1879: Most Overlooked Facet of Asset Protection! Veil Not Fail - Garrett Sutton, Rich Dad Advisor

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Hey, Jason.

This is Scott Crook. I was on the Empowered Investor zoom call last night and just so thankful for the value that's created inside that group. And you know, you just consistently bring subjects that are so important and relevant to what I'm needing and I believe other investors need. So thank you so much. I appreciate you and all that you've done for helping us become better investors.

Thanks, men.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1879 and welcome back to yours truly. Yeah, I've been away for a couple of weeks. Thank you to Joshua and Ashley for keeping the show running while I was gone. And I toured Alaska, went on my second Alaska cruise. The last time I did that, I was just 21 years young and I went back for a second time. And you know, Florida's great, but it was nice to be in some chilly, crisp weather. Really, really refreshing. Anyway, while I was gone, a lot happened. Of course we're going to discuss some inventory changes. I got to hang out with our guest today. When I was there, I actually went to Alaska, then went to Northern California and then to Tahoe and Reno, Nevada. And Garrett Sutton, our guest today, lives in Reno. So I got to hang out with him and some of his staff for a couple of hours and he will be with us in just a few minutes here because he is out with a new book. He is, of course, as you know, the attorney for the Rich dad series, Rich Dad Advisor series. And he'll be here talking about his new book today. But before we get to that, let's see here. Let me get to the right page. So, inventory, let's discuss inventory and let's discuss the increasing inventory while I was away. Really not that big a deal. Frankly, nothing Major, but a little bit of an increase, which is pretty much to be expected when I left. Now, the first week that I was gone, we saw inventory rise by about 3.6% to just over 508,000 homes for sale in the country. Now, that's of course, all price ranges, all geographies, and it is of course not segmented by linear, cyclical and hybrid markets. So that's an issue. But we saw it go up again. The next weekly report was another increase of another 3.3% to just over 525,000 units. 525,000 units. Now. Now the question, of course is compared to what? Well, compared to 2015, we had about 1.2 million units for sale and compared to what anybody thinks is normal is about 1 million to 1.5 million. So we still have an extreme inventory shortage. However, it has been ticking up. As you know, just for reference point, we started out the year with just under 300,000 homes for sale, and now we have over 500,000 homes for sale. The Fed, with their interest rate increases and their tightening policy, is trying to cool off the market and they are getting things to move in that direction. No question about it. But we are not even close to what is considered a normal real estate market. We still have a very, very significant inventory shortage. We'll keep you informed. I'll keep reporting on this as develop, of course, and especially now that I am back from my trip. And before we get to our guest today, Garrett Sutton, a couple of quick announcements. Tomorrow we have a personal banking, no mortgage needed workshop on Zoom for the Empowered Investor Pro members. If you're not a member, go to empoweredinvestor.com and join us. This really is one of the best things we're doing right now. Our Empowered Investor Pro membership, well worth the very, very low price of admission. And then on Thursday of this week, we will be conducting also on Zoom, a workshop to learn syndication. I've got one of my friends who does a lot of apartment syndication coming to teach that and talk about the deals he's working on. And I think you'll find that to be very informative. If you are interested in being a syndicator or a syndication investor from either side of the equation, this will be a valuable workshop. And then Next, on Wednesday, August 17th, we have a workshop on 1031 tax deferred exchanges. That's a very deep dive. And again, these are great because they are small, intimate workshops. Our last one, which was last week that I did from beautiful Lake Tahoe, we had about 37 people on. So you can ask questions, you can interact with our guests, experts interact with me. Really, really just a great thing. Our Empowered Investor Pro membership again tomorrow, Tuesday, personal banking, no mortgage needed. On Thursday, learn syndication and investments. And then next Wednesday, deep dive into 1031 tax deferred exchanges for the empowered Investor Pro Membership. So join us for that and without further ado, let's get to our guests, Rich dad advisor and attorney, Garrett Sutton. It is my pleasure to welcome Garrett Sutton back to the show. You know his name by now. He is one of the authors of the Rich dad series of books, Rich Dad Advisors, I should say. He is out with a new book entitled Veil or Fail. Garrett, welcome back. It's good to see you.

Good to see you, Jason. It's Veil not fail.

