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Sterling: This is Internet Business Mastery, episode 71.

In a world where bosses control your life, and thoughts of escape fill your mind, where inspiration seems dead and cynicism rules the masses. You have a desire to break free, you feel the need to take control. Now – there exists a place where the secrets of freedom and wealth are given to those who believe. Internet Business Mastery.com – free your mind!

Sterling: Hello, and welcome to Internet Business Mastery online at InternetBusinessMastery.com. I’m Sterling….

Jay: And I’m Jay…

Sterling: And we’re here to help you escape the ‘9 to 5,’ and live the lifestyle of your dreams by turning your life’s passion into a profitable internet business, even if you’re just getting started today.

On this episode of internet business mastery we have a flashback episode.  Protect your assets, build your wealth and save on taxes with an LLC.  And in the quick tip we have an easy tool for click tracking links in your newsletter, Twitter, Facebook, and more.  We’d like to remind you that if you’d like to get a jumpstart on creating your own profitable internet business using our proven system claim your risk free trial membership to the internet business mastery academy by going to freeaudiogift.com.  So Jay, what’s been going on recently?
Jay: Well, I guess one thing I want to mention is that we’ve got a great discussion going on about the outsourcing stuff.  You’ll recall on the last episode we kinda gave our insights and thoughts about the whole outsourcing debate, the morality and ethics of outsourcing that we use ourselves and that we encourage others to take a look at for their own business.  And I went ahead and put a blog post that kind of went into even more detail about that whole topic and now all of a sudden in the last few days it’s become one of the most commented ever posts on the internet business mastery blog so great discussion going on over there on the blog.
Sterling: Yeah I’ve definitely been keeping up with it.  A couple of times a day I go in and read what’s going on and see what points people are making.  It’s actually a pretty interesting issue that people are so fired up about it.

Jay: Yeah.

Sterling: So it’s been fun watching.  So you know definitely if you want to, you know, go be a part of the discussion go check that out on the blog.

Jay: Yeah, it’s a post, let’s see what did I call the post?  It’s a post called “Is Outsourcing Bad For The Economy”.  So you can go check that out right now.  We’re up to, I think,  as of the recording of this, 37 comments but I’m sure it’s going to be more than that, you know, in the near future.  But definitely some great arguments going on on both sides so I encourage people to go and take a look at that.  I guess the one other thing to mention is just as you mentioned; this is a flashback episode.

We decided that there’s you know, just Internet Business Mastery has been around for going on 4 years now.  And so that’s a lot of content and some great back episodes in the catalog some of which have not been on the site for awhile.  And one that’s always been very popular, this is an interview that we have in the academy as well, is the interview with Darius who is a lawyer and who you know, I think in our first year of Internet Business Mastery gave us a great interview about using an LLC to protect your assets and why it’s so important to have this kind of a business structure put together.

And which is why we have a whole course in the academy that talks about laying that foundation and having these kinds of things in place.  But we had an opportunity to ask him lots of great questions.  And I was, you know, looking back over that and thinking, you know what we should really bring that back around its been a few years since that played on the feed and I think a lot of people would enjoy hearing it again.

And so we thought it would be cool to have a flashback episode, a two parter, because it was a two part interview, just lots and lots of good stuff in there.  So this episode and next episode are going to be a replay of the interview with Darius who talks about how to use an LLC to protect your assets and build your wealth and save on taxes.
Sterling: Alright, let’s do it.
And now the featured segment….

Jay: Hello and welcome to this special installment of Internet Business Mastery.  This episode we’ve got a special interview with lawyer Darius Barizonde and he’s going to talk to us a little bit about something we’ve spoke about recently on the show with LLC’s and protecting your wealth and your assets as you build up your internet business empire that we’ve been talking about.

You want to make sure that you protect yourself as well and so we thought the best way to do that is to go right to the source to somebody who knows and talks a lot about this subject.  So Darius thanks for being with us on the show today and letting us ask you a few questions.
Darius: Well, thanks very much.  I’m really happy to be here and it’s my pleasure to share a lot of this information with everyone and all the listeners.  I’ve got to tell you, I’ve been a real estate investor for years and it’s real estate investing that actually got me into my first online business.  And I’ve been doing an online business, where I sell some of my real estate investment type products, for the last 6 years. But I’m also an attorney.

