LLC Myths: What You NEED to Know!

Foreign. To this week's episode of the Main street business podcast, Yours truly, Mark Kohler and the amazing Matt Sorensen. Talking about a topic you all know and love. Our best friend. Our close friend.

Our close friend. Yeah, yeah. Close friend. Good friend. Not best friend. Close friend.

Yeah, that was a little strong.

Yeah, close friend. And everyone should have an llc, just like the Nicki Minaj song llc. You know, everybody who's anybody has an llc. But we want to talk about the myths. There's so much BS about llc. There's a lot of people that don't know what they're talking about trying to give you advice on them. And I was thinking.

I got to say, I was thinking of Lincoln Lawyer, you know, Matthew McConaughey with his driver.

Yeah.

And he go, you know, he was asking, you really shot your client's mom. You know, he's like, damn right. And he goes. And then he goes, ain't nobody till you've been shot.

So I was like.

And I thought, you ain't nobody till you've had an llc.

Okay. That's where you're going. Huh?

Go with that.

I like that. And the driver, I believe, was Earl. Was this Earl.

That's right. Earl.

Earl was the driver. Yeah, yeah, Earl's good. There's a lot of good lines between Matthew McConaughey.

Oh, so many good lines.

And Earl, actually. Yeah.

When Earl looks at him, goes, you know, you would have made it on the streets. Yeah, Earl, what do you think I've been doing? Oh, my gosh. So good.

Yeah.

All right, well, welcome, Everybody. Yeah, so LLCs. Yeah, let's know.

Yeah. So we'll break down some myths, but we also want to talk about, like, the when, the where, the why. Like, do I need an llc? Where would I set it up? Why do people use them? You know, we're going to talk about that. So. And there's different variations of LLCs, and there's some things called series LLCs. We'll hit that for a moment. So for some of you that are new, this could be a good intro to llcs. For some of you who already have one and you think you know it all, we're going to break down a couple of the myths out there and some mistakes that hopefully some of you haven't stepped in. But we want to make sure everyone's aware of them.

My goal is twofold, and I like how Matt just said that, but I'm going to be very explicit. I want to not as an E rating for our podcast.

Okay, let's get explicit. All right.

Yeah, yeah. That's not good. It doesn't help our ratings. I want to be. I want to accomplish two things. One, I want all of you out there that are new to small business. New. New to your legal structure and banking and your side hustle. So many people, we've got this big formation. You know, this is. Everybody has been really getting on board with the small business on the side. Where's an LLC fit? And then my other goal here today is for those of you that have LLCs already or have been doing business for years, I want to rock your world. I want to leave you something here. You're like, you didn't know. So I'm going to dig deep here. I want to give you some sweet myths that I. I would hope I could. Wow. One of you. And I can do this with sometimes the attorneys in the office. Like, we'll get our attorneys in a training room, and we'll.

We.

Sometimes we don't get 100 act, you know, accuracy. We can really throw some curveballs.

Yeah. All right, well, I want to break one of the myths right out of the gate. Can I start with the myth buster?

Yep. I've got my. My yellow pad and pen. I will write this one down.

Okay. You're going to want to write this one down.

All right.

I think you're going to like it. Okay.

Okay.

You don't need unlimited LLCs. Okay? There is. We're seeing more and more clients coming to us that set up, got some program or somebody sold them something. That's this Unlimited LLC. LLCs are like, you buy them one at a time. There's not like, you don't need the LLC buffet. All you can eat. All right? Because what happens is you get all hungry for LLCs, and we see this with clients, and they set up a ton of LLCs, and they have no business having them. It wreaks havoc on your life.

There's fees.

When you set these things up, you have to pay with the state, and. And then you come to your lawyer, and you're having all this digestive problems with your LLC setup because you overate at the buffet because it was all you can eat. So I don't want people to overkill this. And you can see, like, if you Google, like, Donald Trump's, like, organizational plan with all his LLCs, and you can see he has hundreds of LLC. He's also got hundreds of millions or billions of dollars. Okay. So for the small business owner, you might need just one. Maybe you need two. It Depends. But don't think you're going to need, like 10 or 100 of these things for everything in your life.

Love it. Okay, I'm going to go to a basic. Maybe we can bounce back and forth here on the basic side. And you know what? I'm going to. I'm going to add something to your myth there, too. I think some of you that have LLC think, well, they're so easy. I just file them with the state. I'm done. No, they come with an ein. They come with corporate minutes, they come with a book, they come with an operating agreement. They're. And you go, well, I don't have to do all that. I. Knock yourself out in court, because aren't you doing the LLC to protect yourself? And you think that one sheet of paper is really going to protect you. Deep down, you know I'm telling you the truth. You just want to believe it's 50 bucks at the state, and I'm good. So multiple LLC to you is easy. And you get protection every time you set one up. The protection comes not from the llc. It comes from respecting the llc, doing all the things that come with the llc.

Yeah. Now let me talk. Let's talk about that protection, because I think this is. If you're like, well, guys, what the heck is an llc?

Why do people do some basic on that?

