#52: Legal Structures You Need to Know

 

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Today I’m sharing some crucial information about legal structures for businesses that I really wanted to share a lot earlier. I’ve finally found the perfect person to talk about this important topic in a way that is not only interesting, but will also convince you that now is the time to get all the legal ducks in a row with your side business.

Jennifer Gligoric is the co-founder and COO of Leafy Legal Services and host on Leafy Podcast. Jennifer has been helping entrepreneurs and real estate investors get started for the last 20+ years. She has a harrowing backstory of being homeless as a teenager and managed to put herself through college and become a successful business owner despite the odds against her. She attributes her success to a mindset of abundance and paying it forward is the means to happiness.

Jennifer and I talk about different legal structures for your side business and why it is essential to your long-term success to determine your structure as soon as possible. We also discuss the importance of anonymity, the protection different legal structures can give you, and what you need to know about business loans and credit.

In this episode, we’re discussing…

  • Why you should establish an LLC right when you start your business.

  • How the right legal structure can protect your peace of mind and your assets as your business grows.

  • How to set up an LLC and why Jennifer prefers anonymous LLCs.

  • Why you want to have a brand without your name in it and how this will affect your ability to get credit and loans down the line.

  • Some of the tax write offs and other benefits you can take advantage of if you have the right business structure from the beginning.

Jennifer’s Top Tips:

  • Everyone should start out with an LLC – doing business as a sole proprietor or with a DBA isn’t a great idea because they don’t offer you enough protection. An LLC is an excellent option, whether you want to stay small or eventually grow into a corporation.

  • Your ability to get credit is affected by algorithms – as the world shifts more to automatic underwriting, you need to optimize your accounts with the same name, address, and more if you want to get the amount of credit you deserve.

  • It is worth it to get all your legal structures in place early! – you want to protect yourself from any lawsuits that could affect your assets. Insurance doesn’t always cover everything, and we live in a pretty litigious society. The right legal structure will protect you, your business and your peace of mind.

Resources:

 

+ Read the transcript

What if you could be doing something smarter with your money that creates income right now, if you're an IT professional who's wanting to get ahead financially and enjoy greater freedom of choice, and if you wondered who else in tech is creating ways to make their money work for them? You want actionable ideas with honest pros and cons and no fluff. Welcome to The Richer Geek Podcast. We're helping IT professionals find creative ways to build wealth and financial freedom. I'm your host, Nichole Stohler and in this podcast, you'll hear from others who are already doing these things and learn how you can too.

Hey, everyone, welcome back to The Richer Geek Podcast. When I launched my podcast - which is almost been a year ago, which is amazing, time absolutely flies - I received a text from one of my peers who said, Hey, can you make sure to have an episode that covers entity structure and legal protection. I've been trying for a very long time to find the right person for that conversation. You see, it is a little bit boring to cover entity structure. But I found the perfect guest who not only covers entity structure, somehow we also end up talking about debt and credit scores, and a couple of other topics. And it was a lot of fun to do this interview, but we will also talk about entity structure. Today's guest is Jennifer Gregor rich, and she is the co founder and CEO of leafy legal services. She has a podcast as well, so you should check that out leafy podcasts, and she jokes during the episode. Her business has nothing to do with medical marijuana. She says a lot of people think that because of the name. But in any case, she has a really interesting business that she's putting together to help real estate investors and other entrepreneurs with legal protection. Let's jump into the show. Jennifer, welcome to the show.

Thank you. I'm so excited to be here today.

This is going to be such a great episode of foundational information that I feel like we were just chatting, I feel like I should have provided much earlier in my podcast. But it has actually taken me a while to find the right kind of person who can share this wealth of information. So I'm really excited to have you on the show. Let's go ahead and get started with just tell us a little bit about your company Leafy Legal Services.

So what we do and I'm glad to be here to talk about this because now like during this time, you know, we're under quarantine, that's when we're filming this. But now more than ever, it's like foundational things, whether it's your personal life or your family life or whether that is your personal life or your business life come to play. Right. And that's kind of where I come in. That's where leafy legal services come in. We help entrepreneurs in real estate investors get the right structures in place to use the power of anonymity for safety, then we tie it into estate plans, which avoid probate is that is always a nightmare. And then we talked to him about having checkbook control accounts, so that their business structure is created in a way to give them the max chance of success and to lessen their chance, especially brand new businesses, of getting hit when they're brand new, making mistakes, which can really do Rael, even the best company. So that's what we do.