So I’ve seen a lot of different sides to some of these processes.  And one thing I can tell you is that there’s a lot of mistakes that small business owners make.  And I’m in the trenches with a lot of other folks who have internet businesses trying to reduce taxes, trying to reduce liability, and trying to be sure that everything flows on an up and up level. And I can tell you there’s a lot of bad information out there.

There’s a lot of mistakes that even professionals, the attorneys and the accountants that you see, make.  So I’m real delighted to be here and to share some of this with you guys.

Sterling: This has actually happening to me.  I’ve actually been talking to Darius, This is Sterling,  about my LLC.  I’ve been meeting with different CPA’s to try and pick a new CPA and they’re telling me different things.  And I’m talking to two different lawyers about it.  And apparently they’re saying different things than each other and then I ask Darius some of the stuff and he’s pointing me to, you know, the actual information so I can read it myself and I’m just like, wow, I can’t believe how different, you know, they all think they know but you’ve got to really find somebody that knows and is experienced in LLC’s themselves or business entities.
Jay: This is going to be great because you’re an attorney and you’re a business owner and you’ve also done business on the internet so you’re familiar with that as well.  And so I’m sure you’re going to really help us avoid, you know, some of the pitfalls and traps that internet business owners can potentially fall into.  And so that’s what we’re kind of looking for and some of the things we want to pick your brain on today.
Darius: It’s great.  You know, I do a lot of business on the internet.  I deal with internet business issues every day and I can tell you, you know,  a lot of people are out there thinking, you know, why do I need to do this right now and is this something I should even mess with.  And I’ll tell you there’s two main reasons and maybe even three.  One being taxes.  There are definite tax savings for setting your business up the right way.

But how you’re going to get from point A to point B and be sure you’re set up the right way, well, that’s getting the right information and being able to talk with the experts, the folks that you deal with, in an educated manner.  So you don’t end up with wrong information, you don’t follow someone who has wrong information because you’d be surprised there’s a lot of that out there.  The other issue is liability and that can come from a lot of different areas and a lot of different sources.

And I know I’m getting a little ahead of myself but we’re going to touch on both of those things.  So this will be a very important call.  This should not only offer some of the interesting things that we have but mainly educate and so when you get out of this phone call or this podcast you’ll say, you know what, I really learned a lot.
Jay: Well good, well we talked a little bit about what you do and I know you have some courses that you sell online as well.  Is there anything else that you want to share with us about your background or your experience with business owners and business entities.
Darius: Well you know I end up being in position where I get to work with a lot of entrepreneurs.  As an attorney I end up being in the position where, you know, a lot of people want to start new businesses and I get to help a lot of folks on the ground floor.  I’ve been a national seminar speaker selling real estate information for the last five years and so I, invariably you know you end up with folks that are trying to get started in business, they’re trying to put things together.

And my experiences have been really almost tragic when it comes to business entities and some of the professional help that folks are getting out there and some of the lack of help and some of the information that’s just wrong.  I had a guy the other day that called me that spent about six hundred dollars, had an attorney set up an LLC for him. The attorney just handed him a bunch of papers.  He literally had no idea what to do from there and was just sitting basically very confused.  And the attorney had not done a trademark search on the name.

The attorney also had not included what we call designators at the end of the business name. So like if you’re going to use the name ABC Internet Services, LLC and you’re going to be an LLC then when you file your paperwork you need to put at the end of ABC Internet Services, you need to put the letter designation LLC. Well the attorney didn’t do that and so the gentleman started his business and was waiting for everything to come back and when he did get the filing paperwork back it was rejected.

And so he kind of went through this long process and paid six hundred dollars pretty much to just to have somebody shuffle a bunch of papers and do him wrong.  I’m not saying that every attorney is going to do that but the problem is that he really didn’t know enough about his choices. He didn’t know about what the attorney was going to be doing.

And so when you start getting into tax decisions and agreements between parties who are going to be involved in the business.  You know just going in and plopping down saying I’m gonna you know, spend six hundred dollars and have an attorney file it for me and not only are you paying them a lot of money to do something that is very simple but you’re not getting the instruction that you need on …{INAUDIBLE} … and there’s a lot more than just what you’re going to see on the surface.