Yeah. So the LLC is generally for asset protection. You might use it for partnership, other purposes, but the benefit of the llc, it's called limited liability company. So what happens is, if I'm running my business out of an LLC and something happens in the business, they have to sue the llc, Any plaintiff. They can't sue me personally. They can't come down to my personal assets, but they can sue the llc. So you take like a rental property. That'd be an easy one. My. My LLC owns my rental property. Tenant slips and falls. They have to sue the llc. They're contained at the LLC level. There's something called the corporate veil that prevents them from coming down and getting me personally or going after my assets or any partners if there's other owners in the business. Now, it's important you understand one thing, though. The LLC does not protect the assets in the llc. A lot of people set up an LLC with the rental, and they think, oh, I set up an LLC to protect my rental property. No, it protects you from. From your rental property liabilities. All right. That's what the LLC is protecting.

Yeah. Now that I'm going to put that on the myth column, too. The basics Are we have this corporate veil. Okay, that's kind of what Matt just explained. We have this corporate veil that protects you, the owner. But the myth is that I'm protecting the asset. You're really not protecting the asset. You're protecting the owner. And that's a. Seems like a fine distinction or whatever, but it's an important one. Yeah, you're mincing words. Yeah, I am. It's called the law. So for you, not the asset. Now, there are types of LLC you can set up, which is called the cope, the charging Order Protection Entity. There are certain states that allow for a better type of LLC where you can protect the asset in the LLC from you as. As well as you from the operation. That would be a kind of a little golden nugget here. Maybe something more unique for you high enders out there that you have it all figured out. Now I'm going to go to basics for a minute more, too. Okay, everybody. An LLC is filed with the state. It's called a limited liability company. You register with the Secretary of State, you get a tax ID number with the irs, you open a bank account, and you think you're done at that point. But again, there's pieces and parts that go with this. Minutes, operating agreement, corporate books, stock certificates. You want all those pieces because that's the respect you're giving the entity to create this separate entity from you. Yeah, you want to do what we call separate accounting. You want to respect the veil. You want to have not co. Mingle. This LLC is going to run your Uber business. It's going to run your doordash business. It's going to run your consulting business. It's going to run your landscaping business. So this entity, where you reserve the name through the formation of the llc, is just a state entity that gives you protection. As Matt said, you could spend 50 to 100 bucks filing at the state, but you need those other pieces that usually are going to run you on even a formation website for 500 bucks. And we have a paralegal service for around 500 bucks where you get all the pieces you need. Then we have the full attorney set up. We have a trifecta attorney set up with your entity, where we get your plan for the whole year with a diagram. We have different options to help you get that first entity so you get all the answers that you might need. But it's an LLC formed with the state. Easy, schmizzy.

Yep.

Love it.

So the thing with the LLC is it's, you know, you have to know how to Use it and use it in the right way. So LLCs are. There's many things they can do. They're like a Swiss army knife. They could be a screwdriver, they could be a set of pliers, they could be, you know, a knife. So. But you got to make sure it's being used properly for the type of business you have. Sometimes you're better off just having a screwdriver. Like maybe I'm talking about an S corp here. So LLC is in general just. And from our planning and if any of those, those of you who know our trifecta, and if you haven't, we have videos, Mark's got videos, we've got podcasts on the trifecta. But basically in our planning, we want LLC to own assets. It's over on the right side of the equation. It's owning your rentals. It could be a charging order protection entity, a COPE LLC like Mark mentioned, owning your crypto to protect the crypto from you and your personal liabilities. But the LLC can also sometimes be on the left side here it could be on the side that is your operating business. And sometimes clients will use an LLC if they got a partnership or maybe they do an LLC that gets taxed as an S corp at some point, which is really just an S corp in our eyes. But the LLC can kind of be in a lot of different places. But you got to know the distinctions on how to use it.

I like that. And so that was funny, you were saying, hey, the LLC is primarily for rentals. And then I went and threw down. Yeah, soaping, landscaping and all that. And, and we didn't mean to confuse you with that by any means, but it is a, it's kind of a Swiss army knife. You can use it for different things. Now, with that said, here's another myth. LLC do not save taxes. So many people say, well, I got to get up my LLC set up so I can get a write off for my business expenses. No, you get business expense write offs. If you have expenses for your business. You don't think about everybody. If you're driving Uber and you want to write off your mileage, do I have to have an LLC to write off my mileage? No, you have a business. You drive Uber consulting. You want to write off your laptop. Write off your laptop. But the LLC can be converted to an S Corp very simply and easily and even retroactively. We can go back in time and convert an LLC to an S corp, where I can't create an S corp out of thin Air. But I can convert an LLC so that the myth of the LLC is that it saves taxes in and of itself, but it doesn't. The cool thing is I kind of created a cool thing column.

The cool thing.

Yeah, yeah, this is a cool kid column. Is that an LLC can be converted to an S Corp when the time's right. So I wanted to dispel the myth. There's no tax savings. But the cool thing is you can have an LLC create tax savings in the S Corp model when it makes sense. Yeah.

Yeah. Okay. Let's talk about where to set this up. We talk about what it is. Let's talk about where to set it up. All right. I would say you need to set up.

Use a rental.

Okay.

Use a rental example.

Let's go for the rental. Okay. Let's start there, because then let's talk operating business.

Second. Yes, yes.

