If you have a small business, you may find yourself asking if you need to get incorporated. Watch this series taught by Wes Carter who is an attorney / member of the legal team that represents TD Jakes, Joel Osteen, and others to find out.Sign Up to Watch
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-What's up, guys. My name is Daniel McKenna. I'm the executive producer here at Thrive15, the online website that provides training in time management tips, marketing, sales and more. Today you're in for a treat. We have Clay Clark and the big teddy bear, Wes Carter. He's a lawyer extraordinaire. It is super expensive to talk to these sort of people, so this lesson's going to be very valuable for you. We're going to be talking about, how do I get incorporated? Forming a corporation, or really anything legal can be kind of scary, especially if you don't what you're doing. Today's lesson is going to show you the right steps to get you going to form that corporation that your business needs to be protected.
Here at Thrive15 we believe that knowledge without application is meaningless. Unless you actually learn something and then apply it to your life or business, today's lesson is going to be more meaningless than including your family pets in your Christmas cards. They're not people.
-Wes Carter, how are you?
-I'm doing well. How are you doing, Clay?
-I am doing well. And I wanted to ask you because I think a lot of people are worried about it-- are you related to Clarence Carter, the guy who the song, "Strokin'?"
-Not that I know of.
-OK. Just legally want to get that out there. We hate for you to get sued.
-It can be confusing.
-But if someone was going to see you, I'd want to be the one who does sue you.
-OK. So we're talking about, how to get incorporated. How do I get incorporated? We're getting emails from Thrivers, I would say not every day, but at least every week asking this question. Because I've talked to several of them on the phone and they're saying, I called a local attorney and asked them how I get incorporated and they told me a bunch of stuff and sent me a bill, and I'm still not incorporated. So I'm even scared to even call attorneys. You know. So I'm going to ask some of the questions that maybe the Thrivers want to know the answers to.
-So before we really dive into what it takes to get incorporated, can you take a moment to define for me in layman's terms what it means to get incorporated?
-Well are we talking corporations or limited liability companies?
-Why don't you educate me and the Thrive community who maybe doesn't know even the answer to that question.
-Well let's say to get your business organized.
-Because it's similar processes but a little bit different documents. So basically when we talk about getting incorporated, we're talking about creating some business entity other than just you out there on you own.
-OK. This is where I have made a decision to form an entity that is separate from myself.
-And I guess the benefit is it protects me from lawsuits as a person?
-Right. So if I want to sue your business, instead of coming and suing you, Clay Clark, I have to go sue your business.
-But if my business feeds my family and my business is how I support myself, how is that beneficial?
-Well because you own things in your business name. you can own things in your personal name. Your salary that comes out is in your personal property. Your house is your personal property. Most time your car is your personal property. So you have these personal assets that aren't subject to a creditor if you can sued as a business.
-I'm going to read you a little excerpt from the good folks at the United States Small Business Administration. And they tell us that once the decision to incorporate your business has been made, the legal process begins with the preparation of a certificate of incorporation. Whereas in the past this was prepared by three or more legally qualified individuals, today only a single incorporator is needed. What are we talking about here?
-Really it's just a form you file with the state. If you're an LLC you file articles of organization. If you're a corporation you file articles of incorporation. It's just the form that gives life to this new separate entity.
-What do I do though? Like step one, if I want to get incorporated, where do I even get these forms you're speaking of?
-Well, the secretary of state in your state, in your jurisdiction is the one usually that has the forms, takes the forms, processes the forms.
-Do you just Google that mess and call them? Or do you call your attorney?
-Even though it seems like a pretty simple process, it's very important what you put in those documents, and especially what we get to next which would be like bylaws and operating agreements, so I would suggest, unless you have a lot of experience with this, you get some someone who's qualified. An attorney, a CPA, some professional to help you file it.
-I can tell you that I personally when I first started my business did not do some of these things and I paid for it later with a lawsuit where I wasnt' protected. So for me it was like a $10,000 uh oh where I kind of learned that lesson. But I'm just pleading with you, if you're watching this and you have a business-- so let's say hypothetically you are starting a snow cone stand, if that's you. You want to get incorporated otherwise someone will sue you, and when they do they're going to take your snow stands.