Veil not fail. Yes.

So right here, this is the book Veil Not Fail.

Good stuff, good stuff. Well, it's great to have you back. And Garrett, I gotta say, it's been too long. So you've been working on the new book and you got a lot of exciting stuff going on. Tell us kind of the thesis for the book. You're addressing a major problem that seems pretty easy to solve, right?

It is easy to solve, but it's the most overlooked facet of asset protection, Jason. There is, and that is you have these ongoing requirements to keep your corporation or LLC current in good standing. And if you fail to follow these rules, which are simple to follow, a court can pierce through the corporation or an LLC and get at your personal assets. So it's called piercing the corporate veil, and it applies to LLCs as well. And let's say you had a corporation, it didn't do well. It went out of business, but it owed people money. And the person who's suing the corporation to get the money they're owed realizes that you didn't follow the formalities. And they are able to have the court say you didn't follow the corporate formalities. We're going to go through the veil of protection and reach your personal assets. So you've spent all this time and energy setting up the corporation, but by failing to follow the ongoing formalities, the veil of protection falls and they can get your personal assets. You don't want this to happen.

No, you definitely don't want that to happen. That's the whole point of using entities, is to put firewalls between things. Right. So if you have several entities, which I recommend, you know, you, you can kind of firewall and compartmentalize your financial life, and that's a wise thing to do. Now, you mentioned they could find out you didn't follow the formalities. How would they know that? And, well, maybe tell us first what the formalities are and then tell us how they would know that.

Okay. And I want to mention also that piercing the corporate veil succeeds in 50% of all cases. So it's not a rare occurrence. This does happen frequently, and it's because people don't follow the easy rules. What are the easy rules? Well, you have to prepare minutes every year, right? You have a meeting, and you want to show that you had the meeting, so you write down notes about the meeting. And they're called corporate minutes, not corporate hours. They're not hard to do. All right, so you need to do the corporate minutes every year. Now, corporations, this is required that you have a meeting once a year in LLCs. In some states, promoters say, well, you don't ever have to have a meeting with an llc. They're flexible. You don't need meetings. But when you're in front of a judge and jury, I want you to be able to say, yes, we had a meeting every year, because a good attorney is going to say, well, how did you run this business? Or how did you manage this real estate investment without ever having a meeting? You know, it just doesn't work that way. And so you would have the minutes of the meeting for your LLC as well as corporation. So that's one of the easy requirements. We offer a service that will do that, too.

Yeah, yeah. So let's just talk about the meeting, if you will. If it's a sole owner, you're just basically having a meeting with yourself.

Correct.

Is there more to that that people should.

No, people get weird about that. Do I have to have a meeting with myself? And yes, you do. And in our service, we send you a checklist. So you write down what happened, and that's your meeting, and then we'll prepare the formal minutes for you. We also give you a book that shows you how to do the minutes. I mean, they're fairly templated forms, but a lot of people never get around to it. Jason, it's just like going to the dentist. It's something they don't want to do. So we offer that service.

You know, I've always been puzzled, and I've had entities for a long time now. What should take place at this meeting? Okay. What goes in those minutes? I mean, you don't have to recount, like, every decision you made over the last year. Right. What do you have to put in there. What do you leave out?

Well, a couple things. You would, you would elect the officers and directors or the managers for the next year. You would ratify all decisions taken during the year so you don't have to write down everything. Now, if there's something important that comes up, let's say you're going to be buying a piece of real estate and the bank wants a resolution from the LLC that you can buy this real estate. You would have a special meeting. You would authorize the purchase of the real estate. Those are meeting minutes as well. But for the standard annual meeting minutes, it's who's going to run the show next year. We're ratifying everything we did this year. Maybe you entered into a lease or a major transaction. We're going to include that in the minutes, but they're not that voluminous.

What qualifies as major? You know, you mentioned a lease. Like you probably when you said that we're referring to like an office lease, but you know, you might have a lease on a piece of equipment, computer equipment, copier, automobile. What about those things?

Those things would be ratified by the managers or officers and directors during, you know, they occur during the year. We're ratifying those acts as a board.

Okay.

So it's very simple.

