From Sole Proprietor to LLC. . . and Beyond

1. Sole Proprietor to LLC Introduction: Welcome to sole proprietorship to LLC and beyond. My name is Ken Vernon and I'm a lifelong small business entrepreneur. And I put this class together based on industry knowledge, my research, and my personal experience. I have started and manage more than 15 businesses in multiple industries, including for very successful digital marketing agencies. That my agencies, I worked closely with dozens of companies in various markets and industries helping increase results in revenue. And with each agency client, it was imperative that I understand their business and the markets that they served. So I have an extremely broad range of business experience and knowledge. I have bootstrapped of business from 0 to seven figures. And at the total other end of the spectrum, I've helped multi-billion-dollar brands engage and support their customers. I am a prototypical serial small business entrepreneur. Now, all of my businesses, they started out just as an idea or a need that I saw in the marketplace. And almost all of these businesses were conceived either at my kitchen table or over coffee at Starbucks. Now, I was able to grow some of these businesses to generate multimillion dollar revenue stream for the staff of 30 or more employees and other businesses I started they failed. Over the years. I've operated under multiple business structures. Obviously, I've worked as a sole proprietor. I've had a family partnership, I've had spousal partnerships and I've had LLCs with multiple business associates. To date, I have been a member owner in six LLCs. And along the way, I developed a very simple and logical path for starting a business with minimal resources and then scaling the structure that business to provide both control and protection. In this class, I'll discuss the best practices of operating as a sole proprietor. As you launch your new business, you'll then learn why it's important to graduate that business to an LLC as soon as you're able to do so and have the resources. As you watch this class, you must keep in mind that I am not a lawyer or FCPA. I am simply sharing my experiences with starting and running multiple businesses. You should not consider anything I say in this class to be legal advice. And you should work with an attorney to start your business if at all possible. Now there are ten short video segments in this class, that's nine lessons plus we'll go over them in a review. In these lessons, we're going to cover the following topics. We're going to answer the question, am I a sole proprietor? We're going to talk about how to operate as a sole proprietor. We're going to talk about how important it is a separate your business from your personal life. Then we'll go over the pros and cons of a sole proprietorship. We'll move on to protecting yourself with an LLC. We'll also talk about becoming a salaried employee of your LLC. Then we want to talk about keeping your LLC and your personal business separate. Then we'll go over the pros and cons of an LLC and I'll take you step-by-step on how to actually set up your LLC and get to operating. And then the last segment, as I said, we'll go back and review everything in the class. 2. What is a sole proprietor?: Hi there, My name is Ken Vernon and I am a lifelong small business entrepreneur. Today you're watching the very first lesson in my series, sole proprietor to LLC and beyond. In this series, I will show you how to go from an idea at your kitchen table to accompany structure that provides you with protection, control, and tax savings. Now as you watch these lessons, you must keep in mind that I am not a lawyer nor am I on the counter. I'm simply sharing my experiences of starting and running multiple businesses. You should not consider anything said in this class has legal advice. You should work with an attorney to start your business if at all possible. Now there are nine short video segments in this class. And I hope this information will help you and your new business be successful. So let's get started. So you've heard the term sole proprietor, but you're not really sure what that means. Well, it's really very, very simple. The moment you decide to start selling things to other individuals, you can consider yourself a sole proprietor. There's really no paperwork to file. You don't really have to register anything to designate yourself as a sole proprietor, you'll just simply report your profit or loss from your business activities when you file your personal tax return. Because as a sole proprietor, you and your business are one and the same. Your business tax ID is simply your social security number. You and your business are one and the same. So as a sole proprietor, you are simply an individual who decides to sell or market something to other individuals and generate revenue. This is the easiest way to start your business activity and encouraged the least-cost to start. But there's one cause that's critical for you to incur in order to properly track your business activities as a sole proprietor and keep those activities separate from your personal financial activities. And that will be the cost to register a DBA or doing business as Certificate. You'll need this to open a separate bank account for your business activities. Now, having a separate bank account for your business activities makes it so much easier to track the Profit and Loss of your business and what you're doing. You are tracking all the business expenses separate from your personal finances. And then you'll be able to provide a profit and loss statement, which you will file with your personal tax return. And you'll most likely do that with a Schedule C 1040 form. Now, if you believe in your idea, make it real, call it a business and you will start your journey the right way. You'll stand up and say, I had this idea and now I'm starting a business with it. So if I believe in an idea, I expect and plan for success. And you should too. So many new entrepreneurs have an idea and then spend months, if not years, thinking and tinkering without any record of the countless hours and dollars invested in the idea. And if you assume your business will be successful, then you can also assume at some point in the future, the business could pay you back for everything that you put in. So start tracking your expenses immediately. You should track these expenses. Even