066-scott-letourneau

John DeBevoise:

Greetings everyone and welcome to another service of Bizness Soup Talk Radio. If it’s in business, it’s Bizness Soup. I’m your host, John DeBevoise. Scott Letourneau is going to be sharing with us from Nevada Corporate Planners, the entity market. When you need and how to create an entity, whether it be the DDA to file for the business license in your own local community when you’re starting out, to the LLCs, the S-Corps, the C-Corps and the family limited partnership. Know when, where and how to incorporate to make sure that your assets are covered. And, how to make sure that you get to keep that which you worked so hard to get. Cover your assets, folks, right here on Bizness Soup, where business comes for business. Scott, welcome to this serving of Bizness Soup.

Scott Letournea…:Thanks, John. Great to be here with you today.

John DeBevoise:You and I go back a long time. We’ve talked about one of my favorite subjects, and that is covering your assets. And you’re in the business at Nevada Corporate Planners of covering everyone’s assets with entities. What is an entity?

Scott Letournea…:Entity, John, is a course of legal structure. A lot of people have heard of LLCs or corporations, and that’s what we think about when we refer to forming a legal entity.

John DeBevoise:I would need an entity not if I’m walking around my house or such, but if I have a business as my audience, or small business owners and entrepreneurs, when would they need to form this entity, and what would it be, say, out of the gate? What do I need first?

Scott Letournea…:What happens is, there are options which people need to recognize and it depends upon various factors of where you start. Some people as you know, John, will start with just doing business in their own name. Some people don’t even realize they started a business, they just started selling things on eBay or something of that nature. But what we’re going to talk about today is, what are the factors and the questions about when you should form a separate legal entity. And one of the challenges, I’m going to tell you upfront, John, and for all your listeners, is, it really depends upon who you go to for advice, they always have a slanted view.

For example, your accountant is going to maybe look in your business idea, and if you don’t have any experience, they’re going to assume you’re going to fail without telling that to you directly. And they’re going to say, “You know what? I’ve seen your W–2s, your income, and that’s a lovely idea, but you’re probably going to lose money, so why not just do a DBA, have the business in your own name, and we’ll file a loss on Schedule C next year, and good news is, we offset a little bit of your earned income. And then if you happen to make it past year one, then we’ll consider forming a legal entity.” That’s typically what happens, so there’s a certain patterns that we have to recognize.

John DeBevoise:So, the formation of the DBA, that’s just going down to the city or county and saying, “Here I am. I’m working under… is it my own name, like John DeBevoise’s Radio program, or can I do my radio program as BizSoup podcast as a DBA under my personal self?”

Scott Letournea…:The important part is, when you have a DBA, and it’s not required in most states, but it is recommended. Many times, as you mentioned, it’s at the county level where you live. Sometimes it is through the Secretary of State. And the key question is, who’s the applicant? So, when you apply for DBA, if Scott Letourneau applies for a DBA as Scott Letourneau Marketing Services, then I form the DBA link to me which creates, basically, a sole proprietorship in my own name. That’s why it’s very important when we talk later, John, about LLCs and making a transition, and that if you form the DBA and you want to link to the LLC, well guess what? The LLC should be the applicant.

So, that is usually one of the steps or one of the criteria people are going to consider, first of all, it is, should they just be a DBA? Should they form a separate legal entity? There’s lots of factors we’re going to need to evaluate in that decision because even if you don’t make a lot of money or profit or you lose money, you might have, as you mentioned, other assets that are critical to protect, and you may never want to start off with a DBA in your new business.

John DeBevoise:If I start a DBA, my business, John’s Gardening Service, and I run over the neighbor’s foot with my lawnmower, as a DBA, I am exposed to any kind of liability as well as any assets that I might have, my home, my cars, my kids, heck, take my firstborn, I learned my lesson on that one.