And again, the vast majority of people listening, if they have an entity, they're probably just a sole owner, I'm guessing. Right. And they don't have directors, they don't have a different secretary from themselves or anything like that. So that's the person we're mostly speaking to, I think. Yeah.

Well, and that makes it even more important, Jason, because the courts say if you're a one man band, that in many cases people don't follow the formalities. They think that they're the same as the corporation.

Right.

And we want to provide that distinguishing feature that you are managing the corporation. You are distinct from the corporation. And the minutes help do that.

Yeah. And by the way, you know, now that you mentioned that a lot of people are not very careful about how they accept money, I think with their entity and how they sign things. Now, you're the expert, correct me if I'm wrong, but you always want to sign a document when you're signing on behalf of the entity with your title, right?

Absolutely correct. So you're not going to sign Jason, you're going to sign Jason Hartman, president. Right.

Or for an llc, I'm going to sign what? Manager.

Manager. Yep.

Or would I ever sign member?

You could sign member, manager or member if you're member managed. But we'll talk about why you want to be manager. Manager.

I definitely want to get to that point, and I brought that up before we started the show today, so let's make sure we get to that. But what about signing as, you know, CEO? I don't really exactly know what CEO means, but.

Well, chief executive officer. But that's.

Well, I mean, I know what it means. I'm just saying I don't know that there's actually legal weight to that title. The way a president is a formal designation of a corporation. Right. Or a manager for an llc.

Correct. I mean, in most statutes it says president, secretary, treasurer. Right. But you're allowed to create other officers, which can be vice presidents, CEOs, et cetera. But back to your point, Jason, about how do you sign things? So you're going to sign Jason Hartman, president or manager. You're also going to make sure that when you're signing, it lists the Inc or the LLC of the company. You don't want it to be xyz. You want it to be XYZ llc. You want the world on notice that they're doing business with you as an officer of a corporation or an llc. That's really important.

Yep, I agree. Okay, so do you want to go into the member managed versus manager managed? And this only applies to LLCs, right?

Correct.

Yep.

So with the LLC, you have all sorts of flexibility. You can be the member, meaning the owner, and also the manager as the member. It's called a member manager. Or you can be a member or a non member and be a manager of the llc. And so they're one and the same. But the manager separates management from ownership. And we like that distinction. If you ever get into court, we want to have the ability to say, look, Joe was managing the company even though he was an owner. The others were owners of the company, but they weren't managing it. And that distinction can help. We want to separate ownership from management, and manager manage does that.

Okay, so you want to be manager managed, not member managed. Is there any case where that's different, where you would want to be member managed?

No. I think that you can accomplish the same with manager managed as you can with member managed. And we do have that distance between the members and the managers of the entity. And that has been a factor in several court cases.

Okay, got it. So you want to be the manager managed LLC and you would sign as manager. So we're clear on that. That's good. What else do people need to know about making sure. That this veil stays intact.

Well, we talked about having the minutes, we talked about signing, providing corporate notice that you're operating as a corporation or an llc. Another key factor is you got to pay the fees to the state. Wyoming is only $62 a year. If you don't pay that $62 a year over time, the state says, all right, well, you're not paying us, we're going to revoke your charter. And that charter is what gives you the limited liability protection. And if you don't pay the state, they're going to drop the charter. And then it's really hard to say that you're entitled to limited liability protection. You haven't paid the state, your charter's revoked. So it's very easy for someone to pierce the veil when there's no entity there anyway. So you want to make sure you pay those annual fees to the state.

Now, you've been on the show before and we've talked about which state is more ideal than other states. Do you want to mention that at all? Sure. I mean, we've gone into it before.

But the top three are Delaware, Wyoming and Nevada. And it's great. They compete to be the best state for asset protection and formation. And so when you compare the three, I like Wyoming, the annual fee is only $62 a year versus 350 for Nevada and Delaware. Wyoming doesn't list your name on the state website, so you've got privacy there. And they've got an equal law to Nevada and Delaware. All three states protect the single member, the one owner llc. There are a lot of states that do not protect the single owner llc and that's how many people operate. Jason, a lot of people will set up the LLC and they're investing in real estate and they're the sole owner. Why should they have another owner involved? You know, they don't need to have another owner involved unless they're in a state that won't protect the single member LLC. And that's why we would have a number of LLCs in the various states where the property's located, all owned by1 Wyoming LLC, which does protect the single member.

