re going to need put all that stuff together or you can create a special folder on your desktop. Label it cool raishin corporate formation documents and keep that secure. Also, you want to stay legit, every most all states stuff about three or four require you to do an annual report, or bi annual report meaning every two years. So like if you’re in DC, for instance, you would do it the first year after you filed your you get your LLC or corporation status. And then it’s every two years, and other states like Maryland, Virginia, Pennsylvania, Florida, it’s every year. And as usually, you pay a fee from anywhere, it could be more from $60 up into like Massachusetts was like six 700 hours. So if you don’t do your annual report, you can lose your status with the states. So that’s we have some basic housekeeping I want to talk about is, you know, just just just to reiterate, what does an LLC, it’s a state legal entity, it has nothing to do with the IRS. It provides limited personal legal protection, like I said, limited, you don’t have a full shield of armor that it can be penetrated. And one of the reasons how you can lose your your LLC or your S corp status. If it’s like malfeasance or negligence or fraud, or you didn’t treat it like a real business. It’s not a corporation, but it’s a hybrid between a sole proprietorship and a corporation, you can have you can be yourself or you can have other people and but you can be a taxed as an S corp election. I’m gonna talk about these things in an upcoming slides. So I talked about last week, I mean, this week, on Tuesday, the benefits, I don’t want to give you some of the benefits, just briefly, you get it’s inexpensive to form less paperwork, it gives you a lot of credibility, you get that personal liability protection in the air. With the LLC. We talked briefly about what is a registered agent, this is the most important thing that you need to know legal wise, this is one apart is how to make your business legal. By law, you have to have a Registered Agent, that is the person that’s going to be like your first line of the fence. That’s gonna be like your linebackers on a lot on your scrimmage line, right? It’s gonna be the people that’s going to protect you, you being the quarterback is going to protect you. And so that person, you can be the owner, you can pick anybody individual. Some states, like Virginia says it has to be if it’s not yourself, it has to be a licensed attorney. So you might want to check your state to see what the requirements are, most states allow you to be your own. A lot of loud third party companies, some say that third party company has to be a licensed attorney, that person is going to get all service a process. That means any subpoena or summons is going to come to that person. So you want to make sure whoever you pick is reliable. If they don’t even check their own mail regularly. You may not then it might not be a good fit, it might not be a good fit for you. If you don’t check your mail regularly. You got to get all that person’s get all compliance notices, tax notices. And in some states in some state law, that person must be present during business hours. Why is that important? Because you have designated persons as an agent. And so if your business hours are eight to four, nine to five, and say somebody from the government tries to serve, serve, serve you, and nobody’s present, what can happen is they can go back to the court and say, Hey, Little Rock ice cream company was not present, they can then ask for summary judgment on you. So that’s why it’s so important that whoever you pick as the rest of the agent, understand the rules and requirements of your business, this is all part of making your business legal. So a lot of people just kind of overlook just kind of stumble over their responsibilities. Because a lot of times they just don’t know, they think okay, I go register with my eight my state secretaries office or DHCP and DC, and they think they’re done. And there’s not it’s not a one and done type thing. So how do you maintain your LLC? What is the requirements? So we talked about the operating agreement, and that you know, it kind of I kind of talked about a little bit it gives you tells you your organization, your management and voting, any contributions that you have any membership, change it and how do you dissolve it? The LLC, we know we talked about that. Talk about that a few minutes ago. You know, if you’re in DC, you must complete the annual report one year after you start up by April 15 and Dc, then it’s every two years. And then it basically details your business activities and it keeps your LLC understanding. So basically what it does is you basically telling the state Hey, I’m still here. I’m still operating. This is how they keep tabs on you. Again, every state is different. What?