Scott Letournea…:Correct. Yeah. Absolutely. Take on some of my debt, right? That would be nice. Yes, absolutely. Every structure has advantages and disadvantages. So, the major disadvantage of a DBA linked to you, as the applicant, is you have unlimited personal liability, you will be financially paralyzed if you get sued because if you get involved in a law suit, we know in the US, we have what are called frivolous law suits, you can sue somebody for pretty much anything. And if you want to go and get equity out of your home, a new car loan, and you have to check the box that you’re currently involved in a law suit, you are not getting the loan, you are not getting equity, you may have an issue with college funding for your kids, your assets and your living trust could be exposed. So there is major downside. So that’s why we have to look at other factors other than, do you expect to make a profit the first year?

John DeBevoise:We’re talking with Scott Letourneau from the Nevada Corporate Planners. We’ve talked about the reasons for entities, and we’ll get into how you move in LLCs and other corporate entities. But how did you get into this business? I tell my audience all the time, find something that you’re good at, it could be a passion, a hobby, turn it into a business, create an entity such as what we’re talking about here, and put yourself in a position to take advantage of the tax code, whether you’re profitable or not. Scott, how did you come up with Nevada Corporate Planners in Nevada?

Scott Letournea…:Well, I have a business finance background from the University of Minnesota, Duluth. I started off with a series seven license. I had a family of entrepreneurs in the convenience store businesses and things of that nature. And I found out that some of you may have found I don’t work too well with family. We’re all close, but working in business together, wasn’t the best of ideas. It’s better at family reunions if you don’t work together. Some people do and hats off to them. I came out to Las Vegas and I had a friend that started this business of incorporating and forming these entities.

Honestly, at the time, was I familiar with entities tax ID numbers? I had accounting financial classes, of course, but I wasn’t aware of the industry. And so this was a Nevada based company at the time. And I was the type that in college, I like to research things. I like to double check things. I didn’t always agree with the sentence in the book, or the paragraph, or the conclusion, I wanted to get multiple points of view. I worked at this company that took a very simplistic approach on one particular strategy, which was incorporating tax [inaudible] in Nevada. And in the back of your mind, there’s always this little, if it sounds too good to be true, maybe it is. And I said there has to be exceptions to this.

So yes. Are there thousands of companies in Nevada, are there casinos? Are there restaurants? There’s businesses? Yes, there are. But what about those people out of state? So what I did was my own research as I did in those college classes. And I started challenging, in this case, not the teacher, but the owner. And I ended up kind of having maybe called differences of opinions. I don’t know if you’ve experienced that or maybe some of the people can relate to that in life. Had enough with kids, spouses, but bosses, partners, you can have differences. And sometimes, differences of opinion are valuable of course.

Long story short I left. And one of the reasons I left is the more research I did, the more I found that the strategies we were recommending probably weren’t that accurate. And there was a reason why they didn’t create any issues, which was because 80% to 95% of business owners fail within five years. So what I did, John, is I said I’m going to start my own company because this opened up my eyes to the industry. And there’s a lot of people are doing things incorrectly, but they have no idea about it. This was back in 97 when I started. So yes, the internet was alive and well, but not every law firm, accounting firm had a website. So there wasn’t as much information available online as there is of course today.

John DeBevoise:Oh, yeah.

Scott Letournea…:I did research John. I said, if I want the best answers, I get to pay the most amount of money, let’s start with the biggest. So I went to Deloitte and Touche and paid them 600 bucks an hour, starting my business, which probably didn’t make my wife very happy as far as profitability. But I wanted to really find out how does this really work? And what are the exceptions and what are the nuances? What is nexus mean? If you have an office, but you’re in a different state, how do you do payroll? When do you have to foreign qualify? And so I did all this research. And for years we put up a lot of content. We hired attorney CPAs to challenge the basic strategies that were being presented. And then we developed a niche. And for years we told 70% not to incorporate Nevada, the other 30% to do it properly. And that applies on every subject, even today with sales tax and e–commerce sellers.