That's what I was actually going to ask you when you were talking about member managed versus manager managed. So I'm glad you kind of circled back to that because if you have an entity in Florida or California or Texas or whatever, Tennessee, and you want that more desirable protection that Wyoming gives you or Nevada or Delaware, are you still the manager? Is the person the manager or is that other Entity that's the owner. The manager. I guess they're not. Right.

Well, we would have the owner. The Wyoming LLC can be the manager of the Texas llc, for example, and then the Wyoming LLC that owns all the other ones. The manager would be the individual single member owner.

So you can have an entity, and I don't even know if some of mine are set up this way. You can have an entity be the manager of the other entity.

Correct?

Yeah.

Yeah.

Not just the owner.

So not just the owner. It could be the owner.

So how do you sign, then? What's the proper way to sign a doc?

Well, then you would sign Jason, manager of Wyoming llc, manager of Texas llc.

Got it. And you know where a lot of problems crop up on this, I bet Garrett is now that people are using these signing platforms like DocuSign, they don't allow you to sign properly. This could be a problem. Right?

That could be a huge problem. I wasn't aware of that.

Yeah, well, you know, because when the party you're doing business with sends you one of these digital signing things, you know, you can't do anything to write in the proper title necessarily. Right. So that could be a problem.

That could be a problem. So you would probably want to supplement that with another letter stating that you signed as manager of an llc.

Yeah. Okay. So at least have an email trail on that.

Right? Correct.

Okay, good. Good advice. Now, you know, you talked about these desirable states, Nevada, Delaware, and your favorite, Wyoming. You know, I hear stuff about Alaska. We don't think about Alaska too much, but here in the continental US And I also hear a lot lately about. I think it's South Dakota, maybe it's north, but one of the Dakotas. Any comments on that?

No. I mean, these states try and compete with Nevada, Delaware and Wyoming, and, you know, that's good, I suppose, but we don't spend our effort. You know, it's not like they have come out with something so much better than the top three that it makes sense to go open an office in Alaska. I wouldn't mind that, but, you know, it just hasn't presented itself.

Sure, sure. Got you, Got you. Okay, cool. All right. What else is there? I mean, that book is awfully thick when you hold it up. There must be a lot more in there that you want to talk out.

Oh, well, we have all these great cases. I mean, the way I write books is I tell stories and then apply the legal principles to the stories. And so we have some great cases in here, Jason, and one you would like was the Communist Party in San Francisco tried to pierce the veil to get two private companies that they had done business with, and they. They kind of claimed that they had secret ownership with it. And. And the judge in San Francisco said, sure, Communist Party take over these companies. And the appellate court went, no, wait a minute, we're not going to allow this. But it's a fascinating case where the Communist Party almost got away with taking over private companies.

Wow. That is literally another way to have a communist revolution. That's pretty scary stuff.

Well, if you can get partisan witnesses into court to say, oh, yeah, I remember when they talked about the Communist Party owning this company, that would not be a good situation.

That is incredible. And, Garrett, I gotta just compliment you on that. You know, I've read all your books. So far, not this new one. You are so great at storytelling, and I love the way you always put in these very subtle, snarky comments.

I'm glad you picked that up.

I just totally enjoy those. And they are very subtle. You know, you don't want to be too partisan. I can tell. So you just gotta catch them. But I catch them. Cause I know.

Well, there's one in the Communist Party case that you'll really like, Jason, then that's good. You picked those up.

Yeah, yeah. That's great. That's great. So the crazy San Francisco courts being far, far left, of course they ruled in favor of the Communist Party, but thankfully, the appellate court. And what is that crazy appellate court? Is that that, like, 9th Circuit Court or something?

Yeah, this was an intermediate court between the San Francisco Superior Court and the ninth Circuit, which covers a number of states.

Right. But there's always those crazy judicial activist rulings coming out of that ninth Circuit, Right?

Yes, that's true.

And so had it gotten to that level, it might have gone badly. Right.

It could have been a Bolshevik revolution. Who knows?

Funny, funny stuff. All right, good stuff. Well, any other stories you want to share from there?