If you have a rental, we're going to want to set up the LLC in the state where you own the property. If I'm in Arizona and I have a rental property in Indiana, I'm going to do an Indiana llc. I actually have that scenario. Why would I do an Arizona llc? I'm going to have to register it in Indiana and then pay two state fees to get it going. Just go to the state where you're going to own the property. Now, let's say I have that Indiana llc. It owns my Indiana rental, and I'm like, my next property I'm going to do in Wisconsin.

Okay, nice.

Wow.

I caught that.

Wisconsin.

And you're just a metropolitan man.

Yeah, I mean, you know, I go to all the cool states, so. So we're over here in Wisconsin, and this is an Indiana llc. I register foreign. I can take the same LLC and register it foreign into another state, and now it can be do business in multiple states, and I can have my rental owned in Indiana and the other one over in Wisconsin.

I love that. What's the soup du jour?

Wisconsin cheddar. Oh, oh, that's the soup of the day. Sorry. I was rolling with them.

That sounds good. I'll have that. That's a setup we've used many times. You know, what's the soup du jour?

Let's try to throw a curveball on it.

You know, that sounds good. I'll have that. Just put it on Sea Bass's bill. I I okay, so I love that. Yeah, he's good with that.

Yeah. Right?

Okay. Y Look over at him. Now, when it comes to the basics of where to set up the LLC with a rental property. I'm going to just add to mats before he goes to operations. In that you have two options. You can use the Indiana LLC and register foreign Wisconsin or you can say, you know what, that rentals a little high risk. And my Wisconsin entity is on a lake and it's a really nice lake house property. I'm going to Airbnb. Wisconsin has a lot of lakes, Matt.

Yeah.

And you're gonna say, I'm gonna create a Wisconsin LLC for the Wisconsin Airbnb. Believe my Indiana meth lab rental in its own LLC. So you can have two LLCs in two states or you could use one LLC in both states. And this is where that consultation comes in, where people are like, well, I'm on legal zoom. What do I do? That's why you hire a freaking lawyer at our office very affordably to kind of tailor it to your situation. Yeah, you can't DIY all this.

Yeah. It's like 800 bucks to do an LLC in our office with an attorney. LegalZoom is like 700 bucks. We've priced it out. If you do all the things you need, not just the one easy thing they say is 99 bucks. So. But then you don't even get an attorney consult with that. So. Okay, can we hit. We've hit where? Let's hit. Let's hit a myth on that. But Mark, what about Nevada? I thought I'm supposed to set it up in Nevada or Wyoming or Delaware.

Well, right here in my. Right in front of me is the Handy Dandy Tax and legal Playbook. My best selling book. Heard of it? Second edition. The game has changed. That was after the Tax Cuts and Jobs Act. I have a whole chapter dispelling that because I want to put our firm, put our money where our mouth is and tell you that when it comes to just basic good business, we do not need to set up in Nevada or Delaware or Florida or Wyoming. There can be some benefits to setting up in another state when we go down the charging order protection entity route or we want to multi layer our assets because we've got a lot of them. So that's more of a high end strategy that we might implement. But it is few and far between. People. Please do not get sucked to. Sucked into the. I can have unlimited entities in Nevada. Sign me up. Oh my gosh.

That's a bad thing.

That's not a good thing, people.

Right? Yeah.

That's surprising that people are paying for that when it's like it's a sucker punch. I Mean, it really is.

Yeah. And it used to be Californians who were flooding to Nevada to set up Nevada LLC, because California has an annual fee of 8, 800 bucks for your LLC. Well, then Nevada was going broke, you know, so they decided they were going to create a $400 fee. They're like, we're not going to be greedy and go for 800. We're going to do a $400 annual fee. We're going to call it a master's license. And so all the people that were in Nevada were like, dang, that was a sucker punch. So. So Nevada is not a hot state. And don't get caught up in this chasing down states like that. There's some nuanced scenarios where we like to use Wyoming and like the Cope scenario where Mark talked about. Or maybe you're someone that needs some privacy protection and you want to be in a state with an LLC as some privacy. And there's some strategies there. But the general, like, do this for everyone now. Don't get suckered.

Now on the where Matt alluded to this, and so let's close the loop here. And I'm glad we kind of ran over to that myth of Nevada. And Nevada is kind of the catch. All myth that involves encompasses a lot of states, you know, whether it's Delaware, Florida, Wyoming, Texas, some of these states that don't have state tax. Which brings us to where, when it's an operational business for all of you out there that are like, hey, I'm going to start a little consulting business. I'm going to start doing some home repairs. I'm going to do landscaping, I'm going to do a variety of different things. And you set up one llc.

Ooh.

Which comes to the myth, you have to have an LLC for every operation. Let's come back to that. But when it comes to where you set up an llc, when it's an operational business, people set it up where you're operating. So if you live in Arizona and your business is in Arizona, set up an Arizona entity. If you live in Massachusetts and you're doing business in Massachusetts, set up a Massachusetts LLC by setting it up in Florida. You're not going to save taxes in Massachusetts by setting it up in Nevada. You're not going to save taxes in Arizona. Really? Arizona and Massachusetts, they're not going to tax you because you set up your LLC somewhere else. Are you kidding me?

No.

You're going to pay taxes. So. But. But then when it comes to rentals, if I live in Arizona and I Have an Indiana rental property. I'm going to set up an Indiana llc because that's where I'm doing business. It's not where you live, it's where you are doing business. You have a rental doing business somewhere or you doing business somewhere?