So that’s how I got in the business that kind of worked for somebody, had a different viewpoint, did more research and field, Oh my gosh, there’s a lot of people that aren’t doing it properly. And so let’s educate them about the right way to do these things and how this stuff really works.

John DeBevoise:So you found a niche in the marketplace and you develop what is now Nevada Corporate Planners. Do you only deal in establishing entities, whether in Nevada, whether it be LLCs, S-Corps, C-Corps or whatever? Is it strictly Nevada corporations? Or what if I want to go to Delaware or say that Dakotas?

Scott Letournea…:People do make that assumption because of the name? I think we’re only based in Nevada, but we do incorporate all 50 States and we’re open to all 50 States. As far as different strategies, we have a lot of foreign clients outside the US, of course, their approach is slightly different than somebody in the US. So we can support anybody in any state in the country.

John DeBevoise:Why is it important to make a selection of where to create an entity or an incorporation? And are LLCs considered a corporation?

Scott Letournea…:So an LLC is a separate legal entity. LLC, stands for Limited Liability Company. It’s kind of a hybrid to kind of think of a hybrid car, with different mode. So it’s a hybrid between actually corporations and partnerships. So LLCs, most people don’t know, could be taxed in four different methods. And so they could be an LLC taxed as a corporation. And for some people, they might hear that and say, “Well, if I have an LLC tax to corporation does that mean I have two entities or one?” So we have to separate John, between the legal structure and LLC, or corporation, and how is it taxed? So there are two separate components of forming an entity.

John DeBevoise:That formation is determined in what format? When you’re you get me on the phone, what is it that I need to tell you so that you can advise me what kind of entity that I need?

Scott Letournea…:So what typically happens is most people have some type of an idea of what type of entity they might file. Usually, they came to that conclusion through not a good approach. It’s typically what did your friend do, what did you buddy do? “My buddy did an LLC. So I’ll do an LLC.” Sometimes they might have one professional, an accountant. A lot of people still don’t. And a lot of people don’t realize the accountant have preferences also. I have one accountant that loves C corporations. I have another account that loves pass–through entities. So it depends who you go to, and that’s one of the challenges. So when they come to us, we have structured questions to elicit a process, to determine what might be best for you.

And it’s kind of like playing chess. As you add more components, it gets a little more involved. If you have a partner, that’s the difference. If you have a partner in a different state, what type of business? So there’s different factors we have to evaluate to kind of lead you down a path to say, “In your situation, a LLC taxed as an S–Corp would be best. And here’s why.” Now the challenge John, you got to keep in mind is for folks is sometimes the answer for year one in your business is different than answer year two. And so we have to evaluate how to get started, and is it worthwhile to make changes in year two? And of course, what is the expense?

What most people tell us is, “Well, can I just start this way and make changes later?” And most people would say, “Sure, we can do that.” Well, what we try to do to be upfront with people is to let them know, “Yes, we can make the changes a year from now, but here’s the three steps that are going to be involved in making those changes. And more importantly, what is it going to cost to make those changes in a year from now? And knowing those answers, does that change our answer for year one?” So that’s part of the process we go through.

John DeBevoise:So if I have this grand scales such as I’m building a business and I know where I want to be, and then you start building the ladder and now you have all the rungs in it, if I want to be this big company, at some point in the future, say three to five years, I don’t necessarily need to file a big corporation. I can start out and take like an LLC, and then I can take that LLC with my small partnership that’s involved and I can then move on up to a different type of corporation and limit my expenses, liability and keep control of the partners or people that are involved that have some skin in the game in my company. Am I listening right?

Scott Letournea…:Yeah, you’re exactly correct, John. Because it is important for a new entrepreneur to manage cashflow. The foundation of your business is critical. So you want to do it right from the start because there’s a lot of psychological advantages of certain being confidence when you’re doing it correctly versus doing parts and pieces. But if you’re thinking, someday I’d like to have an investor, we’re not going to go to a securities attorney and spend 10 grand on because someday he might have an investor. If he already had a partner lined up, who’s going to invest money and it’s going to be a critical part of starting your business, that’s totally different than someday I might do this and I might raise money. So that’s one example. So you’re exactly correct.