Well, we, you know, family situations are a great source of these kind of legal battle stories. And we have cases with husband versus wife and wife versus husband. There's a case out of Canada where the husband was hiding assets, just blatantly hiding assets, and the wife finally got a good attorney and went after it. And the Canadian court was pretty strict on this one. But, you know, if. If you're out there thinking, gosh, I might get divorced, you really want to read this book, because there's some things you can do and a few things you can't do, they're called fraudulent transfers. And you know, if you're going to be pursued, if someone's coming after the company and you've drained it of money, sent the money to friends and families.

They can get after you for that, obviously. And, you know, it's such a shame that this. It just never seems that they hold these big company people on Wall street accountable for these types of scams. Dennis Kozlowski is still in prison, last I checked, but, you know, he spent millions and millions of dollars. He used the company's money to throw his wife a $1.5 million birthday party. I mean, it's just unbelievable, the abuses that take place. Looking at the big picture, Garrett, I'm curious. I have often thought that we really need to update the way the law treats these entities. You know, there's just a ton of abuses going on. Do you have any thoughts, just kind of waxing philosophical for a moment about the way these things are used? And, you know, we all hear these big Wall street scandal stories. It's just so maddening. It really is.

Well, I mean, there is an effort to, you know, restrain this type of activity. What's coming up, Jason, that you're listeners should know about is called the Corporate Transparency act. And the U.S. treasury Department, to supposedly combat money laundering, is going to require every single corporation and LLC to file a statement of ownership to this giant corporate. This giant government database. They're going to have your birth date, your resident address, a copy of your driver's license or passport. This is going to be an onerous filing requirement for every small LLC or corporation owner. It doesn't apply to Wall street, unfortunately, to your point, because the theory is that the IRS and the SEC already has that information, but for the small business owner with a few LLCs, starting in 2023, you're going to have to make these filings every year. And. And the theory is that this is going to prevent people from misusing corporations and LLCs. But the burden on everybody to file all this. I don't think money laundering is that big a problem. I have never seen it in my career.

Well, they always use that as the excuse. Right? It's for our own protection.

Exactly.

Always. There's all those drug dealers and money launderers out there. We go got to end terrorists, you know, like, as if there are so many of them.

No, the banks and the irs, the existing regulations can handle these types of matters. But, you know, I just think the government just wants to have more and more information on us. And it's interesting, you know, you don't have to show your driver's license to vote anymore, but you're going to have to provide your driver's license to, to the federal government if you want to run a business or own a piece of real estate. It's just a little out of whack there.

Yeah. So, I mean, the difference is that now this is at a federal level rather than state level, but you don't have to present your driver's license to set up a company in any state that I'm aware of.

Nope.

Yeah. And in some states you don't even need to tell the state who the owner is.

Correct?

Right, correct.

Is there a lot of fraud and abuse with that system that we have right now? I just, I don't see it. I see honest people trying to protect their assets more than, you know, people from other countries trying to hide assets here, but who knows? But here's the thing, Jason. This database is going to have all sorts of sensitive information. Now if you don't turn in the information to the government properly, there's a two year prison term. So this has got a lot of people riled up.

Wow. I bet. Yeah.

Yeah. If you hack into the government database, the prison term is five years. But Jason, how many hackers have you ever seen get caught? They just never get caught. This is going to be one of the most attractive databases on earth to have this information on US investors to hack it.

So what would a hacker get out of that? I'm curious. Like, I mean, a lot of them just hack for fun. They don't even steal money, you know, it's still illegal, of course, but, you know, they just hack to do it. You know, there's a lot of like in the hacker world, I guess there's a lot of like in any human endeavor. There's ego and getting credit and. Yeah, it's. It's just amazing. But what, what would they.

Well, if you have people's name, address, and a copy of their, you know, if they're gonna. You have to submit a copy of your driver's license or passport. With that information, you can wreak a lot of havoc.

Yeah, there will be tons of fraud. The Corporate Transparency Act. What is the government going to do with this database? I mean, well, it's going to be.

