In this transcript, Clay Clark (U.S. Chamber National Blue Ribbon Quality Award Winner) and Wes Carter (Attorney for Winters & King Law, Inc.) discuss the importance of structuring the right legal structure for your business on Thrive15.com, the business sales training program.
Clay: On to the second type of business liquidity. The limited liability company that is an LLC it’s designed to provide the limited liability features of a corporation, tax efficiencies and operational flexibility of a partnership. What is a limited liability company?
Wes: A limited liability company is called an LLC one of the most common types of entities for entrepreneurs, small business because it offers a lot of flexibility, doesn’t have a lot of the formalities of a corporation but most importantly you get all the liability protection. The owners which are called members in an LLC if they could sue the LLC and important that you followed all the formalities then you have asset protection for all your personal assets.
Clay: You said follow all the formalities?
Clay: What are all of the formalities, everyone wears coats and suits and …
Wes: Well no, every time we’re talking about protecting your personal stuff whether it’s an LLC or a corporation, it’s very important to keep up with your minutes, not treat it like your piggy bank. If you respect it a court will respect it, if you treat it like it doesn’t exist, a court can treat it like it doesn’t exist.
Clay: Should you attorney update your minutes and be the person who does this for you?
Clay: Should you be the entrepreneur being like, “I need to update my own minutes.”
Wes: No an LLC is one of the reasons that’s easier is because the minutes aren’t necessarily required as a corporation but it’s important like with your bank account make sure that you’re not taking money out of your LLC bank account to go on vacation or go out to eat with your wife. You have to treat them as separate entities so you can keep that protection.
Clay: Now, okay so we’ve got this limited liability company here, we’ve defined what it is, why is it there are a lot of business owners call their business like Jerry’s Plumbing LLC. Do you have to do that, do you have to put on everything? Why do people do it, who do some people not do it, let’s go.
Wes: It’s a way to put the public on notice you out there the general public that this is a limited liability company so if you do business with me, you can’t get my own stuff, you can only get what’s in the business itself.
Clay: How come big companies like Best Buy don’t say, “Best Buy C Corporation or Best Buy LLC?”
Wes: Well if you look at any of the official documents it’ll usually be Best Buy, Inc. But for branding you have do it, brand your contracts, your deeds, things like that. Branding you don’t have to put your commercial with Jerry’s Flower Shop, LLC.
Clay: If you’re watching this and your company is called right now like Door Services LLC, take that LLC off that brand. Just for branding not a legal perspective just for branding. I’m just telling you that’s bizarre to the customer sometimes.
Clay: I’m just telling you companies I do consulting with they’re always like, “I thought I had to have the LLC on my website and on my logo, I could write probably on my logo.” You’re saying that puts the public on notice?
Wes: Right you do a contract, you sign an official document you put the LLC on there so whoever you’re getting into a business dealing with they know.
Clay: What are the mega benefits of an LLC and what are the mega draw backs? Just a high level hit on some of them.
Wes: Biggest ones you get the personal asset protection, you stuff is off the table if you do it right and it’s easy to take care of an LLC, it’s an easy way to … it’s very flexible about how you run it and who runs it. There’s a lot of ways you can do an LLC so that’s why it’s attractive to entrepreneurs.
Clay: Very flexible like a gymnast an LLC that’s how I remember it, I don’t know how that relates but anyway so moving on I’m talking about cooperative. This is the one that scares me, I’ve heard a lot about what went down in various other cults so every time we’re talking about a cooperative I get a little scared these words, let me read it to you. Sales training videos are now available on Thrive15.com.
A cooperative is a business or organization owned and operated for the benefit of those using its services. Profits and earnings generated by the cooperatives are distributed among the members also known as user owners. Typically, the elected board of directors and officers run the cooperative with regular members having voting rights to control the direction of the cooperative.
Members can become part of the cooperative by purchasing shares though the amount of shares they hold does not affect the weight of their vote. What are we talking about? It sounds like a communist cooperation. Is this the case, what is a cooperative?
Wes: A coop is usually people get together, they create very similar to a non-profit organization. Let’s say we’re all going to go grow some fruits and vegetables and we’re all going to pitch our money in together.
Clay: Sounds like a cold …
Wes: Then the way the fruits and vegetables grow we’re going to split them up evenly or you …that’s a farming type of coop. You can have electric coops if you’re out in the rural city ever. A lot of times you’ll electrical coops where the citizens have gotten together and decided they are going to share their resource just to create an electric company. It’s …
Clay: We can all wear white robes, we can all live together …
Wes: It’s a lot of sharing.
Clay: A lot of sharing, there’s one wife there’s like 50 husbands. It’s the other way around there’s 50 wives one husband. Alright, so I got my cooperative mixed up with the cult, sorry about that.
Wes: Not very common for an entrepreneur usually are restricted about what you can do with your profits, usually it has to be distributed back to the members not the owners. Probably not the best choice.
Clay: Just for the record I’m going to sue myself after I watch this episode that’s what I’m going to do.