John DeBevoise:All right. So I start off at the ground floor by creating what is most likely as most of us. And I did years ago just filing a DBA. And then I get a tax ID number that is for the business, separate from my social security number. Now in a DBA, I can use one in the same. I can use my social security as my tax ID number, but as you move up that ladder going from the DBA, the LLC, to the S, the C Corp, and then you can do an IPO and you become a big famous NASDAQ person. We all have those dreams. How quickly can you make that happen for me? But no, you create these entities to cover your assets in large part and secondarily for tax purposes.

Scott Letournea…:I’ll give you a quick story of one attorney I work with who does asset protection. He had a neighbor who is a doctor. And this happens often where the doctor wanted to open up a new medical building. And he asked my attorney buddy, how much to form a new corporation. And it wasn’t that much plus state fees. And the doctor said, “You know what? I have an old corporation that I used to have a partner with from four years ago that’s still in good standing. You know what? I think I’ll just use that one. I mean, the partner is long gone and I’m sure it won’t be any issues.” And so what happens often is when somebody has an entity with a partner, they never properly had the partner leave the company.

John DeBevoise:I see where this is going.

Scott Letournea…:The doctor of course, the new medical practice was very successful. Within about the first year the partner was reached out and said, “Hey, I own 50% of this company.” Well, that doctor who wanted to save about $800 from filing corporation over $150,000 in legal fees over three years to prove that this guy was no longer a partner. So that was one expensive corporation. So there are mistakes that can happen when people do parts and pieces and do these things properly. So yes, you can start off as a DBA. You can make the transition. A lot of people make mistakes in the transition. So when you work with us, it’s very common. We have a 21 point checklist that we remind people to go through. For example, did you reconnect the DBA to the new operating entity? Did you open a new bank account?

There’s many simple steps that people forget to do. Some people are still operating the DBA and a sole proprietorship, and they have the LLC and they never activate the LLC. And they run all the income through their personal accounts still. So there’s lots of mistakes and we want to make sure we make the transition properly in that situation. Is it easier from the start to avoid making the transition? But as you said, we have to manage cash flow.

John DeBevoise:That’s right. And boy, I got one on the doing business with friends and family. In the case of friends, bought some property and was going to be a 50, 50 split of all the monies, income and expenses. Well, when it came time for the expenses to put in the offsite improvements to the subdivision that we were creating, well, there was nothing in writing that said the partner had to pony up. And the partner delayed and caused all kinds of problems. And if it was going to go forward, it was going to be on my dime, which it was. And my partner, there was no agreement, just sat back. And since there wasn’t anything that’s said to the contrary about the expenses, he ended up splitting all the revenue with me. No longer my friend, but he made a lot of money. We both made money, but still, when you do business with friends and family, there’s never a greater opportunity for a misunderstanding than when it comes to friends, family, and money. As soon as the money comes on the table, all bets are off.

Scott Letournea…:Absolutely John. It’s like people develop amnesia six months later, what do you discussed. There was a famous quote about commitment, says, “Doing the things you said you would do long after the mood of which you said it has passed.”

John DeBevoise:Yes.

Scott Letournea…:Really important. It’s no different than… Marriage is like business. You’re excited when you have a new relationship, same in business, you have these grand ideas, the exciting things. And then when it gets down to the work, the effort that’s required, that’s when people have two different ideas. And unfortunately over 25 years of forming entities, for all the most lawsuits we’ve ever seen are usually with partners. It doesn’t mean that if you have the right partnership, you do things properly. It could be some of the best successful businesses, but it has a tendency for those reasons you mentioned, and the others I commented on have the most downside and legal repercussions.