Sterling: Now you mentioned before that, just a little bit about why an internet entrepreneur needs to create an LLC. Is there anything else you want to mention about that because I know that I’ve had friends that wanted to start it and I was trying to tell them that they need to do it the right way and they’re saying I don’t need to do all that.  What would you say to somebody that’s like I’m just trying to start a little internet eBay business.  I don’t need all that.  What would you say to them?

Darius: Well, that’s a real good point.  Cause you ask folks when they start out and they say, Look, maybe I’m only going to be making thirty thousand a year at this, maybe less.  A couple things, we’ll first talk about the liability issues.  There is liability when you have an internet business, without question.

There’s trademark issues.  For example, some people will buy a domain name and they won’t search to see if there’s actually a trademark.  Or there could be a mistake in how you did your trademark.  Or you may not search in the right criteria.  So you may think that the name ABC Internet Services is a reasonable name that doesn’t violate trademarks but it might.  And so buying the dot com does not mean that you’re not violating the trademark.

Trademark liability is something that if you get sued for and you’re just set up as an individual, sole proprietor, you don’t have anything else set up in terms of a business structure that means that little ebay business or that little business that you put together could risk all of your other personal assets.  So there is something from the sense of damage control you want to limit any liability or issues that come about when you’re conducting your online business.

There’s also copyright issues.  A lot of people like to take articles or information or facts if you have an information type website and republish that on your own website.  That can create copyright issues. You have to be very careful as to how that’s done.  You need to site the author.  And invariably you may have a webmaster or someone else who’s doing that it and it could be a mistake and so that’s always an issue.  There are also problems regarding domain names and trademarks and that is a really big one because a lot of folks just don’t do the trademark search correctly or can’t afford to have an attorney do that.

There’s issues with meditags.  For example, you may hire a webmaster that may use some of the meditag tag names that are used by some of your competitors or the actual name of your competitor in a meditag.  And I’m going to assume that everybody understands those terms.  But all those types of things can create liability from the standpoint of you versus any of your competitors or outside parties.  Now there’s more, it really doesn’t end there.

There’s privacy issues.  For example, if you collect names on your website and you have a database and somehow it gets hacked or you decide to do a joint venture with another author or promoter or some party like that and they give you a list of names to send an email blast to.

Well, you may not know whether they’ve filtered those names correctly or they have worked within some of the anti-spamming regulations and you may be in a situation where you’re involved in a suit because you’ve wrongly sent emails or spam or you have violated someone’s privacy because the list that you have has been hacked or there’s been some breach of the integrity of your names.  Customer testimonials, I’ve seen this a lot too where you’ll have a customer put a testimonial on your website if you have a blank type of fill-in form requirement or you have a testimonial from an email and the customer may say, “your material is a lot better than so and so’s, I bought it and it was horrible.”

I get that a lot where a customer says “well I bought this quart from somebody it wasn’t any good, yours is a lot better” … Well, that can create a defamation issue.  You have to be careful and you have to understand there’s a lot of liability issues from small internet business.  And a lot of these areas are changing.  A lot of these areas, the rules are not as established as we might think.  But just because it’s a website and just because you think I don’t have that much traffic or I have a lot of traffic you can still have issues when you have competitors.

And not to talk ad-nauseum here, but I’m going to ad a couple more things on the liability things.  Again, if you don’t have a business structure set up and you’re just doing business in your own name, then anything that happens as a result of that business, any liability, or any losses that will create liability for you personally.  So all of your personal assets for the most part.  Now there are some exceptions to that based on some of the states have exemptions and certain things that in bankruptcy you can keep your house for example in Florida.

But absent that, most of your other assets are going to be at risk if you’re ever sued in a small internet business.  Now, the other thing to keep in mind is a lot of people when they try to do business with a company, they like to see the name LLC or incorporated after the name of the business.  Those are things that denote a certain level of prestige, a certain level of respectability, an established business, so there are issues there.  Now let me get into another one here, because when you don’t have an entity set up and you don’t have anything done formally and you begin to deal with partners or joint venture parties that you’re going to do certain promotions with – that can be very dangerous.

