Before You File Your Corporation or Limited Liability Company (LLC): 5 Things to Consider! (Part One)
By Darius M. Barazandeh, Attorney at Law M.B.A.
Before You File Your Corporation or Limited Liability Company (LLC): 5 Things to Consider! By: Darius M. Barazandeh, Attorney at Law / M.B.A.
POINT # 1: Many investors believe that they can create a limited liability company (LLC) or file a corporate charter with the state and always have liability protection. This is SIMPLY NOT TRUE. The truth is that each of these business entities (the LLC, the corporation and even the limited partnership) require certain key steps after the structure is created. I always like to compare business entities to a fancy Italian sports car or a new baby…they WILL DEMAND PROPER CARE AND FEEDING! They are fun on the first day, but you had better know how to maintain them. You can’t neglect the baby or take the fancy Italian sports car for a spin without any oil in the engine. If you do then a disaster is coming! Many new business owners believe that because they hired an attorney or service to create their new business entity, the work is done. The truth is that what you do after the entity is created is most important. There are countless nuisances, details, traps which must be understood in order to MAINTAIN LIABILITY PROTECTION.
POINT # 2: Let me add another point that most people miss: if you plan on going into business with another investor or what you might call a partner, consider this: What happens if there is a disagreement? Do you have to sue, do you use mediation, do you have procedures in place to require efforts to settle things out of court? What happens if one of the parties in the business wants to sell their ownership interest? Who will buy it? What will they sell it for? HERE IS A TYPICAL SCENARIO: Assume that you go into business with your best friend Tom. Things are going great but Tom decides that he needs to spend more time with his elderly parents. He wants to sell you his part of the business but you tell him, “Just wait a bit, Tom”. “Things will get less stressful soon”. He agrees but shakes his head in doubt. The next day you learn that he has sold shares in the business to his uncle. You now have a new co-owner. You never would have started the business if you were going to have to work with Tom’s uncle. These types of situations can be avoided by utilizing proper ‘buy back’ agreements between co-owners and limiting transfer rights. Sadly, most business owners never learn about these precautions until it is too late.
POINT # 3: For real estate investors there are always risks when the owner of a property decides to make repairs on the property or hire someone to make repairs for them. It does not matter if you have a business structure or not: A business owner is always personally liable for negligence. So if you are negligent when you make a repair or negligently ‘hire’ someone to make a repair, you can be sued personally. Don’t ever forget these words: “BUSINESS OWNERS CAN BE SUED PERSONALLY FOR NEGLIGENT ACTS”. It’s really important that you spend just as much time learning about the limitations of business entities, rather than just hearing about all the benefits!
To learn more about the remaining traps, mistakes, and errors, which entity may be best for your business and how to file, create, run, and maintain your own ‘iron clad’ LLC or corporation, please see Mr. Barazandeh’s, Incorporate for Wealth ™ and Wealth Building LLC ™ courses at www.theinformedinvestor.com and www.attorneysecrets.com
I want to wish you all the best in your business and email me if you ever need help: taxenterprises@yahoo.com
About the Author
As a licensed attorney and former business consultant, Mr. Barazandeh brings a high level a professionalism teamed with in-depth legal and business knowledge to the world of real estate coaching and training.
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