John DeBevoise:I think my father once said, “A partnership is like having a two man rowboat. Make sure your partner is willing to row just as hard as you are. Otherwise, you’re going to go in circles.”

Scott Letournea…:We could probably discuss for an hour what rowing part entails, because your idea and mine may be very different.

John DeBevoise:That’s right.

Scott Letournea…:[inaudible] from Tony Robbins years ago about fluff communication, right?

John DeBevoise:That’s right. Scott, about other types of entities, you hear all of this buzz about having a foreign entity. And some of the major corporations that you see all over the internet and search engines and such, are not really American corporations, they are off shore. Why would I want to have an offshore corporation or a home base say down on the Cayman Islands, or Bahamas, or wherever, what’s the benefit of that?

Scott Letournea…:So the benefit and it’s of course, changed over the years. And a lot of people will reverse engineer. They’ll look at somebody like Amazon, billions in profits, not paying any taxes, and they’ll go look to figure out their structure and say, “I can do the same thing.” Well, A, you don’t have the legal team Amazon does, or the tax team, that’s one problem. B, you don’t have the nexus in different jurisdictions. But in a general concept, having an offshore company is like the Rolls Royce of the asset protection tool. So for a very small percentage of the population, once you go through all the structure things in the US, it may be possible that having an entity in a different jurisdiction from an asset protection point of view, not from taxes, ’cause us taxpayers have to pay tax on worldwide income.

Again, are there exceptions with Amazon and how companies are structured and having employees in different countries, which is probably not going to be your situation for a typical listener. It’s not something we structure, but it does come into play. It’s just not as common. Now, if you live internationally and you’re doing e–commerce in different countries, sometimes there may be an advantage to have a UK limited company when you’re selling on Amazon in the UK and the EU. We have many clients that do that, but it’s not necessary. You could sell with the US LCC and go sell in Amazon, in the UK and other countries around the world. So it gets a little more advanced, but there are some options there.

John DeBevoise:Well, you bring out the e–commerce and being in the UK or state side, or on either side of the pond, when should I, and where should I incorporate if I am in e–commerce, or real estate, or a service business, where should my entity be and for what reason?

Scott Letournea…:So this is a question that there’s some controversy around. And so there’s a couple layers that go into it. There’s the simple answer and then there’s some other factors to consider. And it depends upon your risk factors, your current net worth, your future anticipated network. So for example, the most common answer you’ll hear if you live in the United States, which is different than somebody living outside the US, that you should probably incorporate in your home state. And the reason typically given is it’s simpler. Now simple and asset protection are typically inversely related. If you have more assets, you’re going to have more structures to protect them. But somebody starting off may simply do an entity in their home state, and we can help you accomplish that. If you hear something like let’s incorporate in Nevada and foreign qualify in another state, let’s say you live in Florida and you want to do Nevada foreign register in Florida, the typical response you’ll see online is well, you should never do that because you’ll have to state fees.

Well, we’re talking about starting a business where by the end of the year, you’ll probably have 10 to 15 different tools to run your business that are anywhere from free to $50 a month to a hundred dollars a month. You’re running a business. So we have to put it in perspective. The better question is what are those two state fees and what advantages does that give me in my situation and is that a worthwhile investment? So if it turns out to be $40 a month and you have to state fees, and if you get sued in Florida and they want to pierce the entity, because you didn’t operate it appropriately, and you want to direct that back to the state of domicile that may slow down or allow you to settle a potential lawsuit, is that worth the $40 a month investment? That’s the better question.

Now for most startup people, it may be simpler to do it in Florida. We can help you do that. The other question you have to bring up is are you planning to move anytime soon? So if you’re planning to move out of state, can you move an entity from one state to another? Yes, you can. The important question is what are the factors involved and what is that going to cost and the timeframe, and what issues does that create and when are you planning to move? So it’s like playing chess, John. Most people, unfortunately in business, think one move ahead. With our clients where at least two to three, if not four moves ahead, then we reverse engineer to allow our clients to make the best decision for them where they’re currently at. If that makes sense.