if you haven't generated any income at all. This will allow you to report a loss on your personal income tax return, which in turn will reduce income tax that you owe. Now, there are costs associated with your business from the moment it goes from an idea to something that you're actually doing. So making the effort to track all income and expenses will keep your finances in order and puts you in the mindset to be successful. So a quick preview. You're a sole proprietor when you instigate financial activity around your new business idea, it is important to start your business by tracking and separating your finances. The moment your business is more than an idea. Whether you just watch the very first master is sole proprietorship, jealousy and beyond where I take you from your kitchen table to a company's structure that gives you protection, control, and tax savings. I hope this information has been valuable for you. Our silhouette go. Got that one? 3. How to operate as a sole proprietor: This is less than two and my series Sole Proprietor to LLC and Beyond where I take you from your kitchen table to a company's structure that provides protection, control, and personal tax savings. In the first lesson, we discussed what a sole proprietor is, and now I'm going to talk about how I've operated as a sole proprietor in the past. And there are a couple of things that you should do if you're going to go down the sole proprietor path. Now remember, this is not legal advice, just what I know and think based on my experience. Okay, I'll see you at the end of this lesson. So you've decided to give it a go. You're going to pull the trigger. You are ready to go from idea to a real business. Now there are steps you should take if you're going to conduct business on your own as a sole proprietor, now, you don't have to register a file, an application to be a sole proprietor, which is true. But in order to work with banks and have a business checking account, you'll want to file for what's generally called a DBA or doing business as name certificate for your business. You'll do this at the county clerk or your county registrar's office. Now, before you go to do this, you need to one of the thun thing do you get to do on your journey? And that's come up with a name for your business. Now from a branding perspective, try to choose a name that communicates what you do and will resonate with your potential customer. Now, you also need to come up with a couple of choices there in case your name conflicts with a previously registered. Now once you have a couple of ideas for your business name, either jumping the car and head down to the county register's office or go online to your county clerk or county registrar's website to register that business name so that you can start doing business as Texas your filing and assume named application DBA. In other states, this may be called a fictitious name or assumed name or a trade name, but they all mean the same. The assumed name filing simply provides documentation that you are doing business and you intend to make financial transactions under the assumed name file, not under your personal name. Now, depending on the county or state that you live in, this can be as simple as a form that you fill out and pay a small filing fee. I live in Dallas County and here you're provided with a workstation at the clerk's office and instructions on how to search all current business names and make sure that no one else is using your proposed business name. If your county provides this search online, you can determine your name is available before you go to the clerk's office, whatever you do, stone try to do this step at 04:00 P.M. on Friday afternoon. Make sure you have plenty of time to go through all the steps required by the county or state registrar. Registrar with your assumed name certificate submitted and accepted by the county, you now have a legal document that states who you are and the name that you're going to do business under. And with that document, you can provide it the bank and you'll be able to open a business checking account doing business as your company name. You'll use your DBA name on all business documents and in all advertising, marketing and branding activities. And remember, keep track of the cost of filing your DBA and any other costs incurred as these all count as expenses for your business. Now, from this point on, make sure all business transactions take place within your business bank account. Now, you're starting your business the rat way with a business bank account separate from your personal account, allowing you to use this new business account to easily keep track of all your business transactions and allow you to promote your business name. Knocked your personal name. Hi there. You've just watched the second lesson and my series Sole Proprietor to LLC and Beyond, where I take you from your kitchen table to accompany structure that provides protection control and some tax savings. Now, so far, we've talked about what a sole proprietor is. We've talked about the need for a sole proprietor to get a DBA and the importance of separating personal and business financial activities. And that's actually the main topic of the next lesson in this series. Now, keeping your personal and business financial activities separate, really an investment topic. It's not just a bookkeeping topic because that's what we do. We invest time resources heartened so and as an investor, don't you want to know how much you've invested and don't you want to keep track of that and wouldn't you like to get that investment bank someday? And then there's an income tax thing that you need to take a look at. But that's all in the next video. I hope this information helps you and your new business succeed. If you've got any questions at all, drop me an email at ken and Laplace's for business.com. That's ken at lifeless and the number for business.com. And I'll help in any way I can. Hasta luego 4. Separating your business and personal activities: This is lesson three in my series, sole proprietor day LLC and beyond where I take you from that first coffee at Starbucks to accompany structure that provides protection, control and personal tax savings. So if you've got a great idea and you're starting to work on it. Well, you need to stop right there. So let's say you go on to have a successful business. Now, wouldn't you like for that successful business