Open to the FBI and the CIA, so when they want to get information on someone, they can go right into this database and see that Joe owns seven LLCs, and then they can easily find out what property he owns. So this is going to be information that the National Enforcement Agencies will have. The IRS can get in there. Local law enforcement with a warrant can get in there. Banks with consumer consent can get in there. But the big thing is the FBI. You know, they haven't acted with a lot of integrity over the last 10 years. And so they're going to have free reign on this database. And who knows how they use it. I hope it's used properly.

It's pretty scary because the FBI has been used as a political football. You know, it's like the good old days of McCarthy. And I mean, the Clinton administration was doing this. They were appalling their abuses that they were committing, using the FBI to spy on enemies and so forth. And none of this stuff will be private to the government anymore. And now actually a lot of it is. That's interesting. But you know, where they get it though is the banking system. Because of the know your customer laws, which are incredibly strict. I mean, banking has become so difficult. I cannot believe how difficult banking is because I, 20 years ago, or I should say pre 9, 11, 21 years ago, okay, I spent no time on banking. It was just a thing that was there. It was like, I didn't think about it. It was easily accessible. I could get everything done. Now I spend hours every week on banking issues.

Well, and that's my point is the banking regulations as they exist now are good enough to provide the information for the federal government. I don't think they need this extra database. But like you say, I mean, let's say 10 years from now you contribute to the wrong charity and the FBI or the wrong politician or whatever, and then the FBI can go see what you own and maybe they send out the EPA to look at your property. You know, I mean, just this sounds like, you know, somewhat alarmist.

Oh, it's not alarmist.

But the way things are going, it is not alarmist. We don't need this database for the government to access this sensitive information on every single business owner and real estate investor.

We've done shows before Garrett on civil forfeiture, which is incredibly scary. I mean, the government can just take your stuff without even convicting you of a crime and never give it back. They have attacked little old ladies. They have committed so many abuses. And the thing is the government gets to keep the property or the money.

Right? Right.

And so it's basically a new tax and it is selectively used. Some of the stories I've heard just go to npr, a left leaning media organization supported by the government, and you can hear the stories on NPR about this stuff. It is incredibly scary. And now the government is going to have this at their fingertips, right? So it's going to make civil forfeiture much, much easier.

Well, it's just, you know, does the government need this information? You know, is there a problem with money laundering? Maybe, but we have regulations in place that deal with this. It is the need to get the information from every citizen, business owner, or real estate investor in the country into one database going to help money laundering? I don't think so. Does, you know, does this onerous burden, is it outweighed by the need to combat money laundering? I don't think so. So, you know, you're going to be. You're going to have to file these forms in 2023, and our firm will provide assistance because that's the law. I don't like the law.

There's going to be a new income stream for you.

Well, but I don't want this law. But when you have to fill out this form in 2023, at the same time you need to write your congressman and senator and say, get rid of this law.

So this is already passed. It's done.

It was passed in 2021. And they've just, they're working on the regulations right now. And, you know, they're not going to issue the regulations until after the midterm elections because this is just another reason to hate Congress, you know, this requirement. But it's coming, and just, you know, we're going to help our clients with it. But just know that if, even if you're talking to candidates in this election season, ask them about the Corporate Transparency act, what do they think about it? Why does every single LLC owner in the country have to file this form, which is going to cost 200 or more to file?

Unbelievable. And then the slippery slope will come where every year or two, they will add something to it. Now, we need to know your bank balances. Now we need to know, you know, this, that, or the other thing. You got to list all the, all the property you own. And then after that it'll be list all the computers you own. And, you know, it's just always such a slippery slope. They open the door to these things and. And then it's just all they do is add another thing onto it. And the weight of this bureaucracy becomes so heavy after a while that everybody just says, why bother? You know, and. And you basically have Atlas Shrugged. You have, where all the productive people just decide, you know, screw it, I'm done. I'm not going to do it anymore. It's just not worth the hassle.

Well, we're already seeing signs of that, Jason. I mean, every. Every tenth license plate in Reno is a California plate. I mean, they're just moving out in droves because California has become so aggressive and overly regulated. And how does it end? I don't know. Is there a collapse? Is that how it ends? I don't know.