John DeBevoise:That’s why I surround myself with experts like yourself in their particular field, and everybody else that comes on the show makes me look a whole lot smarter because you understand what it is your doing. Getting back to the corporation entities and such, e–commerce, there is a lot of people getting into e–commerce and there’s a lot of companies that are selling as we say, the picks and tools so that you can go out and mine the gold, and that is how to build an e–commerce site and be business. How do you go into an e–commerce business with an entity if you’re selling all around the world, whereas my home base?

Scott Letournea…:E–commerce, as you mentioned, is one of the fastest growing segments to be in business, especially during COVID. A lot of people were forced to buy products online and didn’t go to stores and they probably have gotten used to it. Amazon stock is going through the roof. So we work with e–commerce sellers around the world, and it is definitely one of the biggest opportunities. It also is very competitive, requires cashflow, ad spend, things of that nature to be successful. And since you are dealing with products, you have what’s called product liability. Obviously, some products have more liability than others, and still to this day, probably 80 to 90% of the products are developed out of China. The technology is totally different than it was years ago. Most people don’t realize John, that a lot of the Chinese manufacturers are also in the e–commerce business. In fact, one of my accounting teams last year went to an event they had over 6,000 Chinese people in a seminar, How To Learn E–commerce, meaning how to sell the products they manufacture on Amazon in the US.

So it’s definitely growing and there’s marketplaces around the world opening up. The US is by far the largest. So with all that being said in product liability, that’s not something you want to start probably with the DBA in your own name. You would probably start right off with an entity, even if you’re drop shipping. And the challenge is, and some of my marketing friends may not like me saying this, but when you sell a course in order to get people engaged, you have to keep it simple. And I agree with keeping it simple because you got to connect the dots from one step to the next step to the next step. The challenge is there are some complexities when it comes to making sure you have the right entity. And number two, there was a major change in a US Supreme court case on sales tax two years ago that in some areas selling on Amazon, they collected most dates for you, but there’s still some states you have responsibilities. But if you’re selling on, you have a Shopify store, or your own website, or a drop shipper, you actually have some more responsibilities.

So there’s more components. So it’s one of those things there’s a lot of upside and there’s a lot of people successful. And there’s also some more foundational elements that we can help you with all aspects of that to be successful in e–commerce. But I will tell you like any other business, you still have 80 to 95% fail, it’s certainly cashflow driven. And that’s where you really need to understand your accounting and profitability. It’s one thing to do a million dollars of business on Amazon, but if you’re still losing money, the guy with a simple affiliate program making 50 grand a year is still ahead of the game because they were perhaps profitable, right? So those factors could come into play.

John DeBevoise:Now, as far as the aspect of a business, let’s say I have a brick and mortar business. So I have a foundation, but I start up an e–commerce site where I’m selling my products online. Should I separate those two as different entities or create the e–commerce as a different LLC than my brick and mortar, and would that be because of liability?

Scott Letournea…:Yes. That’s a very important distinction is to when in your business do you consider forming a separate legal entity? We can look at it from an investment point of view. If I was a person talking about where to invest your money for retirement, and if I said, we’re going to invest all our stock in Facebook or all our stock in Amazon, or all your money in one stock in Amazon, even though it’s going up, you would probably immediately say, that’s probably not somebody I should be listening to because, why? Because, you want to diversify your risk. And so business owners and entrepreneurs forget this in their businesses, especially a lot of your listeners have been in business five or 10 years. They have a successful business and it’s growing each year. They have profitability, they have assets, they have a retirement plan. They have a living trust. They have a home with equity and they keep adding elements to it.