to pay you back for every dollar you spent and invested in the business. Okay, Enough said, start your business journey the rat way. Now Promises course will contain more advice than separate your business from your personal life. But seriously, if you only walk away from this course with just that advice, it's worthy advice to have dedicated an entire listen to this concept because starting your business the right way will pay huge benefits as you move forward with your new business. Having all business-related expenses documented in detail is the primary reason for keeping all personal financial activity separate from all business financial activity by opening business bank account you've set up and very easy way to track all business activity and determine if you've made a profit or suffered a loss. So now you're keeping your personal finances separate from your business finances, and you can easily report any losses or profit from that business. Remember, as a sole proprietor, all outside legal entities will view you and your business as one entity filing one tax return when it comes time to file your taxes, obviously want to reduce your personal tax burden as a sole proprietor, you and your business are the one and the same, and you will report the profits or losses from your business on your tax return. If you are spending money to start your business, you can reduce your taxes with documented expenses incurred as a cost of doing business, annual file a lawsuit on your personal tax return. Remember to consider every place or situation where there is a cause for you to do and conduct your business. This includes depreciation on things like your computer or any special tools or software, or the cost of running your business out of your home. So with all cost of your doing business accounted for or you can honestly reduce your actual profits and therefore reduce your tax burden. So start separating your business from your personal life with a separate business account and detailed tracking or your finances. Do this with all related activities. If you're using your car to go meet someone at Starbucks, keep track of that mileage that you used for business purposes and remember, it is separate from personal. So if you stop the grocery store on the way home, you can't track them. Owls play home from the store. If you have a car that's used only for business purposes, then make sure you're also keeping track of all the maintenance costs. If you use your personal car for business, you can only deduct a certain dollar amount per mile at the end of the year. But if you have a vehicle that is dedicated to your business and only used for business purposes, then you can deduct depreciation on that vehicle, as well as all the maintenance and fuel cost associated with it. Just with the car example, we just talked about knowing what can and cannot be filed as business expenses will come into play when it is time to start buying things that are only related to your business and when it is acceptable to use personal items for your business. For example, your home printer. When you need a new one, maybe you should buy personally or are you buying it with your business account? Well, here's one way to figure out the cost of any new item that you're buying as personal versus business that should take off three boxes. Is this atom something that I've used mostly for business? Is this atom going to give me a tax deduction at the end of the year? Is this atom something that I need and can afford? If you can say with absolute certainty that your printer is, you use 99% of the time for your business and that you'll be able to use its cost as a deduction at the end of the year for your business axis. And it is something that your business can afford, then you should purchase it with your business finances. If you didn't tick off all those boxes I just talked about it can't be defined as a business expense and you should buy it personally. So let's do a quick recap before we go forward. The second year, businesses more than idea. You're a sole proprietor and as a sole proprietor or recommend filing a DBA application with the county or state in which you reside. With that, you're going to open a bank account with that dBA and start building a wall separating all personal things from all your business things, track any and all legitimate business expense is separate from any personal activities. You can just watch separating your business from your personal life. That's the third lesson in my series, sole proprietor to LLC and beyond, where I show you how to take your new business from your kitchen table to accompany structure that provides protection, control, and tax savings. So now you know how to get a DBA for your business registered. And you've used that dBA registration to open a business checking account. And now you're running all your business activities through your business checking account, not your personal checking account. And you know now why that is so important for tracking your investment and how it may help you reduce the amount of income tax that you pay personally. In the next lesson, I'll quickly go over the pros and cons of running your business as a sole proprietor? 5. Pros and cons of operating as a sole proprietor: This is LessonFour, my series, so Proprietor, LLC and Beyond where I take you from your kitchen table to accompany structure that provides protection control and personal tax savings. If you watched the previous lessons, you know where this one's going? Yes, you can work as a sole proprietor, but if you're business is working, that might not be the best route to go. Now let's talk about the pros and cons of operating your business as a sole proprietor. Now the plus side, a sole proprietorship is easy to set up and the cost is minimal. So you're not going to invest a lot of time and money on a legal Business Structure that may or may not work out, you can literally start operating as a sole proprietor just by doing business and then including those business activities on your income tax return, both state and federal. Now, on the other side of the ledger, the reasons that are negative about being a sole proprietorship are fairly important. As I said, if you are actively conducting business as a sole proprietor, there's no legal separation between you and your business. No legal separation between you and your business, then you are personally liable