People are always talking about the importance of forming a corporation, but do you need to?Sign Up to Watch
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-My name is Caleb Taylor, and I'm one of the hosts here atT hrive15.com, the online platform that trains business owners in sales, marketing, branding, time management tips and more. Today I'm sitting down with Clay Clark, the pale visioneer of thrive15.com, and he is going to be explaining to us why you should form a corporation. Listen up. Here at thrive15.com, we are passionate about this belief that knowledge without application is completely meaningless. So always ask yourself, how can I apply what I'm learning here to my business and my personal life? If you don't, today's episode could be more meaningless than mailing an ice cream cake through the standard mail system. All right, Clay. It's great to be here in front of the barn wood again sitting next to you, my pale friend.
-You're jive talking and telling me lies. The Bee Gees.
-Wow. That's wonderful. I live for these little song nuggets from you.
-Today we are talking about this topic that fits under this legal umbrella. Specifically we're addressing this question of forming a corporation, and we're going to be convincing you why you should. Is that right, Clay?
-Yeah, well here's the deal. I know a lot people that are working very hard. In all seriousness, if you're starting a business, you're working hard. This is something you're pouring your sweat, your energy, your finances into. A lot of times you're supporting your wife, your kids. Maybe you're supporting your husband. Maybe you're a single mom. Maybe you're a sneezer in the background. Maybe there's a lot of things you have going on, but you care about your business if you start one.
And the saddest thing that can happen-- and I've seen it happen personally. I've seen it happen personally. I'm talking to you. I've seen it happen personally where one person made one mistake after years of doing the right thing, and they got sued, and because they did not have a corporation and that veil of protection, that shield that it provided, they lost all of their stuff. And it could be-- to you watching it might be a trivial amount. You might be like, well, someone only lost $20,000 of stuff. That's no big deal. No, it's a big deal if you put your entire life savings into this food truck, into this business, into this-- and you lose it all because of one mistake.
I had an employee just this week-- just this week-- I'm telling this because I want you guys to know this is how it is in business, and this is stuff you won't hear anywhere else. I had a former employee this week who was convicted with a felony. I didn't know he had a felony when he worked for me by the way. I did the background check. It didn't show he had a felony. Well, he got a felony while he was working for me. Actually went into prison, came out. I didn't know. I thought he was on a trip. I didn't know. I didn't know.
CALEB TAYLOR: Wow.
-So then I get a Facebook message from an anonymous person-- this was last night-- saying do you know you have a felon working for you? Well, I didn't know that he was a felon. He does work for us now. I didn't know. I'm going, him? Really?
CALEB TAYLOR: Wow.
-I didn't know, and it was of the most heinous type of crime. And I'm going, what? Now, what if that person under my watch, under my stewardship of their time and hours-- what if I had sent them to an event to provide entertainment, and what if they had committed another felony on that job?
CALEB TAYLOR: You'd be in trouble if you didn't have that protection?
-Wouldn't I? I would. And are we fools to think that we'll never have bad things happen to us? I'm going to tell you this. Plan on bad things happening, because they do happen to you and everybody.
-Yeah, it's guaranteed.
-Plan on it, and then you'll be OK with it when it happens. That's why you need to form a corporation.
-So here's how you plan it. OK, so we're going to jump into this definition of a corporation. A corporation is an association of individuals created by law--
CLAY CLARK: By law.
CALEB TAYLOR: Under authority of law, having a continuous existence that is independent of the existences of its members, and powers, and liabilities distinct from those of its members as well.
-Long story short, you're creating basically a separate entity, a separate thing, and that separate thing lives on perpetually, basically forever.
CALEB TAYLOR: Right.
-It lives on even if you pass on or you get abducted by a helicopter that might be flying over you building.
CALEB TAYLOR: Yeah, you hear that? That's happening right there.
-But what will happen is you are in a situation where your business will continue living on even if you pass away.
CALEB TAYLOR: Right.
-So if I die, Thrive is bigger than me, and it will continue to grow even if this alien helicopter that's over me--
CALEB TAYLOR: It's still there. I hear it.