-Well, it's cheaper to pay $5,000 now then it is $10,000, $20,000, $50,000 down the road.
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-Now let me ask you this here. The incorporator-- this is again, continuation from this Small Business Administration website. I want to share this with you. Says, "The incorporator may or may not be a person who will own stock. The state is likely to have a standard form for incorporating a small business. The three typical pieces of information requested are: corporate name--" not "Purple Rain," but corporate name-- "purpose, and the corporate life span."
-So walk me through this. How do I know what my corporate name is if I'm open up a snow cone stand. If I'm watching Thrive, and I'm like, I'm opening up my own snow cone stand. I might even open up 100 snow cone stands. You know.
What if my name is Harper, and I want to open up a snow cone stand. How do I know my corporate name?
-Well, I mean, your corporate name is going to be what you're known as to the general public. You have to find something no one else has used in your state. Preferably something no one else is using anywhere, because you can run into other issues with names.
So it's just whatever you pick that you're going to brand yourself as.
-Real talk. Something I've done before. It might have been stupid. Help me out.
I called an attorney. I say, hey attorney, I would like to find out what the corporate name is that I could use. And he said, OK. Yeah. I'll run a report.
It's called a Thompson Report maybe? Or, is that a real thing?
-Wes Thompson's a company that does reports like that.
-OK. So I paid like five G's.
-And they're like-- well, that's what they charged me. Five grand. And they're like, well, your name looks good. You should be able to take that name and run with that name.
And I'm thinking, for $5,000 I would hope that I would have customers too. But anyway, so I don't. But is that normal? $5,000 to find out what my corporate name can be?
-That's a little steep. But it's a little bit more complex than just picking a name and running with it. And what they probably did was do a nationwide search for you, see what other businesses out there-- they search phone books. They search corporate records in all 50 states. And then trademarks, people who've trademarked that name. Because hopefully one day you're going to be selling your snow cones in other states. And you don't want to run into a trademark dispute over you can't use my name and I can't use your name.
But $5,000 is a little steep. You can probably get that for a grand, or less than a grand.
-And I know Thrive will be around for centuries, and maybe thousands of centuries. So if you're watching this-- and this is in 2014. And we're saying about $1,000 now.
Now, purpose. What does that mean when they say, what's your purpose? Uh-- to make money? I mean, what does that mean?
-Well, in reality, that's a lot of times what it says, is to do anything that a business is allowed to do. And that's what-- you can do a very broad purpose in a lot of states. Some states make you get a little bit narrower as to what your purpose is. But a lot of times it's just to do anything that I'm legally allowed to do that won't get me in jail.
-What of my main man Harper, who wants to open up a snow cone stand, they ask him, hey, what is your corporate lifespan? And he goes, ah, about a month. I'm pretty excited now. But in about a month I'll die off. I mean, what does that mean? Corporate life span?
-If you can, you always just put perpetual. Or it's going to go till I kill it.
-Perpetual means forever?
-Or until I decide otherwise.
-Really? That's great. OK. Cause I did not know that.
-I mean, because if you put in one year, five year, 10 year, then what happens in 10 years is your corporation's dead unless you go back and change all this paperwork.
-I have done that. I've actually put in-- they said, how long? And I'm like, I want to sell this thing in five years. Put it in there. Come back later, discovered not to do that.
This is why we need to hire an attorney.
-Now I want to ask you this. It's kind of off-subject a little bit, but I think it's important. How do we know if we're dealing with a good attorney? Like how do we know who a good attorney is?
-I mean, way is to talk to other people who are business that have used have their own attorneys. Like any profession, there's good attorneys. There's bad attorneys. There's horrible attorneys.
So word of mouth or people who you know have experience with other companies you trust, because they probably wouldn't keep that attorney if they were no good. So asking around, asking maybe who the attorney's other clients are, is a good way to help determine that.
-Now, I want to hammer home on this too. Because I know a lot of you watching this are saying, well what about-- I'll just Google it. We're in the internet age, man. I'm just going to Google attorneys. There's nothing wrong with that as a good starting point. But the thing is, I would recommend-- kind of my checklist when hiring an attorney is one, I want three people who know that attorney to vouch for him. I want three testimonials.