That's the question. Yeah. All right, let's talk about the. Do I need an LLC for every business? One of the great ones. On the Open Forum episode, we had someone call in with a question or call in, you know what I mean? They submitted a question online. Yeah, caller. We get a caller now they submit a question online. And the. This person, I can't remember, he or she was a. I think it was a guy. He was a barber and a. And had a landscaping business, so. That's right. This guy cut hair and lawns. Can I run both of those businesses out of the same llc? Absolutely. Run them out of the same llc. Well, what if I want a different name for one? You know? You know, I got haircuts and lawn cuts. You know, you can do a DBA of 1. A DBA is a Doing business as. So you can operate under that name for one of the businesses, and the name for the LLC could maybe apply to the other. Or you can have just a generic LLC name and have different DBAs. That's called doing Business as. Or sometimes a fictitious name if you need a different name to operate under. But it could be the same llc.

I like that. Let's unpack that basic point point of the DBA for a moment. Everybody, listen. If you set up an LLC called Best Lemonade Stand, comma llc, by filing the llc, you've reserved the name, in effect, Best Lemonade Stand. But if you set up Kohler Enterprises llc, and I want the name Best Lemonade Stand, that's when I would go file a dba. The DBA is like a statewide trademark, as long as someone hasn't grabbed it at the Patent and Trademark office in Washington, D.C. for the same type of business, I can do a DBA, which is like a little local trademark. The Best Lemonade Stand. It's a dba. Now, is that the name of my llc? No, it's Kohler Enterprises, but I reserve the name. The Best Lemonade Stand. So the nuance here, everybody, is if you. If the name of your business and the name of your LLC are the same, then you don't need a dba. But it's also okay to have a different name for your LLC and a different name for your brand or your business. And that's when you would use the dba. So you can use both. You don't have to. Again, something to bring up in your console.

Yeah, love that. Now, some states, by the way, like California, there's always a caveat there have a call it a fictitious name and they do it by the county. In Arizona, it's called a trade name and that is done at the state level. So there's a little, some nuances there. Now, some people will ask, and you brought up trademarks. Do I need a trademark? My name. Okay. A trademark is something you can get your business name reserved so no one else can use it. Now, it's got to be unique. You got to make sure no one else is already using it. If you can get a trademark. But what that does is that reserves the name across all 50 states. You have to actually be using it or have an intent to use. And you file something with the US Patent and Trademark Office. We do them in our office, they're around 750,000 bucks. And you can reserve that name nationwide. Now, does everyone need that? No. But if you're really trying to build a brand and be nationwide and that's important, you want to lock that name down. You know, it's around 750 to 1,000 bucks.

I love it. Now, 20 years ago, we wouldn't bring this up, but we're going to. On the, on the topic of DBAs and trademarks, we want to bring up the topic of URLs, you know, what's your website name? And see, that adds another dynamic. And so a lot of times when clients, again, we have to unwind some of the things they're doing because they went online, set up an entity and then they thought about their website name or the DBA name or the trademark name. What you want to do is try to sit back and go, okay, what's my long term goal here with this business, with this brand, with this llc? Because like Matt said, you don't need to have a different LLC for every business. If I want to be cutting hair and doing landscaping, I might set up Kohler Enterprises and two different DBAs, two different trademarks, two different URLs. But if you're like, nope, my long term plan is it's all at the one and the same. You might have partners, investors per se, which is a loaded term. But you might have multiple members of this LLC and they don't want you, DBA and everything. They want the name of the URL, the name of the business, the name of the dba, the name of the brand, the name of the trademark to all be the same. It protects them in a sense, because it's all in one bucket. So don't be rushing into some of these decisions on the name of the LLC without thinking of your three, five and ten year plan and your website plans and launch plans and product plans, because they can all be coordinated. Yeah, it should be. Should be. Yeah.

Love it. Okay, now, I won't bring up the series LLC for a moment here. Some people ask about a series llc.

I'm going to put that on the cool list.

Yeah, that's on the cool list. You know, the cool kids use series LLC when they need them. So a series LLC is essentially one parent llc, but you can adopt multiple series and the series gets separate liability treatment. Let me explain. If you're a real estate investor with five rental properties and you put those five.

Oklahoma.

In Oklahoma, let's say, okay, Oklahoma, Oklahoma. That's Dirty Rotten scoundrels. You got to watch that one, Mark, because you never get that, oh, my

gosh, I love Dirty Rotten Scandals.