for all of your business activities, including any and all debt incurred. Obviously, this can pose a significant risk for you and your family's financial situation. If you are personally liable for all your business activities, then your personal assets can be targeted and possibly sees if there's a judgment against your business for any reason. Most states have laws that define what personal assets can and cannot be seized. But at a minimum, a judgment will most likely sees your personal bank account and can seize other personal property as well as the state allows, and you don't want that to happen. Now as an example, it might be that you have a product and fails and causes somebody injury than the person injured sues your business. Well, since there's no legal separation between your business and yourself, then in effect, that person is suing you and a judgment can and will require you to be personal responsible for that debt. Now this goes both ways. If you end up being sued personally, then your business assets can be seized in a judgment as an example of a personal legal proceeding that could jeopardize your business assets. That would be a divorce. In the case of a divorce and a community property states, those assets would be considered your personal assets and can be included in what is divided up in the final divorce decree. How you decide if a sole proprietorship is the right choice for you. I've started multiple businesses as a sole proprietor and then moved and evolve those business structures to an LLC. If you're just starting out with minimal resources and your product or service doesn't involve atoms are advised that could cause harm to your customers, then you should be okay to operate as a sole proprietor while you're starting out, you need to establish that DBA, open a separate business checking account and keep all business activities separate and tracked in detail. However, if as a sole proprietor, you provide something like software development services for clients that could impact their business if you don't do the job properly or you sell any type of product that could cause injury. Lack the hot coffee incident in McDonald's back in the day, the knee need to move to a different structure as soon as possible. You need to move to a business structure that provides some level of liability protection. And that structure would be an LLC, which is a Limited Liability Company. Now you know the liability issues of operating as a sole proprietor. So if you're business is starting to actually work, meaning actual income and maybe even profit. You need to take the next step and protect your personal assets from any issues that may arise with your new business. Protecting yourself with a Limited Liability Company is the fifth lesson and my series, Sole Proprietor to LLC and Beyond, where I'll show you how to take your business from your kitchen table to accompany structure that provides protection, control, and tax savings 6. Protect yourself with a Limited Liability Company: Now we're at less than five in my series, so Proprietor to LLC and Beyond where I take you from that very first coffee at Starbucks to a company structure that provides protects and control and personal tax savings. Now we're getting to the heart of the matter why you should consider an LLC for your company. This is where Protection for your company and your personal assets and control of your company come in. This is important stuff, and I hope you think so too. So now let's watch the lesson. How do you protect your personal finances and assets from any potential legal issues that may arise while you're operating your new business. Well, this is a reality that every business owner needs to take into consideration. And now before you even start to think that there's no way that your business could ever do any harm to anyone else. You need to stop and think about it and ask yourself a couple of questions. Do you have customers or clients that actually enter your place of business? Well, what if one of those customers or clients slips and falls right there and your business well, you could be sued or maybe you provide computer code that a client will use in their business. Well, so what if one of your programmers make some mistake in the code that allows a successful ransomware attack on your customer, you might get sued. Now all of that sounds really scary, but there is an answer and it's not really complicated or hard. And that answer is to form a Limited Liability Company. There are multiple benefits to establishing an LLC for your new business. And then most important is right there in the name, it's Limited Liability. By establishing yourself and your company as an LLC, you legally separate your business from yourself. And in this manner, your personal assets and finances are protected from any business-related litigation. If you're considering a partnership, I'd like you to stop and take a hard look at going the LLC route instead because with general partnerships they provide no Liability protection and actually expand the Liability to all partners if one partner sued, all partners are liable. Now in some states and with some regulated profession, you can establish a Limited Liability Partnership that can provide a certain level of protection. But for most businesses and an in my experience, and LLC is the perfect structure for our partnership. The first step in setting up an LLC is to create your member operating agreement. And remember in an LLC, a member is the Owner in this operating agreement, you'll define how the business is run, including all management aspects of the company. Now, at this point, you will need to make a decision as to whether your LLC will be a member managed or a manager managed LLC with the member or Owner managed option. All members manage the business functioning more like a board of directors. Alternatively, in a manager managed LLC, you will designate one of the members as the manager of the LLC. And you can even have someone who's not a member or Owner be designated as that manager. Now, obviously, if a single individual is designated the manager of the LLC than that individual will make the day-to-day decisions for the company. Now this operating agreement is where you establish not only how the company is run, but how profits are distributed, how members are added or removed from the organization, and even how they LLC might be sold or