It ends in a stagnant, smaller, less productive economy. It never ends because eventually it just collapses upon itself. But the next step is what Obama said he wanted. He wanted the US to be more like Europe. And let me tell you something. Having been born in Europe and visited there a million times, Europe is a disaster. Okay, it looks nice. It's fun to visit. I love Europe. But you try to get something done in Europe and it's like roadblock after roadblock after roadblock. It's unbelievable. And so business just decides it's not worth it. And then you have a shortage of products, shortage of services. And all those people who think Europeans have some higher standard of living, they're absolutely out of their mind. I mean, certainly you can argue the happiness index or some amorphous thing like that, but what I can see is what I know. I know that Europeans drive crappy little cars, live in crappy little houses, and just have much smaller material lives than Americans do. You know, I'm not saying material is everything, but it's something.

Yeah. And, you know, the innovation rate there is certainly not equal to the US.

And the business startup rate is extremely low.

Right. So we want to keep that. But, you know, for now, we just want to make sure that people understand that when they set up an entity, there's this new rule where you've got to report everything to the government, but you still want to advance your financial interest. So you're going to set up that entity, and then you're not going to let them pierce the veil. Right. So you're going to make sure that you follow all the rules which are not hard to follow. You need a separate tax return, you need a separate bank account. These are easy rules to follow, but if you don't follow them, then it gets really dramatic. What can happen to you? You can lose everything. Yeah.

Now, Garrett, on the issue of the separate tax return, I mean, entities don't have to file separate returns, do they? They can roll up to a parent company.

Yeah. And so, yes, you're right. If you're a disregarded entity, it flows through to the next level. And that can be you or another entity. So, yes, if it's a single member llc, it's considered a disregarded entity and the tax obligation flows to the next level.

Yeah, by the way, before you go, maybe you can tell our audience about. Explain a little more about what a disregarded entity is and then also maybe talk about how you want to elect to be taxed. For example, LLCs can do what's called an S election to be taxed as an S corporation, even though they're not an S corporation.

Right.

What is the point of all that stuff? The disregarded and then the S election.

The LLC offers flexible taxation. It offers the best asset protection with the charging order in the good states, but it also offers your choice of how you want to be taxed. So an LLC can be considered a disregarded entity, meaning there's one owner. There's no need for the LLC to file the return. All the obligation flows onto the owner's personal tax return. And you don't lose the asset protection that way. You still are protected. It's just the obligation flows onto your personal return. Now, if The LLC has two owners, then the LLC files the K1s and each owner gets their percentage of the profit. So you do file a tax return at that level. Now, the LLC can be taxed as a partnership, meaning you have two or more people as owners, and they each get the K1. It can be taxed as an S corporation, which is great for businesses and consulting firms and the like, because you've got to pay a salary through that entity. And with the S Corp, we can minimize those darn payroll taxes and your CPA will know that. So we have a lot of businesses that will set up as an LLC for the asset protection, choose to be taxed as an S Corp for the payroll tax minimization, and away you go. Now, the LLC can also be taxed as a C Corp if you want. You know, there are some uses for that, but typically it's either a disregarded entity taxed as a partnership or taxed as an S Corp.

I remember in one of your old books, I think you wrote about some benefits of C Corps. So there's two kinds of corporations, as I understand it. There's the S Corp and the C Corp, and that's the subchapter S is, you know, what it's formally called.

Well, and they're both corporations, so there's not a different charter for the S Corp versus the C Corp. The S and C refers to taxation.

Sure. And so, so the. The downfall of the C Corp and the reason most Proprietors, if you will, or owners don't use it is because it gets double taxed. Right.

Right.

Now, big corporations, those are all C Corps, because they can have multiple classes of stock and all kinds of things.

But, well, you can only have 100 shareholders in an S Corp. Oh, okay. So by definition, a public company's got to have at least 400 shareholders, so the S Corp wouldn't work.

Okay, so why would anyone want to intentionally. If they're a small proprietor, why would they want a C Corp? What's the use case for that? Because you pay taxes at the corporate level and then at the personal level. So that seems like a terrible thing. But there is a use case for it, right?