Oh, my gosh, Steve Martin there. Okay, let's say you've got five rentals in Oklahoma. You got an Oklahoma llc. Something goes wrong on property number one, and you've got all this equity between five properties and one llc. Well, remember, the LLC protects you from liabilities of the llc. It doesn't protect the assets of the LLC from liabilities in that llc. So if something goes wrong on property number one, all five properties are at risk here. All the equity in those other four that had nothing to do with this are now at risk. So a lot of clients are like, well, man, I don't want to have all my eggs in one basket. I don't want to get, you know, have five properties in the same llc. I'm going to set up a separate LLC for each property. Great, cool. We sell LLCs. All right, but that's overkill, you know, that's probably too much. Unless these are, you know, maybe these are multifamily properties or bigger properties. You got 200,000 or more of equity. Commercial, cool, that would make sense. But these are single family rentals that are mortgaged to the hill. I don't know that I love that, you know, or Maybe only got 50,000, 100,000 of equity in them. I don't know that I recommend that. Now, this problem was solved by a number of states. I don't know if it was Delaware or Wyoming. Which one came up with the series LLC first, Because Wyoming, okay, I know that the LLC in general is from Wyoming, but both of those states have it, as does Oklahoma. Now, what a series LLC is is I can have one LLC that I file with the state that's called the parent. That parent LLC can adopt subseries. They could be the call the child. But think of parent and subsidiary. So I could have series one own property number one. Series two owns property number two. Series three owns property number three. Now, if there's a lawsuit in property one that's in series one, they get stuck at that series. They can't get into 2, 3, 4 and 5. So this way I'm getting to separate my liability of my properties between them. So this is obviously a great option if you have multiple properties. Now you need to be in a state that allows a series llc. That would be like some of the bigger ones too would be Texas, Oklahoma, Tennessee, Illinois, Nevada, Utah. There's a number of others.

Now, a little factoid here. Very interesting. I want to give kudos to my amazing partner. The first series LLC state was Delaware in 1996. Wisconsin of all places was number two.

Okay, all right.

In 2001, then Iowa in 2005, in Oklahoma in 2005. And then the race was on. Now there's about. And in the back of my book tax and legal playbook, I have a table that goes through all the states that are series LLC states. And we update that in our annual calendar as well. But we've got 1, 2, 3, 4, 5, 6.

There's about 20, right?

About 17. Okay, 16 or 17 states. Okay, so series LLCs are nifty. Higher.

Nifty.

Now let's. Let's play on the cool kids list here for a minute because for those of you that are a little higher end, we want to give you some unique strategies here with an llc. So we already talked about the cope. That's a charging order protection entity, really built for asset protection to protect the asset from you. Texting and driving. Study up on that. Have a whole chapter in my book. We talked about the LLC being able to be converted to an S Corp retroactively up to a year. Pretty cool. You can also set up LLC that create massive privacy where no one can know knows who owns them or who is the manager. Wyoming being the best for that. Then we talked about series LLC where you could have multiple subs to give you better protection, but not have a sub for every property either. So you can be really careful about the cost and the headache of the process. The other one I wanted to bring up is the IRA LLC this is an LLC that can be owned by retirement accounts. Something that we pioneered. Really. One of the first law firms in the country 20 years ago was creating LLC that are owned by IRAs, 401ks, SEPs, HSA. So cool. And a lot of people are like, well, Merrill lynch won't let me set up an LLC with my ira. Well, that's because it's Merrill Lynch.

Yeah.

And listen to our directed IRA podcast. Anything you'd say, Matt, about the cool kids using the ira. Llc.

Yeah. So, I mean, there's a lot of great planning due with LLCs. Also, LLCs are awesome for partnerships. It's kind of the entity of choice for when you're partnering with someone, even if it's an operating business.

Oh, okay, you're going over to partnering. That's on the basics. I'm gonna come back over there.

Let me say on the cool kids side too.

Yeah.

I would say the entity of choice for people raising money is gonna be an llc. You wanna do a private placement or raise capital, do a PPM, crowdfund. Even the crowdfunding offerings, those are almost always LLCs. Now, they got special sets of documents and things that go with it. Okay, this is not the piece of paper from the state. You're gonna have the SEC chasing you down if that's all you did. And I'm not talking about the Southeastern Conference, you know, that crushes everybody in football. I'm talking about the securities and Exchange Commission. And they have badges and guns, okay? So don't mess. And. But that sec, you know, can chase you out if you do it wrong. So. But that could be an advanced use of an LLC raising capital.

Oh, I love it. I put down on cool things. I mean, on cool things for one more moment is taking payment for services or products. This is where the separate accounting becomes really important. Because, folks, if you're going to take the time to set up an llc, use it. It's going to have its own EIN electronic identification number from the irs. And you might use that to set up an institutional account with a crypto exchange. You may take payment, as we do at our law firm, in cryptocurrency. So we have. Our entity has its own crypto wallet where people can pay you. That EIN might be tied to your Venmo, your PayPal, your Zelle, your bank. You know, all these ways people can pay you your Apple pay. Use the llc. It's going to make your accounting easier. It's going to make the functionality easier. And on the cusp of today, President Biden. President Biden signing an executive order, really looking at, you know, taking cryptocurrency and legitimizing it to the next level.

Yeah.

This is around a state, so you got to be thinking about how your LLC is going to take payment in different types of currencies, too.

Yeah. And by the way, on that crypto topic, we're going to be unpacking that at the Crypto Legal Summit. Crypto legal summit.com next week. To be virtual. It's online. We'll be talking about that and what that means as well as a lot of other legal issues that surround crypto. But I just to say on that, I was. Mark was telling me about that this morning about this executive order, and it was hit the news later. My first reaction, I have to say, was because the news is putting it out there, like, kind of like the spin you had, Mark, is that this is good for crypto.

Right.

It's legitimizing and everything, and the government's putting resources into helping the government be able to regulate it. But a lot of times I'm always like, man, the last thing I want is the federal government showing up saying, we're here to help. Like, it's like, ah, I don't know. I don't know if I believe that.