Two, I love recommendations. I love the recommendations and I love the testimonials. And the third is, I want to like them. I've dealt with attorneys that I don't like. Where I just don't like them. They don't like me. I don't like them. I'm into football, they're not. They are not into R&B music, I am. They're more logical, I'm more-- and I, whatever. We just didn't get along.
And that's tough. Because then you find yourself not asking the tough questions, not getting the answers you need. And seriously, if you don't like them you'll end up spending less time with them. When you really want someone you enjoy spending time with, and you can talk to. Because these are some of the most important questions facing your business. How am I going to set it up? How are we going to do this? What are we going to name our company?
-Absolutely. I think personalities can come up after you talk about how qualified they are. Some attorneys are very conservative, and they'll drive you nuts if you're a guy that's going to take a risk all the time. Because-- maybe that counterbalances you though, and that's what you need. So I mean, you have to find somebody that you can get in a groove with, that you're comfortable with, and that also is going to give you good advice.
-So we're going to go through step one, two, three, if I am really struggling to grasp what I need to do to get incorporated here. If I kind of need just a step one, two, three, to get started. You know maybe not a one, two, three, to get it done. But a one, two, three, to at least get started. Step one, if I'm watching this and I'm like, that's it. I'm getting incorporated. I'm going to do it. Step one.
-Step one is file your articles. Whether it's articles of incorporation or organization for an LLC, that's step one.
-File your articles of organization or--
-Incorporation. And should I do that myself? Or do I go to an attorney for this?
-Most of the time you're gonna need an attorney for later on in the process. And it's a good idea to just let them do it all. You don't want to get it started yourself, screw it up, and then it's going to cost you even more for somebody to go fix it.
-Yeah. That's awesome.
-Happens a lot.
-Happens a lot. I've done that before. I've actually started articles of incorporation. I've worked on it and I'm starting to write in my legal words. So I'm like, and thou should not be able to useth this-- I'm like, I bequeath thee-- I'm like, what am I saying? Am I writing in old english here? What am I-- and I'm trying to write in my legal jargon. You know what I mean, when you're in college and you're trying to-- or you're in high school, and you're trying to write a 12 page paper. And you start really-- henceforth thus. I'm writing all this sort of legal jargon. And then I realize, I don't know I'm doing
-And most attorneys that do a lot of these, they have a package deal. They got a flat fee. Or they say, you know, it's this hourly fee, but with this many hours. And it's for the whole package.
-Ok. So step one is, you gotta to file your articles. Step two-- and maybe we reversed these. Maybe we say step one, hire an attorney. Step two, file our articles. Is that what you think we should do?
-Step one, hire an attorney. Step two, answer the attorney's questions.
-OK. And how long should it typically take to get incorporated once I've hired an attorney?
-You can get your corporation filed, your tax payer number, within usually a couple of days now.
-A couple days now? Man, that's awesome!
-Some states are a little bit longer, or a little slower, but a lot of it's online. So, pretty good turn around. 48 hours, 72 hours, week at the most.
-You could have a LLC by the weekend.
-Bam. OK. Now, how do I decide which state that I'm going to incorporate in? Example, I love the state of Delaware. I've never met anyone from Delaware but I know that if somebody watching this is in Delaware, you're my kind of person. OK. Because you're the kind of person, kind of off the radar. Kind of, you know, just kind of do your own thing. I don't know who you are, but you're-- you know, you're kind of-- Delaware. I've heard Delaware's a great place to file.
-A lot of people file in Delaware. A lot of people file in Nevada.
-Why would I want to set up a cor-- if I live in Oklahoma, why would I want to-- all joking aside-- set up a corporation in Delaware?
-Delaware and a few other states have some laws that people perceive as friendlier towards corporation. Business-friendly laws for tax purposes, or lawsuit purposes that--
-Make it harder to sue?
-Not make it harder to sue, but easier to protect your assets. But, the flip side of that is, the law generally requires you to register your business where-- no matter where it's incorporated-- where you're actually doing business.
-So you have to move to Delaware?
-You're right. Or you have to turn around and register your Delaware corporation in Texas, or California, or wherever you're actually selling snow cones.
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