dissolve, there's literally no limit to what can be addressed. So when you create your member operating agreement, be as creative and detailed as possible in defining all member activity within your LLC. Protect your interests in the LLC. Now, once you have it ready to file, find an attorney to review filing an attorney that's focused on smell business and someone who understand Small businesses and small business entrepreneur. Now, when you're ready to file, you will do so with your secretary of state. And these filing documents may be called a certificate of formation or certificate of organization, depending on the state that you're filing in. Now your state's corporate filing Office. Usually the Secretary of State can provide all the appropriate forms for filing your LLC. And again, you can do this yourself. Just be careful and get legal advice if you have questions. You've now completed the fifth lesson in my series, sole proprietor day LLC and Beyond, where I show you how to take your new business from your kitchen table to accompany structure that provides protection, control, and tax savings. If you're business is starting to work, you should seriously consider making it a Limited Liability Company. The benefits should be obvious. What are the most important aspects is your ability to define exactly how the business will be run. You have partners now or expect to have partners in the future. This is a must. So take your time and create a member operating agreement that addresses all possible and potential issues you may face running your new business. And be sure to watch the next lesson, this series to learn how going Beyond the LLC to an S-Corp can provide substantial tax savings for you as an owner and provide you with an honest set of books for your business? 7. Become a salaried employee of your LLC: Welcome to the six and possibly most important lesson in Maya series sole proprietor the LLC and Beyond, where I take you from your kitchen table to accompany structure that provides protection control and personal tax savings. In this lesson, we go beyond the LLC to an S-Corp election which can set you up for significant personal tax savings if you are an owner that is active in the business. So let's get going and at the end of the lesson, I'll be back to provide an overview of everything discussed. Forming an LLC is not only important for Liability protection, but when Structure properly, there can also be significant tax advantages if you want to keep as much as your business profits as possible and limit the amount that you personally pay in taxes an LLC can help you do just that. Llcs are primarily governed by state laws and statutes, but from a federal tax perspective, profits from an LLC pass through to the members are owners. This means if you're a member of an LLC, you will report your share of the profit received from the LLC as personal income. It will be subject to a significant amount of self-employment tax, which is in addition to your personal income tax rate. But just by filing form 25 53 with the RAS, which allows you to elect to have your LLC tax as an S-Corp, you can significantly reduce your personal tax burden. This choice is available to LLCs that adhere to some basic requirement. It has to be a US based LLC. There needs to be less than 100 members are owners and LLC. And the LLC can only have one class of stock. And last, your LLC cannot operate in certain industries considered an eligible. These are financial insurance or US based international sales organization, owners of an S-Corp who worked day today in that S-Corp can be salaried employees of the S-Corp. And this is exactly what you need to do to gain this tax advantage. You are an owner of the LLC and an employee of the LLC in order for this arrangement to provide you with the tax advantages you're looking for, it's important that your salary from the LLC reflects a reasonable amount paid for the time and effort that you put into your business. As an employee, you will have appropriate Social Security and Medicare withholding taken out of your salary and matched by your LLC. Then when you receive profit distributions from the S-Corp as the owner, that income is not subject to self-employment tax. Currently, the self-employment tax rate is 15.3%. But as an employee, your profit is not subject to self-employment tax. Obviously, using this strategy can significantly reduce the amount of tags that you will pay personally. This is also an important aspect to making the business reflect the real cost of doing business. Too many entrepreneurs do not account for the value of the long hours that they commit to their business. And without an honest accounting of all cost of running your business, including your own efforts, your bottom line is not real. Your books are simply not factual. If you pay yourself a reasonable salary, your business will now have an honest set of books and your P&L statement will reflect the real numbers for your business. You will know if the business is truly profitable and anyone who looks at your books will also know the true cost of doing business and the actual profitability of the company. And remember, the withholding from your salary will go to your future retirement. You will be able to recoup this in the future as social security payment. This can be critical for our serial entrepreneur with the Ups and downs of Small Business Entrepreneurship, you may find yourself over 65 without income. In that case, you're gonna be very happy to receive that Social Security payment that will help you recover and start your next business. Bottom line, you need to form an LLC. Elect to have that S-Corp designation for your LLC and make yourself a salaried employee just as soon as you are able. Thanks for watching LessonSix and mastery, Sole Proprietor to LLC and Beyond, where I take you from your kitchen table to accompany Structure providing protects and control and tax savings. And the three critical points in this lesson. One, reduce your personal tax burden by becoming a salaried employee of your S-Corp. Number two, with the owners of the business being paid a reasonable salary for their work in the business. You now have a set of books that reflects the actual overhead required to run this business. Your books are now honest and ready to share for any banking or investment purposes. And the third point is that contributions to your personal social security