Yeah.

But.

Okay.

Do I have a choice?

Oh, my gosh. We're gonna get water to the Superdome and help you folks down in Katrina. You know, really? It took you a week and a half to just get me a bottle of water? You sure you couldn't figure that out a little faster? Yeah. Oh, my gosh. Yeah. Anyhow, but folks, if you. If you have any cryptocurrency investments at all, and I've seen all sorts of percentages of the national population now in the country that owns some sort of crypto. The Crypto Legal Summit next week. Very affordable. It'll be recorded. Pipe into that. We're going to talk about asset protection for crypto. What happens if you die? Where does your crypto go? Cold storage. Raising capital is a. Is our tokens and coins securities. Where's the securities and Exchange Commission on this? If you're doing business in the Metaverse and you have a Metaventure or a Dow, how do you handle that? So we're going to do our best to unpack a lot, and it's a moving target right now, folks, so I think you'll really enjoy it. But that's crypto legal summit.com now. All right, basics, Matt, why don't you explain the difference. I'm going to tee this up for you, Matt. And I've been working on our alley oop slam dunk skills since it's almost March Madness.

Yeah,

Single member LLC versus multi member llc. That's really a basic point that we need to cover.

Yeah, a lot of people get confused on that. So single member LLC means there's one owner. And the nice thing about that is that means that this flows directly down to your own personal tax return. You're not filing a 1065 partnership return to the IRS. You know, maybe you had an S election and you're starting to do S Corp stuff, but let's just say you're just a regular, plain old llc. One person owns it. If it's a rental, it's just going to flow automatically down to schedule E on your tax return. If it's an operating business, the lemonade stand, or you're selling goods and services, it's going to flow down onto schedule C automatically. Nothing goes to the irs. It's called the disregarded entity, which is kind of nice. It keeps it nice and easy for you. For those with a side hustle and stuff like that, or just a rental, it's nice. And remember, the LLC protects you from what's going on in the business or the rental property from any liabilities. So we like that. The multi member LLC would be like a partnership. Let's say Mark and I form an LLC together, which we have. We have a couple that owns a rental property. All right, now that there's two different owners and that's a partnership, we have to file a 1065 partnership return to the IRS. But it's still. The LLC is basically the same, same setup with the state, but we're going to set it up with and have our operating agreement that outlines partnership provisions between us. And then we do need to do a partnership tax return.

Well said, my friend. I'm trying to think of some additional myths, basics, cool things that might need to make our list. We've almost vetted this, I think, entirely. But I'm going to go back to a myth that we alluded to, but I'm going to be very clear about it. The LLC is not a one and done process. I cannot emphasize that enough. Over and over again, I meet people that have one sheet of paper for their llc. They set it up three years ago, and now it's dissolved. They didn't pay any fees to the state. They didn't file a tax return. It is jacked up. And I know there's many of you listening that are in that situation. We have a service called the cleanup. Literally, we have two paralegals. All they do every day is just that cleanup. They're just taking people's llc, is finding out what the condition of them are and just tidying them up. And we have a company maintenance program, 150 bucks a year, Very, very affordable, to just make sure that you're in good standing with the state. You're doing your minutes. And so don't fall prey to the fact that you think it's just one sheet of paper and you're done.

Yeah.

Not one and done.

Not one and done. Yeah. And that is a good point on, like, what do I need to do to manage the llc? Okay, well, you filed it with the state. Most states have a renewal. You got to do two, where you have to file something and pay an annual fee. Most states are around 50 to 100 bucks. There's some states that do it every other year. There's some states that make you file every year. There's some states you don't file anything at all, like Arizona each year on an llc. Corporations, you do. But that's what our company maintenance program is. We, like, in addition, doing the minutes, we're doing your annual renewal with the state to make sure it stays active. Because if you don't do that, if you don't maintain your llc, you're not going to have an LLC eventually, because what happens is the state will dissolve you. It's called. They will do an administrative dissolution, which means. Basically means you didn't pay your fees. You no longer have an llc. And then. And we get clients all, all the time coming to us, realizing this. Finally, like, they go to, like, sell a property or they try to get a loan or something, and the title company or bank involved looks up their llc and also ask them, where's your operating agreement and all this stuff? I don't have that, but I have this piece of paper. Oh, and this actually has expired. You've been administratively dissolved. They're like, what? Yeah, it turns out you need to do some stuff. It's not hard, though. But you do need to do little things to keep it updated with the state. And usually it involves saying, I still have an llc. Here's some money.

And I want to hit a basic topic that you would be shocked. I literally had to explain this to a lawyer about two weeks ago, and I almost got a little heated because I was like, dude, seriously, he just had his heels in the sand. You say Heels in the ground, sand, whatever. He had dug his heels in and he was like not going to budge on this. And I was shocked and I finally swayed him because logic took over at one point, but I'm sure it was

persuasion skills, you know?

Yeah, my persuasion skills. Yeah, yeah.

Mark can be very persuasive.