If you have a partner and decide that you are going to promote a particular website, in that event the law will consider both of you general partners.  And you can be held just as responsible as they are for any activities that they undergo that create liability.  For example, now this is a crazy example but this kind of stuff happens.  Let’s say for example, you decide, you and your friend are going to promote a website.  Both of you guys are going driving around, going to local businesses trying to get some advertising space.  While he is driving around, your friend on business, he hits somebody.

He has car insurance that, let’s say, totals five hundred thousand dollars in liability coverage.  But the person is really mangled and they sue for one million dollars.  Well the car insurance is going to cover five hundred thousand and there’s going to be a five hundred thousand dollar overage.  In that event, because both of you were engaged in a business together with the agreement to split profits, then you’re considered general partners.

And as a result, that person that was hit by your friend/partner, could sue you as well.  And they could sue you for the total amount left over after the insurance coverage.  If your partner didn’t have insurance coverage then the situation could be worse.  So anytime you get into business and you have another party or you’re trying to deal with other parties, it is very important to have an entity because you want to set forth guidelines, limitations – you want to limit liability.  And let me say one other thing too, is that if you’re going to have other parties involved there are always partner disputes.

There will have to be terms to how you’re going to structure the agreement; how you’re going to split profits; what’s going to happen if somebody doesn’t want to take part in the business anymore.  Are they going to be able to just sell their rights to anybody that walks down the street?  All these issues we’ll get into but there are a lot of reasons just from, I’ll call them, the legal sphere to set something up and understand how it all works.  And that way when you grow and things continue you can keep going forward without having any trouble.  Or if there is trouble, you limit your exposure – this is very, very important.

Now let me say one other thing – people say, “yeah, you know, the chances of all that happening – I don’t know”.  Well let me tell you one thing, you are going to pay taxes every year, without a doubt.  Unless you really want to go to jail or debtors prison, you are going to pay taxes every year.  And if you’re properly structured you can save a good deal in taxes.  And that’s because of something called self employment tax.  We’ll get into all that but for the business that’s making, let’s say, twenty-five to thirty-five thousand dollars per year, there can be tax savings that amount to thousands of dollars.

So what would you do with an extra two thousand dollars in your business that you saved in taxes?  Well you could take that money and invest in a whole myriad of web enhancement activities.  So there are monetary issues from the standpoint of immediate tax dollars but there’s also liability issues.
Jay: That’s it Sterling, you’re not allowed to drive anymore.

Sterling: Yeah.

Jay: I don’t want you going out and hitting anybody and putting us at risk.  So what I’m hearing here is …

Sterling: Well at least we’ve got an LLC, so ….

Jay: Yeah, good thing.  So there’s all these points of weakness it sounds like and the whole point is to protect your own personal car, your own personal bank account, your own personal house against these potential risks that your business faces.  So I guess the question that comes to my mind now is how early in the process do you need to protect yourself.

As soon as you decide you want to start a business should you start this?  Or is it ok to wait and see if your business is going to make money before you start your LLC.  What would you suggest to a business person in that case?

Darius: Well there’s different hats that I wear.  And I’ll answer the question based on what hat I’m wearing.  If a client came in to see me and they said, “listen I want to start a business, what should I do?”.  As an attorney I would say, “look, here’s the liability issues; here’s the deal – you’re going to be dealing with maybe a partner, or maybe an associate; you guys are going to have, or you two girls, or whoever’s doing it – you’re going to have all sorts of relations between you; you’re going to have issues that need to be disputed and profit splitting – the attorney in me would say, “yes, you need to set something up immediately, before you begin business.”

Now, a lot of people start businesses in real estate or start business on the internet and do all different sorts of businesses and they’re not really sure if it’s something that they want to do.  So the pragmatic person would say, “well, maybe I’ll just wait until I start making money then I’ll set everything up.”  Well, that’s not necessarily a horrible way to go but the problem is that what most people do is they end up waiting years and years and they just get busy with their business and they don’t do anything.