-Even if this device takes me away tonight, the company will still continue.
CALEB TAYLOR: Just zaps us up.
-Yeah, it'll still continue, and the bylaws, and the systems, and the operations manuals that we've set up will continue to be enforced well beyond my lifetime.
-And the same is true if you're being sued, correct?
-Yes, if you're being sued, personally the company's not liable. If the company is being sued, personally you're not liable. There's a separation, which is great. So here's an example. You are a high quality person. Let's pretend that you made a mistake, though. If you made a mistake or if I made a mistake, the company is not liable for our personal mistake we did off the job. It's just all sorts of reasons. And why do people not do it? Because there's anxiety with doing what we don't want to do.
-So any time we have something we don't want to do there's anxiety. My wife says, you want to go running? I'm like, are we being chased? No. I don't want to rune.
-We might be. Well, we might be being chased right now.
-She goes, do you want to go camping? No. For years we fought to stay inside a climate controlled environment. We have fought for air conditioning. I am going to enjoy the peak of civilization. I'm not going outside. I'm staying inside. I don't want to go outside. I don't want to go jogging. I don't want to--
CALEB TAYLOR: Your pale skin reflects that, you know?
-There's so much hate that you have for me.
CALEB TAYLOR: No, no, no. It sends the love.
CLAY CLARK: No, it's fine.
CALEB TAYLOR: So it's emotional.
-We don't want to do something. We just get anxiety about it and we don't do it.
So form a corporation. Start saying, I want to form a corporation.
-Say it. Chant together, I want a corporation.
-I want to form a corporation.
-I want a corporation.
-I want to form a corporation.
-OK, no more. Here we go.
That first point that we had there, it seems like if I could summarize it, it's the separation of business and personal liability. Correct?
CLAY CLARK: Absolutely, boom.
-So the second point that you've outlined is that consumers think that it's more credible. Because it is.
-Yeah. Consumers begin to say, well who do I write the check to? And you're like, well, if you write it to Gary, just Gary. That's me, just Gary. You just put your--
HOST: AKA Kermit the Frog?
-No, that's just how Gary talks. And you're insulting him because he's a good person. You don't judge people by their voices.
-I apologize Gary. So you're telling me by not having people write the check that's out to my first name adds credibility.
-Yeah. And another thing people do when they form corporations is they do weird things. So if you go to Apple. If you go to the Apple website, it doesn't say Apple LLC, a division of Apple S corp and C corp. People don't name their company like Apple LLC.
But in a lot of small businesses, going back to Gary, it's Gary'sLLC.com. Like, why do you do that? Why are telling me what form of corp-- stop doing that. This is a marketing tip, don't on the side of your van Gary's LLC.
-So it's important to have that, but maybe not incorporate it in the name?
CLAY CLARK: Yeah, it doesn't make any sense.
-OK. So the reason you have it though, the second reason is that consumers think it's more credible.
OK, so for third reason here--
-Best Buy LLC-- no, stupid.
-Gosh, they are really circling this helicopter. Well it's actually a ninja. It's a team of ninjas that are taken over. They're kind of moving in. It's weird, but you'll see an episode about it later.
-Good. That's later on. So number three here on reasons why to start a corporation is that you can take advantage of tax write-offs. Talk to me about this Clay?
-Well every year, you and I are going to pay about 50% of what we earn in taxes when it's all said and done. However, if we bought a printer for our business, if we went on a business trip, if we bought a car for our business, if we drove mileage for our business, if we have a part of our house that we use for our business, if we are buying certain items to grow our company, we can write those things off.
Not entirely. You need to see a tax advisor to get into this. But the point is you can take off some of those actual-- so let's say you owed $10 of taxes. And you bought $3 of stuff for your business. You might be able to write $3 off of your tax bill. And now you only owe $7. And you get to keep the stuff you bought for your business.
-There you go. That makes sense. That's a good reason in and of itself.
But then we've got more. We've got number four here. This reason, I think you've articulated, is it's a feeling that it evokes. Is that correct?