There is. Good question, Jason. So let's say you have 10 properties and you're going to pay yourself a management fee into a management company where you can expense all sorts of things. With the C Corp, you can write off your health care premium. With an S Corp, let's say it's ten grand a year. With an S Corp, the S Corp can pay the 10 grand for the health care premiums, but that shows up on your personal return as income. With the C Corp, the $10,000 is an expense and it stays there. It's not another tax obligation to you. So there are limited circumstances where we would use an LLC taxed as a C Corp, especially if medical premiums are an issue. And then you're not going to make a lot of money through there because of the double taxation. Right. I mean, you may have a profit of $5,000 a year, but you're using that LLC tax as a C to take some major deductions.

So this is good for people with really high health insurance premiums, which, thanks to Obamacare, now everybody has high health insurance, health insurance premiums. And by the way, just to mention on that, another sign of real inflation is that, yeah, the healthcare premium has gone up. I mean, I'm paying a lot more than I used to pay for, sure. But it's not just the amount I pay, Garrett. It's what I get back. My coverage sucks nowadays. I mean, it's terrible. It used to be fantastic. You know, go to the doctor, you pay 20 bucks, everything's covered. And now, like, the deductibles have gotten so high and the coverage is just junk. It's terrible. Yeah, yeah.

My wife works in the medical field and it's just. There's just a lot of upset people right now, Jason. You know, a lot of people got on Obamacare and thought it Was this great thing. And then are just upset at the type of coverage that they have.

Oh, it's awful.

And so the waiting rooms, you know, they, they don't turn on the TV any. There's nothing controversial on the TVs now because people were just in the waiting rooms getting angry at everything.

Yeah.

And so, you know, it's just if you're in the medical profession, you're seeing this. There's a lot of anger out there.

Yeah, yeah. And you know, rightfully so. It's really something. So high health insurance premiums. The C Corp is better. Is there any asset protection reason for a C corp? I seem to remember you writing about that a long time ago. No, no.

I mean if you have the LLC which offers the asset protection taxed as a C, you get the benefits of both. You get the asset protection and the healthcare write offs, the C corp deductions. But the C corp. The only state in the union that extends the charging order protection, which is the good asset protection of an LLC to corporate shares is the state of Nevada. So if you have to set up a corporation, you would set it up in Nevada and then qualify to do business in the state you're in because Nevada is the only state that gives the corporation that asset protection.

Oh, okay, but Wyoming is best for the LLCs. Correct. Got it. Got it. Now once you say you set up your corporation and Nevada. But you, you have to do business in the socialist republic of California. Hopefully you don't. But if you do, is the word qualify or domesticate or register? I've always been a little confused about the.

Those three words are equal. I mean, basically you're taking the Nevada entity and you're going to the Secretary of State. In California we do this all the time and say, I want permission to do business. I want my Nevada company to be able to do business in the state of California. And that's the procedure of qualifying or registering or domesticating. And California always says yes because they want your tax money.

They want your $800 a year.

Yeah.

Which is the most outrageous fee of any state. Yeah, yeah. Okay. So they'll say yes. But then does that corporation now become subject to all the crappy asset protection laws or non existent ones in California?

No, we don't have a set case on it. But you, you know, there are, there's precedent for the fact that you set it up in Nevada for the benefit of Nevada law.

Okay.

And that if there is a charge against you, if someone's coming after you from an outside attack, Like a car wreck. The Nevada law where you chose to set up the entity would apply.

Okay. Okay. Good. Good to know, Garrett. You're always a wealth of knowledge. It's great to have you back on the show. Anything else you want to share with our listeners? You know, the book is available in all the usual places. Of course.

All the usual places.

Veil Not Fail.

Veil Not Fail. And so we have some interesting history in here, too. Not only the Communist Party, but the American Revolution. You'll like my section on the American Revolution and piercing the veil.

Yeah, I can't wait to get it. But is there anything else you wanted to share as far as, you know, legal advice or practice or whatever? Just want to offer that.

Well, I guess people need to be aware of the Corporate Transparency act, that this is coming and there's going to be an extra burden on everyone. So just be aware of that. It's not going to deter you from investing and advancing your financial well being, but it's just another burr in the side that the government is throwing at us.

They keep doing that. It's a slippery slope. The freedom is being taken away one little piece at a time. Yes, that's the way they do it. Garrett Sutton, thank you again for joining us. Appreciate it.

All right, my pleasure, Jason.

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