And so they end up getting relationships together with other parties who want to be involved in the business and they have no agreements; they have no idea how to split profits. And then it ends up snowballing to where they’ve been in business for 3-4 years; they’ve already now paid thousands and thousands of dollars in extra taxes.  They’re not structured correctly.  So there is a point, and for each person it’s going to be unique.  But it’s kind of like the analogy of driving without insurance.  You can drive your car without insurance for two years and maybe never get in an accident.  And then there can be somebody that just pulls out of the driveway and they just smack somebody. So you really can’t say.

But I can tell you that the person who in the first year of business expects to make some money, at least more than a couple thousand dollars, they probably are going to be much better off having an entity that is properly structured so they can take advantage of some of the tax savings that will come from splitting income between some of the different tax brackets that you can with a properly structured business entity.  If you’re really small and you’re making twenty-five thousand dollars per year, you’re going to be throwing away a couple of thousand dollars a year just because you’re being taxed in a manner that’s going to make all of your profits from the business subject to what we call self employment tax.

And we can get into that more, but even for the small business, that extra couple thousand dollars a year that you’re paying into Uncle Sam really isn’t in the best interest of probably where you want to go.  Since you could take that money and you could put it into other activities like marketing promotions and everything else.

Sterling: Oh yeah, completely.  Now that everybody knows that they need a protective entity and they should start it right away, what are the different entities available and when might the LLC make sense over a corporation like an S Corp or a C Corp.

Darius: Well, here’s the interesting thing about it.  The LLC is a tremendously flexible vehicle.  An LLC stands for Limited Liability Company.  It tends to be the most popular entity for small business owners these days, also for internet businesses.  One of the reasons why it’s very popular and very …  {INAUDIBLE} … it has tremendous tax choices.

So really these days we don’t exactly think about entities in terms of, well do I choose a C Corporation, do I choose what’s called an S Corporation or do I choose an LLC. What you can do these days is you can choose the tax treatment that you would like for your LLC.  So you can start with an LLC and then you can choose the type of tax treatment.  So I guess I’ll qualify that question by saying, the question really is, what type of tax treatment makes the most sense?

And generally for most small business owners an LLC that is taxed under what’s called subchapter S makes the most sense.  And a lot of people have heard of a subchapter S Corporation.  The LLC tax under subchapter S is very similar.  And what that S designation means, we say S corporation, subchapter S LLC.  All that really refers to is a section in the IRS code that allows for a certain manner of splitting up earnings in the company.

So a corporation could choose that, an LLC could choose that.  But because the LLC’s are so flexible and don’t require as much formality as corporations, usually if you’re going to use this S election, this subchapter S choice, there’s usually some great advantages to using an LLC for that subchapter S choice.  And if you have time I’d like to get into some of the reasons why that subchapter S election is pretty important.

Sterling: Well and you know, that’s actually one of the things I contacted you recently on was because my CPA was talking about that and said to talk to a lawyer about if my LLC is put together correctly so I can figure out if I need to do this subchapter S, yeah if you could tell us a little more about that, that would be great, especially for me.
Darius: Sure, yeah exactly.   Well the subchapter S is a section out of the Internal Revenue Code, the IRS code, and that’s where you have all your IRS tax rules, in the Internal Revenue Code.  And what it allows for is a certain type of tax treatment that is very beneficial for avoiding what we call self employment taxes.  Here’s an interesting story and I’m sure everybody can relate to this.  You may remember if anybody, let’s say, is a wage earner these days.

And you started, let’s say, your first job, I remember I was sixteen and I was sacking groceries.  And I remember I was getting paid something like three dollars and fifty cents an hour – let’s just say it was four dollars an hour.  And it probably wasn’t that much but let’s say it was four for the sake of keeping things rounded.  Four dollars  an hour and I had worked let’s say ten hours. And I thought well I should get a check for forty dollars.  Four times ten is forty.  And so you may plan out what you’re going to spend that money on.  Well, basically what would happen though is there was always a certain amount taken out.