account from the withholding on your salary will create income for you later in life when you may really need it. In the next video, I'll discuss how you can lose the Liability protection provided by your LLC. If you're planning to utilize the LLC Business Structure, be sure to watch this lesson 8. Keep your LLC separate: This is LessonSeven in my series, sole proprietorship LLC and Beyond where I take you from that first coffee at Starbucks to accompany structure that provides you with Protection, with control, and gives you personal tax savings. In this lesson, I'm revisiting the keep your personal and business activities separate topic, but for completely different reason, it is possible to lose the Liability protection your LLC provides. So you need to be careful. Watch this lesson. Now you've set up your Company as an LLC. So you've now created a separate entity from yourself that is your business. You personally are no longer considered one and the same as your business for Liability, tax and other considerations. And you've elected with our S for your LLC to be taxed as an S-Corp, you will now be an employee of the business and you will also have ownership of the business. You will share dividends and profits, but you are not your business with an LLC. Your personal finances and assets are protected from your business activities as long as you're careful not to intermingle business and personal finances. As an entrepreneur, It's wonderful to be your own boss, but it is important to remember that you are now your own employee and your own employer. So don't do personal trips with the company van and stop using the company credit card to buy yourself like anything that you would not want an employee to do. You don't do it yourself. You need to maintain that LLC Protection. You must always treat the LLC as a separate business. This is particularly important if you establish a single-member LLC where you are the only member and that includes everything separate bank account, separate expenses, everything you do financially for the business must be separated from any and all personal financial activities. If you don't do this consistently and diligently and your company is sued, the lawyers suing you may find enough overlap to be able to pierce the corporate veil. In other words, they would be able to come after you personally for any liabilities of the company. That is why it is so critical not only from a financial and a bookkeeping standpoint, but from a legal status standpoint, you must keep the LLC completely separate from all personal financial activities. Now, let me provide you live with an example. Let's say for a moment that you own a limo business and your lovely Nice has convinced you to provide her and her friends arrive to the problem on your personal time and without being paid. Well, your limo was purchased by your business and you took all the steps to set set up that LLC to run your business, but you love your knees and you're going to do this for her. But unfortunately, on the way to the problem, there's an accident and one of your nieces friends riding in your limo is injured. Well, guess what? You use business assets to do something personal and now you personally and your business can be held liable for her injuries. Your personal assets are no longer protect. Personal liability can also come into play if the LLC is engaged in any type of illegal activity or a member of the LLC exhibits negligent activity or conduct. So I will say this one last time, keep business and personal financial activity completely separate. You just watched the seventh lesson in my series, so Proprietor to LLC and Beyond where I show you how to go from your kitchen table to accompany structure that provides protection, control and tax savings. Bottom line is that you must continue to keep personal and business activity separate. I know this sound like a broken record, but it is important on so many levels. You have to do this, keep your business and your personal activities separate. Now in the next video, I'll review the pros and cons of an LLC 9. Pros and cons of an LLC: Now we're at LessonEight and my series Sole Proprietor to LLC and Beyond, where I've taken you from your kitchen table to accompany structure that provides protection, control and personal tax savings. As you probably gathered from the subtitle, which is a lot of good, a little bad and no ugly, that there are a few issues and restraints within LLC as your company structure. Obviously, the S-Corp election is a critical step to accessing all the benefits of an LLC and that designation does have some restraints. But as you can probably guess, I am all in on the LLC Structure. So let's review the pros of an LLC. Well, obviously the first is Liability protection. The primary value of an LLC is the protection it can provide for your personal assets. In most situation, members of an LLC are protected from the LLC's debts and claims. So if the business goes under, you're not personally liable. Next would be the potential tax savings for the members of an LLC that we've talked about, an LLC within our S election to be taxed as an S-Corp can provide significant personal tax relief to members that are salaried employees, the LLC. Another important reason for an LLC is your ability to create a flexible organization structure that fit your specific situation. You can define all aspects on how the business is run in a detailed member operating agreement, you can have up to 100 partners in your LLC, which are called members. And you'll have multiple options for the management structure of your LLC. And if you need input and directions from individuals with much more experienced than you can establish an outside board of directors for your LLC. And the last pro for that LLC is that LLCs in general have less red tape, making it fairly simple to get started. You can do it yourself or use a service such as legal Zoom. And if you decided to do it yourself, I would urge you to have an attorney with Small Business experience, review your articles of organization or your member operating your agreement before you file. Now, Legal Zoom only charges $79 for our basic LLC filing. So there are a good option. You'll also pay a filing fee based on the state that you're filing in where I'm at in the state of Texas, the filing fee for an LLC is $300. Now the cons of an LLC and really the cons of an LLC, It's pretty short list. It