And I think of it it's you wouldn't even consider having a rental property without insurance and you wouldn't you wouldn't live in your house without insurance or drive a car. So this is very much of that same type of peace of mind and having the right protections and the right structure around that. Okay, so let's talk about on this show, we cover real estate and we cover small businesses. And sometimes we cover online businesses. Where should we start with the different entities? And actually, where would someone start in trying to figure out what makes the most sense for them?

Well, it depends on where you're at in your first stage, but the LLC is a great start for anyone. It's a pass through entity, and it gives you limited liability. But LLC is a relatively new for some people because an LLC, as an instrument of the state was created in 1977 in Wyoming, and then other states started to adopt and Delaware came up with a good one. But that's, you know, for some people, that's not very long ago, some people that's ancient right, and then there are other structures that came after that, but an LLC is really great, because you're not a sole proprietor or DBA. That is really a lot of people think go pay that 25 bucks become a DBA, right, your sole proprietor with a DBA but you're still reporting everything on your social security. You have complete exposure to lawsuits. And so I don't recommend that for anybody anymore. We're just too litigious as a society, it's just not smart business anymore. There was a time when it was a different world. And it's just not that world right now, you want to think about a corporation, if you start getting lots of employees, you want to sell shares, you're doing a type of maybe tech startup that's going to require that. But that's also you can get double taxed. So that's not anything to really consider right in the beginning at all. It's a complicated structure, you're really going to want to start out with an LLC, and then work up until you can hit profitability. And then when you start thinking about, I want to have shares, I want to have more ability to bring in investors and other things like that, then you can you can think about that, but not when you're first in seed funding, or however you're starting to do it in LLC is the way to go.

Now what needs to happen to set up an LLC?

Well, for an LLC, you're going to have to get an EIN, which is a special type of tax identification number, you know, employment identification number, with the IRS, and you're going to have to have a separate bank account. I am a fan of getting an anonymous LLC, meaning you don't want your name to be listed as a member of that LLC. There's a variety of reasons for that. But if you have assets, or if you're in a very, it depends on what kind of industry you're in. But there are certain industries have more liabilities than others. So real estate investors, definitely, you're just going to have to get that because you're holding assets as a road of business. So you're going to really need to get that other industries. You might want to have two LLC one that's in your brand name, right, that's in your name, and that's going to be your fundable entity, you're going to have a done a Bradstreet number, you're going to build up credit in that. And the whole purpose of that is within two years. You're going to make your personal credit and your borrower credit to where you have a borrower profile that you can walk into a top to your bank, and be able to get a line of business credit $100,000 to a million dollars, that does not report on your personal credit, it is your business credit. So that's important, I guess for tech people, people who are looking to get a startup looking to make a major expansion manufacturers, that's something that you'd want to do as well, certain real estate investors, if you were really wanting to go the next level, you can start that with that brands. If you're trying to brand marketing agency consulting agency that's important. But how you do business and how you do contracts, you want that to be under your anonymous LLC, you want to keep different separations, layers of protection.

Let's talk about the two that you just mentioned in the brand. So let's just say it's going to be Nichole's auto body. And I'm going to have an automobile repair shop. And that's actually the name of it. So that's one LLC is that The brand that you're talking about I want to build up Dun and Bradstreet and I want to demonstrate credit worthiness under the business.

That's right. So you're going to do that you're going to get your credit on that you're going to pay certain notes on that. But then how you do your contracts like with your vendors, and everything like that with your auto body, and how you're going to pay employees and staff. You're going to do that with an anonymous LLC, which is probably going to be yo Bob consulting or yo Bob management, like something that's completely separated from I just like made that up. Yo, Bob, I have no idea where like, I like that but anyway, it was a random words it just formed my map. So anyways, so you're going to have that one to do it. And you're going to make sure that your branded name you don't really want that to be just FYI. That's not really a good name for for an entity. It would be better to have like a Ryan consult or something. And so you don't want it to be so personalized on your name, you really don't. But if it has to be that it has to be that, but banks are going to tend to give you lower lower amounts you're not going to be the name of it does count, and how much money you can get. It has nothing to do with your credit score. In fact, no one here who's listening has ever gotten a loan on their credit score. That's a complete fallacy. There are 80 algorithms that track all of us. We no longer really use human underwriters for it so that you're being tracked by your behavior. That's why someone with an 800 credit score can be barely approved for a $2,000 Macy's card and someone with a 680 can walk in with $100,000 line of credit on a business.

You're talking about the fact that banks want to see consistency they want to see okay that you use the credit, you pay off the credit you use it you pay off versus someone that says I'm debt adverse. I'm not going to do anything so I have a perfect score.