There was about seven and a half percent was taken out.  OK?  And you would always say, well, why isn’t it that I got the forty dollars that I was going to get?  I worked ten hours I was paid four dollars an hour, why didn’t I get the forty dollars?  Well that’s because there’s something called FICA.  And those are self employment taxes and half of that money comes out of your paycheck as an employee.  You pay that.  OK?  The other half of that is paid by your employer.  So at the time I was working at Safeway, many, many years ago sacking groceries as a young kid.  Well Safeway paid that seven and a half percent , it’s actually seven point six five percent.

And then I had to take … and then that seven point six five percent was taken out of my paycheck.  I was going to say I had to take it out but I didn’t voluntarily take it out, they took it out for me.  So I lost seven point six five percent basically of the money that I had made.  Now that does go into social security, retirement, and all that thing.  But at this point for most of us that are pretty young, I think that that’s, without making a political commentary here, that’s kind of a risky proposition to think that you know, you’re going to see that money again.

You may, you may not.  For most business owners, the idea is to minimize those self employment taxes.  But here’s the biggest problem, guess what happens when you own your own business?  OK?  Now remember when I was at Safeway, they took out seven point six five percent from my paycheck and Safeway paid, they contributed, seven point six five percent. Well, now that I own my own business, if I’m not structured correctly the fifteen point three percent that represents the total of those two seven point six five percentages, that’s going to be paid by me.

Why?  Because I am the employer and the employee.  In this case, I’m Safeway and I am the sacker because I own my own business.  And in that event, I would pay the fifteen point three percent off of my taxable income.  Does that make sense?
Sterling: Yeah.

Darius: So one of the huge advantages of subchapter S is that you can split income that is earned in the company and split it between salary income and what are called dividends or small business distributions.  And when you split it that way, you’re able to save a great deal of money on the self employment taxes.

So for most smaller businesses that are earning less than eighty, well actually if your business is earning somewhere between … {INAUDIBLE} … hundred dollars to probably around one hundred and seventy thousand dollars that self employment tax is going to be a big issue.  So for most internet entrepreneurs that are starting out, those are some immediate tax savings right outside the gate.  And an LLC can choose to be taxed under that subchapter S.

And that is why it’s a tremendous advantage.  Now you could choose a corporation tax under subchapter S, but corporations require a lot more formality, they require meetings every year that you would want to do anyways but the problem is that there are certain things called formalities and if they’re not complied with you could lost protection.

Jay: So what are some of the common misconceptions regarding LLC’s and liability protection?  There’s probably a lot of assumptions that people make about things that could really come back around and bite them in the end if they’re not aware of them.  So what are some of those common misconceptions?

Darius: There’s a lot of things.  And I think this ties in really well with what we were talking about when we were talking about formalities, and talking about the idea of a business structure.  The LLC is favored by a great majority of people because of the fact that they’re less formalities imposed by the state.  When we said earlier whether or not an LLC or corporation is the right choice I said, these days it’s not so much whether an LLC or corporation is the right choice, it’s usually for most people what is the right tax selection for my LLC.

And that’s because really with an LLC you can choose to be taxed in a number of different ways. You can choose to be taxed in a corporation as a C corporation, as a S corporation or as a regular LLC.  And the reason the LLC is advantageous is because state statutes for virtually all states do not require as much formality as corporations.  In fact I would say for all fifty states and D.C. that formality is not as strict.  Corporations are required to have meetings of shareholders.  They’re required to have meetings of directors every year.

The failure to hold those meetings will cause you to lose your status as a corporation in the eyes of the states.  Additionally, when you make certain decisions, you have to put your director’s hat on with the corporation.  You have to put your shareholder hat on and sign your name as a shareholder.  There’s a lot of formalities that you have to do so corporations can become very cumbersome for the small business owner.  Most of the time it doesn’t necessarily warrant the expense of all that formality.  Particularly since you can choose to use an LLC as your structure but have it taxed in, like I said, in all those different ways.

And another thing is the less formality you have to deal with the less likely there are to be any errors or mistakes.  So that’s where the LLC becomes a very favorable entity.  The other thing about LLC’s that is tremendously important that you do not have with corporations – and if you get nothing else out of this today, please get this – is that LLC’s have what’s called charging order protection.  And I’ll explain what that is.  Most business entities if set up correctly will protect your personal assets from activities that occur in the business.  Somebody says you violated our agreement.  I’m going to sue you.  I’m going to sue your business.