may include the fact that LLCs are set up under state laws, may not be internationally recognized. So doing business and other countries might be more problematic. Also, it may seem harder to raise capital because an LLC with an S-Corp election has limitations on the amount of owners and can only have one class of stock. Ownership of an LLC is based on percentage of ownership by the members of that LLC. So in order to raise capital or attract investment, a percentage of the LLC is offered and the purchaser becomes a member or Owner of that LLC. From my experience, the liability protections offered by an LLC, along with the tax advantages, it can provide far outweigh any possible negatives. Now, you should have a pretty good understanding of the value of an LLC, a Limited Liability Company, and why you should take it to the next level with an S-Corp designation. If you wanna go forward with establishing your LLC, my next video will take you step-by-step through the process of filing for your LLC. Of course, the process for filing your LLC could be a little different based on the state that you live in. And remember with an LLC, you can define in detail exactly how your business will be run. And in my view, that makes it the perfect structure for any type of business where there are multiple owners, are partners. As always, you have any questions, drop me an email at ken at laughed lessons for business.com. That's lifeless and the number for business.com until the next video, silhouette go 10. How to form an LLC: This is less than nine and my series sole proprietor and LLC and beyond where I take you from that first meeting is Starbucks to a company's structure that provides protection, control, and personal tax savings. Here we'll go step-by-step through the process to establish your LLC. And as I've discussed before, you can do this all yourself, but I encourage you to get legal assistance to review your articles of organization, your operating agreement, and all your applications to file for your LLC. A small business attorney is a very valuable asset, so I encourage you to get an attorney to help you review these documents before you submit them and form that LLC. Now, I'm not an attorney and I'm not providing legal advice. I'm only providing information that I've learned from experience and my own research. You should be able to establish your LLC without the assistance of an Attorney, but I would urge you to have a legal expert review your filings and provide assistance and those filings, online services such as no low.com or LegalZoom.com or excellent low-cost places to get solid legal advice and assistance, you're ready to establish your LLC. Keep in mind that the rules and regulations for the formation of a limited liability company vary state-by-state. The steps below are common to most, if not all states. And the first step in forming an LLC is to choose a name, and that name has to be unique within the state that you live in, not just the county, the state you can usually do a name research on the state comptroller is website, just like the sole proprietorship, you may want to write down a few options before you make your final decision and make sure that the website and social media links are all available for that name that you choose. The second step is to file your articles, articles of organization for the LLC with the Secretary of State. These filing documents may be called a certificate information or certificate of organization, depending on the state that you're filing in your states corporate filing office. Usually the Secretary of State can provide you with all the appropriate forms for filing your LLC. And again, you can do this yourself. Just be careful and get legal advice if you have any questions at all about what you're doing at this point, you'll need to make a decision as to whether your LLC will be member managed or manager managed with the member or owner managed option. All members manage the business functioning like a board of directors. Alternatively, you can designate one of the members as the manager of the LLC, or you can even bring in someone from outside and designate them as the manager. Now, again, obviously, if a single individual is designated the manager than that individual will make the day-to-day decisions for the LLC. Now, there's always going to be a filing fee associated. The second step, so be prepared for that. This can cost you anywhere from 42, $500 depending on the state that you live in. In Texas is $300. The following process is usually available on the Secretary of State's website for your state. Now, the next step is to choose a registered agent and create a statement of consent. A registered agent is simply an individual or business entity responsible for receiving important tax forms, legal documents, notice of lawsuits, and official government correspondence on behalf of your LLC business. Think of your registered agent as your business's point of contact with the state or federal government. This could be your, your attorney or your accountant or bookkeeper, and it can also be you you can be the registered agent for your LLC. In the four-step, you'll need to create an LLC operating agreement. There are a lot of free operating agreements online and many are basic, basic agreements that you can use as the basis for your operating agreement and operating agreement for your LLC should be pretty straightforward for a single-member LLC. But if you're a multiple member LLC, remember that your operating agreement lays the foundation on how the business will be run. I urge you to sit down with all members and create your operating agreement together with all items reviewed and discussed among the members, make sure you have clarity and transparency with all members on how the business will be run. You're creating a multi-member LLC, but sure to consider all possible and potential issues that may arise in the future between members and put the appropriate safeguards in place. Any agreement between the partners than a business must define what happens when conflicts arise. Plan for the divorce before the marriage. Once you have all of your documents together and you have filed with the Secretary of State, you will get a EIN number and an employee identification number from the IRS which allows you to employ employees and file taxes. It is your business version of your social security number. This is something