They're not gonna have good credit. Well, another thing, one of the algorithm is a company that tracks our cell phones, the top cell phones, the batteries in them. If you're the type person unless your battery go all the way down, and you don't charge it up, there's a direct correlation between that behavior and letting bill slide. So you want to keep your phone charged up, because there's a direct correlation. And the way I know that is I had the, the founder of Lexington Law Firm on my own show, and I attended his boot camp, and he's the only person who's ever been allowed in FIFO world, because he got so furious. He was getting people with eight hundreds, and they couldn't get a loan. They couldn't get credit. He couldn't understand why. And so he finally scored a psycho world he got in there with this team. And then the head of FICO said, sign this NDA and I can answer your questions. You bugging me too much. So his entire team signed an NDA. They're not allowed to tell us the actual algorithms. Those are completely proprietary. But he teaches the 80 different behaviors, one of which is how we pay our bills. One thing everybody is supposed to do, and you have to be taught to do this, is you call up your bank and you call up your credit card companies and you talk to customer service, and you get the customer service different people to tell you the same answer three times, what is my reporting date? Not when is my bill due date, many people thinking that they're doing good, right, let's say your credit limits $1,000. You max it to $1,000. You pay it off at the end of the month. And you can't understand why you can't get alone. You're doing everything right. what you're supposed to do is the day before your reporting date, which is the 26th. Let's say your due date is the 31st. You go and you pay it down to 7%. And they have an auto pay for the end. Now all of a sudden, your bar profile goes up. That is the algorithm that shows utilization correctly. And you have to be taught to do that.

Well, somewhere we need those tips.

Oh yeah. So he's teaching it, he actually called out - He's like a pretty well known guy Merrill Chandler is his name by the way, Merrill is a great guy. But he has a public feud with the head of Credit Karma. And he has patent or trademark the term fake Oh, because he feels like it's such a lie. And he's he's all he's out all the time. So if you just type them up, you'll get his new thing. The new F word. Get F is is like new book it fundable. How to be a fundable entity, a professional borrower. If you're not doing these things. You're a professional consumer politically, and they hate that but you know, you're nice, they'll take your money, but that's not something they're good at. You're not doing what they want to see in order to be a professional borrower. The problem is, is there is an us against them mentality. Well, if we tell you, we used to tell you and what did you do? You created credit repair companies that scam the system, they gamed the system, and they did very unethical things like they just disputed everything at once arbitrarily raised your score. And then you rushed out and got cards on them while you're still a bad borrower, and it screwed us out a millions of dollars. So we're not going to do that anymore. We're not going to tell you we're not required to tell you.

Fascinating. So Oh, wow.

Okay. So one of them, but one thing you can do is Equifax, TransUnion, and Experian experience, the three there, they're tied into these algorithms. Of course they are right, but it's not that number. That number really is meaningless, right? But one of the things is that 5% of all underwriters go out of business, they're not going to that's, that's an extinct dinosaur thing. It's automatic. underwriting is the future if you can go into automatic underwriting, meaning your credit report doesn't have red flags on it from the information that's on it. Then you get triple A rates, and you're gonna get approved by top tier banks, and there's only like five of them. Right. And so, you look at your reports and you're gonna want to get them never on your free report each year. Give me my score. Never get that that's not a correct report, you want the full long bullet blown, big report and at the end, there should be one thing under your name under your borrower name. It should say Nichole Stoller, not Nichole, a period Stoller, to call a Stoller, it should be one name exactly the same. And that same name needs to be on every single one of your revolving accounts. And you have to call make that change, that's a pain in the butt and you've got to work at it. Right? They are not required even if you've been married 10 times to have 10 different names, they're legally they are not entitled to that information. And it should be the name that matches your current borrower profile. Another thing that doesn't count is the address. You only need one address, they're not legally required for any of those things to have. All your addresses should be one address should be exactly the same on all three. Same with your employer and that employer needs to be your fun entity, nothing else, wow, that borrower profile, if it matches the same name on all your revolving accounts that are open, now all of a sudden that person is going to go more likely to underwrite automatic underwriting, there's other things that you have to do as well, you have to have established relationship with a bank that you really want to work with. And let them know that you're in it to win it, and get the right accounts and start you have to be very aggressive, you know, with what you want. You don't take anything automatically solicited to you. Now, are these the kinds of things that you advise your clients on all of these pieces or how does that work? No, I, I believe so much in Merrill, that I just give you a link to go over there and get a free book and let you guys do it. I mean, let everybody do it. We help set up the entities, the fundable entity, if you need the fundable entity, and then how you do business correctly, which is the other part of it, the anonymous LLC making sure you don't sign your name on any content. Tracks anymore. You pay rents, you pay utilities, everything, you know, pay contractors, whatever you've got to do, you paid out the anonymous entity, your name is not it anymore, you get yourself out so you can protect yourself. And then if you have assets, you hold those assets completely separately in another structure away from it. So that way, you can't just get hit all at once. You know, people will set up an LLC, and they'll put all kinds of things under that LLC. Well, if someone you know, looks you up on a state website, if you're not anonymous, they know you're the member of that. And then that you're sitting duck, you've got something you've got this company, maybe we should, you know, let this lawsuit go through even though it's a car wreck and you've got Geico but maybe, you know, you think insurance is gonna protect you from everything but they have limits. So if you have a decent house and a rental house, or let's say you have other things and you have it all under like one entity Well, Geico is not gonna cover all that you have limits. And if you want to go to court to get liens off of that, because the other places said, you know, we'll take our chance in court, because courts gamble, right? Then Geico will look at you and say, Hey, man, you know, flow always like using flow because she's obnoxious. But she'll say, you'll go, Well, you were supposed to do that. No, no, this is your limit for court. We're not going to cover all the court costs of removing all these liens and in fighting all that doing that, that's that's up to you. So your out of pocket is going to be 20 grand, but they're willing to settle. Again, 80% of lawsuits right now in America are settled out of court for a reason, then they are going to they'll settle for you for eight grand.