So as you mentioned, let’s go sell a physical product online, and e–commerce do business in multiple states, have sales tax registrations in multiple States. They don’t think about, should I separate that part of the business? And for some people that may be a decision depending upon the risks they may want to consider. Some are going to test the waters and see how it goes. And then they should consider putting that part at some point in a separate legal entity from their main operation. Because again, now you’d have 50% of your liability and your main operating business and your second. You’re going to say, “Well, I have insurance.” Yeah, insurance is great and you should have it, but it doesn’t cover everything. They usually have more loopholes and they did three years ago.

There reason Warren Buffet owns insurance companies, they like to make money, not pay out big claims. You have a little claim, no big deal. Million dollar policy and a million dollar claim, you’re not getting a check next week. So those are important questions John, you do have to consider because you have to evaluate your own risk tolerance. And so most people should consider having a second or third entity. And sometimes the accountant is the one who’s, poo–pooing the idea because you might have a separate tax return or something of that nature. Well, there’s also ways to structure where you may not have a separate tax return, but you can have a separate liability protection, say a single member LLC, disregarded owned by the operating legal entity. There’s reasons you may want to structure it that way or not. So definitely a very good point to evaluate.

John DeBevoise:On of my many, many mantras that I tell people on this show and have done for over 20 years, and that is never let your assets and your liabilities meet on the same page. Well, that doesn’t really make sense, ’cause I’ve never met an attorney that wasn’t willing to separate me from my success. When something happens, say at my house or a rental, and there’s an injury, what is the value of having that entity, say that duplex or that income property, commercial or multifamily residential, what is the value of having that in an entity, say an LLC? How does that protect me when there’s a slip and fall or some kind of accident on my property?

Scott Letournea…:What happens in that situation a real estate of course, is a specific asset class, if you have rentals versus you’re flipping properties. But the key is who’s the legal owner of the property. Obviously you have some type of liability insurance, which is the first line of defense. Then they want to go after the owner. Is the owner going to be you? Is the owner going to be an LLC? So some people, probably some of your listeners that have had four or five properties, all freeing clear. Had them for 10, 15 years in their own name. Well, let’s be honest, you’re probably not a spring chicken anymore. You might’ve been in your late 30s now in your late 50s, you’re in your 60s. You’re comfortable looking at retirement.

John DeBevoise:And as well, you’ve burned the mortgage. You had that mortgage burning party. So now you’re out there knowing that the only thing I’m responsible for are my taxes, utilities, and such, but I don’t have a mortgage. That’s a wonderful feeling. So now I’m sitting there and somebody has an accident. What happens?

Scott Letournea…:You’re basically John, you’re a sitting duck. And so your financial statement is taped on your forehead, please take my money. You’re a lottery ticket for somebody waiting to happen. There is people that reverse engineer how to get money. They do it in all different fields. And honestly you got to be a little naive if you don’t think that’s not you. What people where they make the mistake and the belief system that gets in the way is, “I’m a good person. I do the right thing. Why would anybody want to sue me?” Well, that’s not the way the US works unfortunately. It doesn’t matter if you’re the best person on the block, if there’s an opportunity for them to extract money from you, they can.

So as you have these risk factors, you’re getting older, you can look at putting separate properties in different LLCs. There’s different factors with due–on–sale, and property taxes and things of if there’s a mortgage or not, and is there a transfer tax? So there are some of your insurance policy. There are some factors involved, but at the end of the day, do you want all your assets in one bucket? Do you have free and clear assets that are exposed? What’s your age? What’s the conversation with your spouse, “Honey. It only took us 25 years to get to this point. Don’t worry. We can start over. I think we can do it in 15.” You seriously have to take a look at this, ’cause I guarantee you’re going to sleep better at night. You probably waste more money on things that maybe it’s one less bottle of wine per week or something. These things are not that expensive, and it’s easy to add these extra layers of protection for your assets.

John DeBevoise:So in the case of the example that I gave, where you have a duplex, we’ll keep it simple or an income property. There is a slip and fall, whether it’s a tenant or not, you get sued. What is that risk? Is it only the property that is in the LLC, which would be the income property where the injury occurred, or can they go outside of the LLC to come after me personally?