Here's the, here's the basic point, everybody. We should have maybe covered this at the beginning. There's managers and there's members. Now for those of you that are long term LLC owners, you're going to love this too. So, so buckle up. But managers run the llc. They don't have to be the owners, they can just be managers. Members are what we call the owners of the llc. And members don't have to be managers. They're two different things. Now when you go to. Now I'm going to throw this out too. We have board of advisors, which are like board of directors. And in our LLCs we make sure we gather that data and put, put it in your llc. So you have managers, members and your board. And again, they can be three different people. Now when you go to file this with the state, there's going to be this big box right at the top. Well, it's a little box, but it's a big question right at the top. And it's going to say, are you a member managed LLC or a manager managed llc? And you got to choose. And so many people just roll the dice. They don't know what the hell, but they're trying to save a few bucks and they jack it up. Here's the general rule of thumb. We always go Manager managed LLC. At our operation last 20 years, every thousands of LLCs we've set up manager managed. The reason why is because the manager is disclosed on public record, but the members are not in most states. In Arizona, which is one of the oddities. It's kind of interesting. If you own more than 20% of an LLC, it has to be disclosed on public record, which is regrettable, but 99% of or 49 other states, we can just list the manager. We don't have to list who the owners are. And that gives us a lot of flexibility because you might slide your trust in here, you might make a kid an owner, you might make your spouse an owner, you might change ownership, but no one needs to know that that's private. So we love manager managed llc. And this attorney was like, well, I don't want to have managers running my client's llc. You're not going to have managers Running your client. Your client's going to run the llc,

but no one knows own it. There's just the manager. And I think I love with the changes, too, because manager manage is easy, because if you listed the member and let's say it's you, and then you set up your trust or your estate plan, you want to transfer your LLC to your trust, well, now we got to go amend it with the state because you were a bozo and you did a member managed llc. If it was manager manage, we don't need to change anything there. The members weren't disclosed. There's nothing to update, and we can just do that internally. It's a lot simpler.

Yeah. What else, Matt? Anything else? Let's think basic. We talked about bank accounts, collecting money.

We did the when, the where, the how. Let's talk about when you need it. Let me just say that at the end. Ooh, when.

Good comment.

When does it make sense to set it up? We just had a. I was talking to one of the other lawyers here with a client who wanted to set up an LLC for kind of a side hustle, and the question was, well, is it worth it? Do I need it yet? And for a lot of clients, you don't need the llc. If you want to start a little side hustle or your small business, and you want to kind of test the waters, and you're like, I don't want to spend the 800 bucks to have it done right. And just get it going. Okay, cool.

Get it.

Test the water. You don't have to have it at first, but this client was like, no, I'm really going after this business. I'm putting a lot of time and effort into it. 800 to 1000 bucks is worth it for the amount of time I'm going to put into it. I want to have it right from the beginning. And I also want to sound a little legit when I go out there and I'm doing business. And so for that client, I was like, all right, let's get the LLC going. You want to sound legit. You want to get off on the right foot. You don't want to have to come back and do it later. That made sense, but I just want clients to know you don't have to choose that path. Just start going out there and call it whatever the heck you want. You're basically a sole proprietorship and start doing a little business to test the waters. Now, if you're a rental property, let me say, oh, okay, you want to stick on operations okay, okay, I'll yield the balance.

If I may interject. Okay, Yep, yeah, balance at the time. To the senator from Idaho at the moment.

No, without objection.

When it comes to. I thought you were going to say this right out of the gate is when people go, do I, when do I set up an llc? The day you close on your frickin rental. Yeah, okay, let me just be a little clear about that. If you have a rental property, you have exposure. Get a fricking llc. Well, I'm in California and it's expensive. Well, you just bought a rental. It's a cost doing business, idiot. So it's cool, you know, and so I lived in California by rentals. You know, in California you're going to have to have an LLC and it's okay, it's okay. So just when it comes to rentals, set them up where the rental property is right away and then you can talk about bundling properties into one LLC or foreign LLCs and all that. But, but no one on the operations side. I love Matt's comments. You know, really look at what your vision is for this side hustle. You may or may not. Yeah, I got a cool thing.

Oh, all right, all right.

LLCs. I actually have a chapter on this in my book. Okay. LLC can be used to expedite or create corporate credit. So what that means is a LLC with its ein can get what's called a paydex score. Much like a person has a FICO score, an LLC can get a paydex score. You get a line of credit at Home Depot, at Verizon, wherever. And all of a sudden your LLC with this Dun and Bradstreet number starts to have credit. And there are legitimate strategies over time not paying, you know, for some, you know, LLC in a box with corporate credit already having that's scams 99.9% of the time. But you can build corporate credit in an llc. Matt and I have corporate credit in our llc. As a law firm, we have a line of credit that's normal. It's in the name of the law firm llc. If you do it right, over time, your personal guarantee falls off. The LLC builds its own credit. Now caution, you would never do this with a rental property LLC because you're not going to go out and get corporate credit for a rental property. Yeah, most of our clients using LLC for corporate credit are for operational businesses that need a line of credit for inventory and accounts receivable payables. Or may they be. Maybe they're fixing and flipping property and they're sick of paying for hard money rates, and so they want to build a corporate credit line there. But it's doable.

Yeah.

Very common. Yeah.

Well, I forgot about that. That is a good little perk. Love it.