You help with that entire process they setting up because you said someone would go and get an Ei n and they would do some of these types of things and figure out a name but really, you would help guide that put the right paperwork in place. Make sure I don't know if it's notarized. Make sure all those things are taken care of.

Yeah, it's not like a here's a form, fill it out, good luck, you know, we hope it flies. No, no, when we get them set up, the first thing we do is you know, when once they pay, they do it online and then they get a welcome letter. They get their receipts and then they're paired with a paralegal and then the the paralegal if they have any questions, we'll go to the attorney, we try to separate out any of the advanced legal work so that our costs for the person can remain something that new businesses can handle. You know, that's really important because if you just go to the highest specialist law firm, you're going to pay 350 to 550 an hour. That's what they have to charge that office cost money attorneys cost a lot of money and, and that comes out of something, right? So they have their fee that they've got to charge and that's their, you know, their cost per hour. And we have a virtual organization. I've been a virtual organization expert for over a decade. So my costs are a lot less.

So we were chatting a little bit before we got started and right now we've been talking about you know, selling up, I think of it like a like more of like a physical business, auto body shop, manual Bob, a Yo, Bob, a or real estate or something like that. But you also had some advice. So if I have listeners that are software programmers, and you are wanting to, you know, freelance and go on Upwork, or fiber, or people per hour or any of those, you were sharing a little bit around having the right entity for that, too.

Yeah, you don't want to use your name on Upwork or fiber them. You gonna want the extra tax burden, right? Or not burden, the extra tax incentive of having the right entity. So go ahead and get your LLC with that. But also to once you start talking to the client, then it's very different than Oh, yeah, I'm a graphic designer. Oh, yeah, I can provide your code, or Yes, I own my own company, but I'm here you know, looking for extra Your clients, yada, yada, yada, and this is my company name. And you're going to get treated a lot different, you're going to get asked, and a lot of it's just perception. But I know this holds true because the people I've done this, come back to me and say, Man, I thought that, you know, I used to get asked for a free logo at least every single day, you know, just send us something send us work or free work, or for writers, you know, can you give us some samples, but I knew that they were just going to use them from the way they talked to me, that tends to get lessened. You know, because you're a professional. They You know, there are people that will go after and those same people aren't going to talk to you, but you don't want to talk to them. Not on a marketplace like that. You want real companies that want to experience Pros for your price range. So stick to your guns on your price range, stick to your guns on your professionalism, and it's going to be amazing how once you start to value yourself as a real business, this isn't a hobby. Then you start getting paid for your work. Don't worry Worry about the mass of people out there. They're doing things for three to five bucks an hour. Because every person who uses those ended up stopping it and then going with like local or somebody else because it's such a pain.

Well, I definitely think internationally, it can be challenged language barrier and all of that I've used up work quite a bit Fiverr not so much people per hour. And I'm just trying to think, I don't think that any of them had a company, but I've used up work primarily for writing copywriting, that type of thing. And you can even just tell, you know, when someone responds, but I don't think any of them had a company, I think it was it was it was their name. So that's a good tip.