you do for free, free of charge on the IRS website and it only takes a few minutes and the EIN is sent to your e-mail immediately after you apply for it. Once you've performed your LLC, you will need to file all records and filings required by the state and report your earnings and pay your state and federal taxes. If you decide to do business in another state other than your home state, you can register your LLC in both states as long as you comply with the laws and regulations of both states, which you can find on the Secretary of State websites. And as I said at the top, if you get to the point where this sounds too complicated, go to LegalZoom or another legal assistance resource or an attorney that you've found that is experienced with small business, they can help you for a small fee and you can hire an attorney to do it all for you. I have done all of the above. I've done it myself and I've hired an attorney to do it. Always when I do it myself. I have an attorney review my documents before I file. So go forward with your LLC and good luck with your new business. Congratulations. You've now completed the series sole proprietor to LLC and beyond. And I have taken you from your kitchen table to accompany structure that provides liability protection, complete control, and personal tax savings. I truly hope this information has been helpful to you as you navigate your entrepreneurship journey. I really do want to help you succeed with your new business. As always, if you have any questions, you can drop me an email at Qin at live lessons for business.com. That's kin at laughed lessons, the number for business.com until the next video. Also luego. 11. Review: Now let's review. We've discussed a lot of information, so we really need to go back over it. So the fundamental rule when starting a business is to immediately separate your business activities from your personal activities and start tracking everything. It's better to track something and not needed then to not track something that you really need later on. A sole proprietor, according to the IRS, is someone who conduct commerce with other individuals and generate revenue. We also learn that the second year business is more than an idea. You really need to separate your business from your personal activities. So for our purposes, a sole proprietor or someone who's doing anything more than just thinking about doing a business. They've actually started it and generated money. Operating as a sole proprietor means making your business real. You file for a DBA and create a business checking account to keep your finances separate. It is absolutely imperative you separate your finances. The second year business becomes more than an idea. The pros and cons of a sole proprietorship ball down to the risks that you're willing to take with your personal finances and assets as you do Business, protecting yourself with an LLC reduces that risk. Keeping your LLC finances separate is just as important as doing it when you were a sole proprietor. And the way you form this LLC can be very simple. That includes registering with the Secretary of State using your service such as legalzoom.com and the pros and cons for an LLC boil down to financial protection it provides you personally. And finally, designating that LLC to be taxed as an S-Corp can provide those additional tax relief options that you really want. So thank you so much for joining me in this course, and I hope you've gained some understanding of operating and starting your business and moving it forward to create that LLC and S-Corp that will allow your business to scale and grow and be successful in the future. I wish you all the best. If you have any questions, please reach out to me. I'm ken Vernon. You can reach me at ken at laughed listens for business.com 12. Class Project: The class project for this class. So proprietor to LLC and beyond is focused on research and discovery of all the processes and forms that you will need to operate effectively as a sole proprietor or to establish a limited liability company with S Corp designation, provided a filing office datasheet template for documentation of the information that you gather in this project. Make a copy of this template and fill in the location and contact information of the filing offices in your county and state. With this information, you can move forward with establishing your LLC or filing for a DBA to allow you to operate effectively as a sole proprietor. Assignment one, I want you to research the process for filing an assumed name or DBA in your county and state, determine what the terminology for an assumed name in your county and state is. Is it dBA, assumed name, fictitious name, or maybe trade name. And where do you file for a DBA. And do you need to file in-person or can you do it online? What is the cost to file that dBA and if possible, download all related and required forms for review. Assignment two, I want you to determine the process for filing a limited liability company, LLC in your state. Determine where you file for that LLC in your state. Can you do it in person or can you do it online? Determine how the cost is to file an LLC in your state and if possible, download all related and required forms for review. And for assignment three, I want you to download and review form 2553, election by small business cooperation. This form is available at irs.gov. Once you've watched all the lessons and completed these three tasks, you are ready to move forward with the correct structure for your new business. If you filled out the filing office data sheet, I encourage you to upload that data sheet to the class gallery here on Skillshare. And I would appreciate your input if you found the information in this class helpful, please take a few moments to provide your review and input on the class. Let me know your thoughts and any input on how I can improve this class for other entrepreneurs, lock yourself and follow me here on Skillshare and you'll be notified when I share more classes for laughed listens for business. Visit our website at laughed, listen for business.com or on Facebook. And if you need direct help with your new business, feel free to drop me an email at ken at laughed listens for business.com. That's can laugh lessons the number for business.com. Thanks so much for watching this class. I hope it provided value information that will help you and your new business succeed.