Scott Letournea…:So they actually can do both if you don’t set up and operate the LLC properly on an ongoing basis. So generally the LLC would isolate the liability to that property. The mistake that people make, and they do this all the time when they go online to form an entity, “Oh, it’s simple $99, $129. I filed an LLC.” Yes, you filed an LLC. What people don’t understand is in order to get that liability protection, which is a separate legal entity, which separates your business from your personal assets, you have to maintain it as a separate legal entity. Even an LLC, we did research on court cases years ago, you have to operate as a separate legal entity. So yes, you want to have the LLC and isolate it so it stops the litigation against the LLC.

But people will attempt to do what’s called pierce the entity bill to go after you personally. You may very well be named in the lawsuit, which means they’re going to try to find a scrap of paper where you sign something in your own name, not as the manager of the LLC. So you may have something coming after you, individually and the LLC. So there’s steps to do it properly. If you do it properly, you’re going to be isolating the liability. And if they seek feel that you owe 10 properties and there’s certain equity and it’s in 10 different LLCs, hey, if it’s in Wisconsin where the property might be 75,000, there’s a world of difference if it’s in California, it’s a million dollars for property. So we’ve got to keep those things in perspective. So those are some of the factors that would come into play. But if it’s done properly, you isolate that to the LLC, your other assets outside of it should be not affected if it’s done right.

John DeBevoise:And you made mention of the elephant in the room, and those are the online registration entities where, well, gosh, for $99, I can have an LLC. I’ve been to those sites. And when I look at them, I go, “Well, I don’t know what I need.” They’re selling me these bonuses. Kind of like going to Amazon. People that buy this, usually buy this too. And if they buy that, they buy that too. I don’t know what they’re talking. Are they doing more harm than good?

Scott Letournea…:Here’s the issue I have with them. And obviously the technology’s really good, they have investors, they put a lot of money into this stuff. But the fundamental problem is it has to do with the marketing approach, or what I call is if you have a lead magnet, you get somebody to opt in and they have a trip wire, what’s the low priced offer. I have no problem with a tripwire in marketing, a low priced offer, but the problem is all these sites have a tripwire or a basic starter package that will get the LLC form with a tax ID number and there’ll be registered agents. That would be me selling you a car without brakes and you find out that you’re going downhill with your family in the car, and you’re ready to pump the brakes that you missed that the brakes were an upsell. They didn’t come standard.

The problem is and they’re not starting with a complete foundation. They’re just giving you the car without brakes to get you started, get your bank account open and that’s your next move in the chess board. So that’s all you care about is one move ahead. And guess what happens? People get busy with their business in life, they’re off and running and they never come back to revisit the foundation. That’s why when we form entities we only start with a complete foundation because we understand you’re going to be off and running. And rarely are you going to come back to revisit that foundation. So that’s the fundamental problem. And they don’t realize John, but they have absolutely, and I’ve interviewed other attorneys on this, they have zero protection.

It’s having the wrong insurance policy and you thought you were protected, you got sued and you found out you’ve no protection. That’s exactly what’s going to happen. Because in court, the attorneys will slice through those LLCs in 15 minutes and go right after all your personal assets. That’s the issue I have here.

John DeBevoise:And you know what? I could go all day talking about covering your assets because it’s not a question of if you get sued, it’s when you get sued in business, ’cause you can’t please everybody. And we will cover the costs in another serving of Bizness Soup of what it takes to survive in this litigious society. So cover your assets. All of this information to Scott Letourneau and Nevada Corporate Planners is available on bizsoup.com, where business comes for business. You click on the show, it’ll give you the transcript and the links to get a hold of Scott at Nevada Corporate Planners. Cover your assets, folks. And Scott, thank you for being on this serving of Bizness Soup.

Scott Letournea…:Thank you, John.

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