Even if you have an LLC and it's a pass through entity, you can write off more of your expenses, you can write off more of that. So why wouldn't you you capture that? Plus, there are other things you know, if you have to hire out, or you you know, you know, let's say you start to get busy you make a name for yourself, and now you're high rated on Upwork. So you've got five stars, you have lots of great reviews, and now you start to get steady work. So you need to hire someone, well, then what you can go and get a solo 401k. Now this or non solo 401k, you can get an SDI array on top of your solo 401k. You can get all sorts of things if you have an LLC. So you're basically stopping momentum by not just getting that done right in the beginning. Well,

tell us a little bit about leafy legal versus some of the other services like where you fit in because you have a more streamlined, more cost effective approach, right, because you don't have to pay for offices and those types of things. But if someone was listening, and they said, Oh, I'm just gonna get an LLC created on LegalZoom. Tell us about the differences there.

Well, the structures we provide you can't really get on, on Legal Zoom because we provide advanced structure so the same price you're gonna pay You're actually going to get a structure with anonymity. And so it's not that I don't have costs. I just reinvest all my costs and actual people. So that's my difference. I want the highest quality staff, right. And then we're not a law firm in that we're not a law firm. I have agreements with attorneys so that attorneys will look it over. I have agreements with attorneys all over the country. So what this does is it allows us to be niche between these do it yourself, like just fill it out? When we have a couple of things like that we have a basic well for like hundred and 50 bucks, right? But we haven't done with a paralegal. So you give them the basic information. They ask you tons of questions, they work with you they fill it out, then you have something that has a chance of standing up, right, because forms are never going to do that because people have such unique situations. And you really need to have unique legal wording in that document. You know, we do a full estate plan, which is really what people need to think about having something that will avoid probate, no will can avoid probate. Not really wills can always get contested, but a Loctite living trust that includes a poor over will, and advanced medical directive healthcare directive, a medical power of attorney and a durable power of attorney that, you know, five thing as a closed circuit that's going to avoid probate when done well. And you want that done by the most experienced paralegals. And you want it looked over, you know, by an attorney, and we have the truth. Look over all of our documentation.

Yep. This is not the place to be skimping. And like I said, this is insurance. And it's like insurance and you want to be fully protected. So that you know, if you ever need it, you know that you are well covered.

Yeah, because the articles of incorporation, just even doing a regular LLC. We do those too, but some people just put the wrong articles in there. They put different clauses that aren't supposed to be in there. And then if anything happens, then it calls things into question. And that's not what you want. You want for that stuff just to be done right? So you don't have to worry about it. So you can Enjoy the protection that you thought you were paying for. Right? That's kind of what you want.

Great point. Jennifer, how can listeners get in touch with you or learn more?

Just go to leafylegal services.com. People always think that we're like pot lawyers, but we're not. But it's cool though. I mean, you know, whatever, whatever you whatever you think we do. And then we have leafy podcasts, which is on that website, too. So our own podcast, we get out of law stuff and then we're on all social media. So if you just do at leafy legal, you can get Twitter Facebook, Instagram. LinkedIn, we're big on LinkedIn. Let's see. Pinterest, you name it. We're on everything. We're not Snapchat yet, though. Or not tell God not to talk, right? I know. It's so popular. I'm like I did. I'm on snap. I like snap for my friends. I really do. I love the filters. I want yours and I'm just like I'm so cute on this filter, right? But yeah, no, no, the tick tock The Tick Tock. I, like I say I say it like 100 years old.

That's it. It's all good. Oh, good. Well, thank you so much for joining us today.

Thank you so much for having me, Nichole. I had a great time. It was great to talk about this boring stuff. I know it's boring, but it's important. You get it done and you don't have to worry about it again. That's that's the beauty of it.

Thanks for tuning in to The Richer Geek Podcast. For today's show notes including links and resources, visit us at therichergeek.com. Don't forget to head over to iTunes, Google Play stitcher or wherever you get your podcasts and hit the subscribe button. help us spread the word by sharing with others who could benefit from listening and leave a rating and review that'll help us get the podcast in front of more people. I appreciate you. Thanks so much for listening.

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ABOUT JENNIFER GLIGORIC

Jennifer Gligoric is the co-founder and COO of Leafy Legal Services and host on Leafy Podcast. Jennifer has been helping entrepreneurs and real estate investors get started for the last 20+ years. She has a harrowing backstory of being homeless as a teenager and managed to put herself through college and become a successful business owner despite the odds against her. She attributes her success to a mindset of abundance and paying it forward is the means to happiness.

 
 
 
Rental PropertiesNichole Stohlerpodcast, season 1