Oh, I've got one more. LLC for family properties. Yeah. Okay. LLC is for a legacy property. I was working with a client this last week that's setting up an LLC up in the mountains on a lake. And we're going to keep this LLC in the family for maybe a couple generations. And you can build rules for the llc. When do people get to use the property? Set up a little calendar. You can rotate board members, rotate managers, and you kind of create this operational LLC for the use of a legacy property. It could be a cabin, it could be a farm or a ranch or something special that you want to keep in the family for a couple generations. The LLC is a perfect fit. And you might even do what's called gifting. You might gift interests of the LLC over time because you might have an estate tax problem. High, high end issue you might deal with. But the LLC or family limited partnership are kind of in that bucket. And it's a whole other world, but kind of a cool thing. Yeah.

Yeah.

Wow.

Okay. All right. You kept dropping stuff. I was like, I got another one.

You ready?

Okay. Got one? Yeah, go for it.

Okay.

I didn't know how long we were going, so I was.

I know. No, I'm just trying to keep rolling.

Okay.

Basics and myths and cool thing is the dao, the decentralized, decentralized, autonomous organization. Now for any of you in the crypto metaverse world, you know what I'm talking about. But this is a unique type of LLC that Wyoming just passed last year. First in the country where you can set up a dow, set up an LLC in virtual reality. You're setting up an LLC to do business in a whole other reality. I know some of you operate in a different reality. This is a legitimate virtual reality.

Yeah.

So anyway, we're going to be talking about those again at the Crypto Legal Summit. But that's a very, very unique type of LLC that you would use in the Metaverse. Any other unique LLC that you've seen out there, Matt, we got legacy property raising money, DAOS series IRA llc. Ooh, blocker.

That's really a C corp. I mean, I'm just trying to think of the ones that most people need to know. I know you're trying to get the other options out there of some high end stuff. Now one thing I Will note is there's something called a limited partnership that is sometimes distinguishable. Before LLCs were created, people mostly used limited partnerships and that was basically an entity that had a general partner that managed it and then it had limited partners who are essentially the owners and the general partner took liability on behalf of the limited partnership, but also managed it. Now the if you ever do a limited partnership, of course you'd want an entity to be the general partner. But limited partnerships have some clunks to it. We rarely use them anymore. The LLC is just so much easier, so much more tax efficient, has a little better liability, just cleaner. But sometimes there's limited partnership that can get be used in certain instances and a lot of our older clients might have some of those.

I like it. Now I'm going to couch my last cool strategy with another basic final comment. Everybody don't get overwhelmed. I know we've thrown out a lot of cool things or myths or this or that. I'm going to go back to Earl, you ain't nobody till you've been shot. Really. You ain't nobody tell you how to know. And I really believe in the American dream. I love having the side hustle, the small home based business. Something that you can really build upon over the next five, 10 or 20 years of your life. Some of you already have 20 LLC or should have got one yesterday. Some of you, I'd like you to work towards it. It's okay. It's kind of cool. It's an opportunity to build a small business and brand yourself and leave a legacy and do something that you've always dreamed about. It's pretty darn cool. And you don't have to go down all these interesting rabbit holes. Just get your LLC going, do it right. Get a consultation and build your trifecta for the year. What do you want your year to look like? What's your plan for the next three to five years? And really, if you haven't launched an LLC yet, I would make it a goal of many of you listening. Make it a goal this year to open your first llc. I think it's almost an affirmation statement. It's really kind of I'm going to live into my future by creating an llc. It kind of gets your butt off the couch. If I'm going to set up this damn thing, I better use it. Yeah, I don't know. Right.

Yeah.

Put it to work.

It is kind of the formal, the most formal legal structure out there right now. It's the most common. It has a lot of flexibility. It's also the one when you don't know what the heck you're doing and you're like, ooh, what entity do I set up? Do not set up a C corp, guys. You know, maybe an S corp might be too early, depending on whether you know. But don't use an S corp for rentals. So the LLC can be kind of like the. The default one. You don't know. That can also be worked with by a lawyer. It's easiest for us to fix an LLC you jacked up than a C Corp or even an S corporation. So another little perk of the llc. And I just want people to know, remember, this is about asset protection. It's about making your business look legitimate. And it's also a great tool for partnerships. And so many other cool tricks we talked about with LLCs, but it's the most common business structure out there for a reason.

Yep. And the last cool thing, like I said, I was going to temper it with a basic stock point. Here's my final one is the P. Llc, which is known as the professional llc. Quite common, actually. Some you may. I. I felt I had to say it, Matt, because some people go, how could you? Why could you not. Yeah, how could you miss this? So a professional LLC is anyone with a professional designation with the state. Think engineer, architect, accountant, lawyer, physician, dentist,

chiropractor, Realtor in my dates. A white Realtor in some states.

Yeah, that's right. Realtor in many states, brokers. So a PLLC is a. Is a unique designation that legislators have created in states to say you want to be an llc, but we also want to give you kind of some extra unique protection or boundaries, especially if you're going to partner with other professionals. And so the PLLC is a really unique type of llc just built for professionals. By the way, you would make an S election, people. So it's very common to do a PLLC with an S election. Sounds pretty kick ass. It is, yeah. Yeah.

All right, well, thanks everybody for listening to another amazing episode of Main Street Business podcast. Please go Share this Subscribe like whatever things you know are positive. If you have any complaints, you can send them to Mark. Of course, let him know and we'll be back next week with another amazing episode of Main Street Business podcast. Thanks everyone.