Speaker 1 9:54
Depending on your state, not every one is due April. There’s some states that do in June. Are you worried there’s some states like, in some states due in March, you did check your state to see when your annual report is due. This is called a Certificate of Good Standing. You can once you have registered and you have maintained your LLC, you can get what they call a certificate understanding. This proves to people that just because you have an LLC or corporation has been registered doesn’t mean you’re in good standing. So a lot of times when you try to get a business bank account, or if you try to even buy a car, your business name, they’re gonna want to see the certificate in good standing. And you get that by maintaining your LLC actually filing your Annual Report paying any fees, and registration fees to keep it that way. That’s how you get your certificate of the standard. So again, I talked about who can request it. SBA can request it, government lenders, bank, business partners, and investors may want to see that you’re in good standing with the state before they give you money and invest in you. What happens if you fail to file your annual report? Well, you can get revoked in some states call it suspended for some states call it forfeiture. So some of these some really quick compliance tips to help you keep your business once you get your business legal, how to keep it legal. My recommendation is create a compliance calendar. That’s going to be a calendar that you’re going to be using to record all your important dates. When is your annual report, do? What is your annual report do? What is your sales and tax return do all these things that can cause you some fines, fees, penalties, and even administrative dissolution, that’s when they close you out. You need to make sure you are recording those dates on a calendar. There are third party companies that you can use to do compliance. They help you they’ll send you alerts, they’ll send you emails, they’ll say Daniella, you know your LLC renewal is due this month, they’re kind of help you, you can also attack if you have a virtual assistant or assistant or a bookkeeper, you can see there’s nothing they can do to help you keep track of your requirements when it comes to keeping making sure you’re following state regulations. I want to point this out, I’d see people get this all the time this came from two of my clients, one was in Tennessee, and one was in Connecticut, what happens is that sometimes when you register, you may get this notification saying you need to respond to get this. These are all scams. And unfortunately, a lot of my clients have already gotten this. So if you have not registered for your business, make sure that you don’t fall victim to these types of scans, if it does not come from the CEO comes from the state secretary’s office, or DHCP, signed by the state secretary or the director of DHCP is most likely a scam. And again, most people have paid the 80 $90 because they saying that if you don’t do it, you can lose your status. That’s not true. If it doesn’t come from the state secretary’s office, or DHCP, it’s a scam. Let’s talk about the Articles of Organization really quick. I want you to make sure that one thing about keeping your business legal is making sure your documents is correct. I see this all the time. This is an instance of somebody who used a third party company and their articles of incorporation was not correct. And so the underwear has right here where it has the authorized person. That is actually the third party companies name not not the owner. So this person had to amend because this company did not file the articles of incorporation. And that’s there so didn’t really make the business legal what it did made it legal, but they didn’t have proof of ownership of the business. So when you’re getting part of making your business legal was making sure you keeping your documents correct, because it can have an adverse effect on you if you don’t. So talk about the LLC shield real quick. And I talked about it briefly. But what that what it does is what do you have an LLC or LLC for you get the same limited liability, protection? And what it does, it protects you, you’re the owner, it protects you from lawsuits, customers, creditors, and even the business world. That’s why it’s so important. People always ask me, you know, should I stay a sole proprietor? Why should I become a registered entity, when you’re not a registered? Well, you’re just a sole proprietor. You’re not going to have this soldiers or this this armor around you to defend the outside forces from your business. So I want to talk about piercing the corporate veil a little bit. What that means is, is how you can lose your asset protection is it’s called a corporate veil. So you don’t just like here’s the corporate means that you have done something to an unrealized your business in so many words. So I gave an example right here, where Mike sues the fitness company. And because the fitness company did not do their filings, they did not have a Registered Agent, they will commingling assets. If my wins, the owner can basically lose some of her personal assets, just like any other judgment, when you when you get a judgment against you, they can garnish your wages, they can put liens on your property, all those things. So that’s why it’s important to make sure once you get yourself legal, is to make sure you keep it legal because you don’t want to fall victim to this type of situation. Now in reverse, where this