-Yeah. Tonight, I got a feeling that it's going to be a good night. will.i.am.
-Wow. All these bonus little--
-I got a feeling.
-Music. I love it. That was wonderful.
-So that's honestly Clay's fourth reason is that making a corporation just feels awesome.
-I'm being honest with you. When you make a corporation, and you get that certificate, and you start to realize, I just spent like $500, $200, $500, $800, whatever you spend on it, I just spent money on this certificate. It's a legit thing.
This is a spiritual principle. And I'm not kidding. When you turn a thought into a thing, something starts to happen. It's called confidence when you take a thought and you turn it into a thing of substance.
So what you want to do is you have this big idea to start a company. Now you just did. Bang. Mazel tov.
-I have my little certificate over there.
-Yeah. It's hanging up above my computer.
-Does it feel awesome?
-It feels good man.
-It really does.
-[INAUDIBLE] That's pretty good.
-You got to venture over to my area a little more. It's over there.
-Can I bring Gary? Oh bring Gary. Bring him on over.
So Clay, you've convinced me. We're looking here, we're watching. We're going to start a corporation. We've got to switch it over. What are my action steps? What do I do right now?
-Step one, you've got to find a local attorney.
-OK, I have to.
-I wouldn't-- and I'm not chastising you if you did this or someone else-- but I would not go on the generic websites because there's so much-- it's called a boiler plate or a template. It's a document that's like the same, it's a copy of a copy of a copy. And just as an example, there's a lot of stuff in those that can be-- and I'm going to use a word that's kind of harsh-- but damning to your company where it can-- damning meaning sends it to hell. It means that if you get in a lawsuit, you might have a weird nugget in there, and a weird little wording in there, a weird phrase in there. And then it won't stand up in court.
-So as an example, I had a document years ago I was so proud of. And one of my employees tested to see if that document was enforceable.
-So I go before a court of law, doing my testifying, this whole thing.
-You did that? You went the whole thing?
-Yeah. It's a deal where you hire an attorney. And you got to do a deposition and swear that what you're saying is true, and all that.
And then we get through all of it, and they say, well, basically your document isn't working. That document's not legally binding. That was just something that you guys agreed to. Therefore, it cannot be used to hold this person accountable. Therefore, you lose. He wins.
-Yeah. All the time. So I'm just trying to tell you, the document themselves-- you ever watch a court case, and they pull over a guy, a famous celebrity or something, for drinking and driving. And they get off because they weren't searched properly, or they weren't read their Miranda rights?
That's what will happen if you have a faulty agreement. So I would pay to have it at least reviewed by a local professional. And how do you find one? Rule of three. Call three. Ask one of your friends. Ask them what three they recommend.
Find three recommendations. Find three online. Meet with these people, and see if you can fine one you like.
-That's worth my money?
-I would do it.
-OK. So is that the first step?
-It's like putting rebar in your foundation of your house. It that analogy just went over you, I used to do poured concrete. And the point is, rebar helps hold concrete in place so it doesn't crack and crumble as fast over time.
If you have a bad foundation, you're building a house on sand, and it will just shift when the winds and storms come.
-So you got to spend time investing, make sure that that document is exactly how it should be.
-I without exaggeration have literally been working on 26 legally binding agreements this week. And I've probably spent--
-That's your favorite thing to do, isn't it? Your favorite past-time?
-I hate it. And I even pay a great attorney to do it. And I'm reviewing it. And just today I caught an error. Not because he's a bad person. Not because he made a mistake.
Maybe I miss-communicated it in talking to him. But I would have made a critical mistake by just not checking. Just one extra zero on something can mess it up.
-You've got to spend the time and the money necessary to ensure that those documents are correct.
-And if you're saying, I don't have the money. Look man, I worked at Target. I worked at Applebee's. I worked construction.
Figure it out. You can afford whatever you want to afford. Move in with a buddy. Move in with your mom. Sell a car. Cancel a cellphone. Do whatever you have to do. But do it right.
-Thank you, Clay. I appreciate your time.
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