person, you know, sue the owner, but the owner was doing everything they had she filed her annual report, she did not commingling funds, what happens is that this whole can still be awarded damages. But he cannot put any assets, he can’t put any liens on her cars or houses, or he can’t do a judge’s judgment on her personal income. Now, he can still go after her personal assets and your business assets. But he cannot touch her personal because she did what she was supposed to do, and maintaining her business entity. So also want to tell you about is be aware of personal guarantees when we go back. So personal guarantees can also mess with your protection. That’s when you give your social security number. And a lot of times when you’re trying to get business credit for getting loans, they’re asking you for your social security number. Be careful. People always ask me well, how do I know if they pull your credit report, and you get that alert from either Credit Karma or experience that somebody pulled your credit. That can that means that there’s going to be a personal guarantee. And so when you have a personal guarantee, some of you you you had, you can lose some of your asset protection that way. Also, the IRS basically says that if you personally guarantee say business credit, or loans, you can’t write off that debt, because they deem it as a personal debt versus a business debt. Another thing that people are seeing people make mistakes and keeping their business legal, is not properly signing their documents. It’s very important once you make your business legal, now you have to really think legal minded and really legalize your business. And so I want to give you some practical ways to basically sign some of your legal documents. The first two is acceptable. This third one is not excuse me. The third one basically says I am personally Stephanie Magnus. I’m basically saying on the third one that I’m personally guaranteed everything in the contract the terms and conditions, everything. So I’m taking full responsibility. That’s typically the third one is what a sole proprietor was fine. If your LLC, S corp, C Corp partnership, or even nonprofit, you should be using the first two, because the third one can really get you in trouble. I had a client that defaulted. He had a trucking company, and he defaulted on some trucking loans. And he signed all his contracts under just his name. And he was wondering and he lost in a settlement in a judgment. And now they’re tacking his W two income because he did not properly sign his documents on behalf of the company. So I’m gonna talk about some of the consequences of just not keeping your business legal. Once you make it legal tax liens you can find yourself in a government audit, have to pay back taxes, loss of the standing liability, identity theft, that’s the FTC says business identity theft is on the rise, late fees, penalties loss of your name. Once your Once your LLC or S corp goes into forfeiture, you lose your name somebody needs somebody else can come and take the business in the state with the same name unless you have a trademark on that name lost to the courts, meaning that if you’re not in good standing, you may or may not be able to bring a lawsuit against a client in court. That happened recently in Maryland, it was a case versus it was ambassador vO versus nationwide. And the company did not have their LLC and desanding. The court determined that they didn’t have a cause of action to even follow suit because they’re not understanding it and they basically kind of threw it out.
Speaker 1 19:46
force closure and then in some states, believe it or not. If you don’t keep your LLC or S corp C Corp in good standing. It is a crime to operate in that state. For instance in Maryland if you have If your LLC has been forfeited, and you continue to operate, and they end the attorney Attorney General find out, you could be charged with a misdemeanor, up to a year, prison off and or fined. $500. So this is why I wanted to really do this session to let you know that it’s just not, you know, you just get your piece of paper and it’s done. Now, it’s the maintenance of it so that you don’t have to fall fall for any of these consequences that I’m listing here. Let me just tell you something, ignorance is not bliss. And what I’m telling you, I’m telling you this is that it’s a it’s a Latin term, it’s, I can never say it, but in law school, we are taught Ignorance is not bliss. You cannot go in there say I did not know or did not, you know, your honor did not know how was I don’t know, once you get this, it’s kind of my told you in the beginning, membership has privileges, and they’re expecting you to know, so you cannot go in there. So you did not know because as an LLC or SOC poor, you get privileges that regular taxpayer doesn’t get one, you get to write off expenses, like rent, electric, gas, water cell phone, that a regular taxpayer can’t do. So that’s why you’re expected to be you know, have this this this, you know, you’re not supposed to, you’re supposed to get the education you that you need. That’s why you have programs like this, to make sure that you do are armed with information so you don’t fall victim to any of these things I’m talking about. So quiz time really quick, is if you can put it in the chat true off off. As an LLC, you can pay yourself a reasonable salary. You just dropped your answers in the chat real quick, true or false?
Unknown Speaker 21:49
I’ll give you a second those who want to participate. Okay, well, my second.
Speaker 1 22:03
No one wants to dare to answer the question. Okay, that’s fine. The answer is false. is false. As an LLC, by law, you’re not allowed to pay yourself. Because as an LLC, you’re considered a member and a member can’t be an employee of the LLC. So just keep that in mind. Now, if you want to know, how do you pay yourself by law, is we could do what they call our owners draw. And owners draw is when you take out when you need it, and you record it on your on your chart of account as the owners draw, not a salary. And so that’s kind of important. And if you ever want to know, publication fat 35 explains all this if you Google IRS Publication 535. But if you’re a client of mine, and you want to learn more about it, we could talk about it and I can share with you the publication but you cannot you cannot, you cannot deduct your our salary or any personal withdrawals in your business. You are not an employee of the business, you are a member. And it’s also because of double taxation, you are going to be charged self employment tax, you don’t want to be taxed on the same money as income. And so that’s kind of how that works. So how does it work, you write yourself a check from your business account, then you deposit into your personal account, and you record it as a business expense. That is that simple. Um, what you can you can whatever you want to call on your chart of accounts, you can call it an owner’s draw, you can call an expense account for the owner. The IRS doesn’t care. This is kind of how you do it. Now, here’s kind of like a just a brief overview of all the different entities. So how do you pay yourself now if you want to do a paycheck, you will have to definitely be an S corp. C Corp or due to the S corp election. And this is the form you will fill out you will fill it out. You want to pay yourself a salary, you will fill out this form you mail into the IRS. Don’t do it until you get approved you have to get a letter from the IRS that says that we have switched we have you are allowed to do this election and pay yourself until you don’t so you don’t until you get them back for them. You keep Fallon as a sole proprietor and you keep doing the owners draw. So hopefully you introduce yourself to the IRS This is another part of making your business legal is making sure you follow all IRS regulations and codes. And so by now, you should apply for the EIN number and under the as a form SS four or you go online and do it. This is kind of really important is once you get your EIN number, you’re gonna get this notice as called a CP 575 75 A notice the biggest mistake is people lose this. It is really hard to Get again, a lot of times nowadays, people actually they don’t just want your EIN number, they want to get this letter from the IRS to prove that you do have an EIN number and you are authorized to use the EIN number. And a lot of people have lost this for whatever reason. And it’s really hard to get. So most people I have most of my clients sometimes who have lost this had to already like had, they had to go get a new one, because it’s really hard to get it. So if you have not gotten er number, and you’re in the process of getting it, make sure you save it, especially if you do it online, if you do it online, just make sure you do the last step and you save that PDF. If not, again, it’s really hard to get and getting getting to the IRS these days is really hard, you be on the phone for hours. So again, you have to say hi again to the IRS on April 15. So what happens is that you will file your business tax return with your regular 1040 If you are an LLC or sole proprietor, and what you do is called a Schedule C, I’m not really going to go into it today, I just wanted to give you a little glimpse of it. So basically, what you’re going to be reporting is your gross receipts, which is everything that you sale, and then you’re going to have your profit, you’re gonna have your losses, your losses, everything that you expense, whether it’s food, laptops, pens, pencils, whatever. Those are your expenses, the IRS calls it the profit and loss statement. So Schedule C keep that in mind as you’re moving through your legal your tax and legal obligations for your business. So know the basic rules stay out of trouble. Like I said, there are certain rules that you must live by, pay yourself pay, pay your goods and sales tax, if your state requires it do that, because you don’t want to get that envelope from your office of taxation and revenue, because they found out that you didn’t do that. And so if you have a business that has you really selling like goods and service goods, and you are collecting that 6% Whatever your state is, that is not free money for you, that’s not a bonus that your client gave to you, you have to report that 6% As as, as income to the state, get all permits and licensing, everybody’s different that you’re you know, if you are those state plumber, electrician, you already going to have to have your own business license, but make sure that your state that your industry does not require you to have a permit or license in your state. I talked about this before, keep good record keeping. It’s also in the code. It’s also by law. And so you want to put in there your Articles of Organization, your operating agreement, any list of all your members that IANA II II, the EIN confirmation that I talked about all your financial statements, and records and all business licenses and permits. If you are SOC, poor, it goes beyond that. You have to keep all minutes recordings of meetings, all shareholders documents, and everything. And again, this is all by state law. So what are we already accomplished today? You already know how to keep your keep it legal, right? You know how to properly sign your documents so you don’t cause any legal trouble. You learn how to maintain and protect your your legal entity, and you know how to pay yourself as an owner. So this is the end so we’re going to open up to q&a at this time.