Provided that you ran your business the right way, they would be limited to only suing your business.  So they would also be limited to the assets in the business.  So here’s the issue though with corporations.  Corporations, however, generally will not protect your business assets from personal liabilities.  Now I know that sounds kind of like a play on words but let’s think about that one.  In the event, let’s say, and we’ll use the horrible car example again.  Or we could use another one, but that’s the one that always comes to mind.  Let’s say you’re driving and you mangle somebody and we’ll use the same exact numbers here.

You have a five hundred thousand dollar insurance policy.  The person is really hurt, disfigured, disabled.  They sue you for a million.  If you had a corporation set up and you were driving in your own capacity as an individual.  You were driving alone on Sunday with your family.  You were not engaged with anything related to the business.  They would sue you as a person, personally because you were not acting on behalf of your company. You were just acting on your own.

What would happen though is if your personal assets ran out but you had a million dollars in your corporation.  The problem with corporations is that corporate stock, the stock shares that you receive when you own stock in your own corporation, that stock is personal property. It is not protected if you are sued personally.  A creditor or someone who is trying to collect against you would be able to seize that stock in your corporation.

That’s because the laws of all fifty states and D.C. for the most part, do not protect corporate stock from personal liability.  The corporate stock is what’s called personal property.  And as a result, if you’re sued and a creditor, someone who sued you and won, wants to collect what they would do is they would get an enforcement order and they could go a number of different ways.

They could get onto your property with a judicial order, they could have the sheriff with them and go into your house and start seizing assets until they find enough assets to equal the amount that they’re owed. And I keep up to date with all this stuff because I’m a Texas attorney. I go to a lot of these recommended courses that we have to take for ours, but I spend all my [inaudible] in editor collection classes in the business [inaudible] classes.

The reason is that there’s a group of attorney’s out there, and what they do is they collect money on judgements, and they had folks get money out of cases after someone’s won a case. And it’s a necessity that you have an attorney to do that, because there are cases where people are really hurt and situations are raised. But there also is a lot of situations that are frivolous, that are unscrupulous, that really shouldn’t occur. And I go to these classes to learn exactly what they do. And most attorneys, if you have a corporation, they are very, very happy.

The reason – there is no business protection from personal liabilities. In other words that corporate stock is sitting out there, they can seize it. Once they take the stock, which would be that piece of paper – the stock certificate – they can control the business. And what they would do then, they would vote to dissolve the business. Why? Because they would want all of that money or whatever assets are in there to flow through to you and then they can basically get after it.

In fact, at one of the recent trainings that I went to, it was in May. They talked a lot about internet domain names, and they talked about how to find value in this person that you have a judgement against. And they said, “What does the guy own, or the girl own?” And they were going through okay, did you check this, did you check this, did you check this? Because in most states, once you get the right to collect and you get what’s called a receivership turnover, things are owned. It’s not exempt according to state law; I mean you can take.

So one of the things that came up was website domain names, and they were saying there’s a lot of value in domain names. Well that’s just one example that if that was owned by a corporation or personal, bam, it’s wide open. The LLC has what’s called ‘charging order protection,’ and I know this has been a real long example, but this is a detailed area. But the advantage you’ll get with the probably run LLC is that in the same situation you hit somebody with a $500,000 overage and your business was sitting out there thriving, those creditors for the most part would not be able to get to the assets of the business. They would have a very tought time.

Sterling: They could come after it if it was an S-corp or a C-Corp, but with a LLC it has a large amount of protection.

Darius: It has what’s called Charging Order Protection. And the reason Charging Order Protection is in place, and this goes back…we’ll go all the way back to England where we’ve got most of our law firms. And the reason why we’ve got to go back to England is that the business structure that the LLC sort of derives from and derives some of it’s heritage from is the partnership.

And I want you to compare for a minute a common company like Dell or Microsoft. They sell stock to hundreds of thousands of people, and so imagine you’re in the grocery store and you walk by somebody and they’re a stock holder, and it’s the same company you hold stock in. You guys both own stock in Microsoft. Well you don’t know him and he doesn’t know you and you look at each other and pass, well that’s because end companies are where you’re going to sell large numbers of shares to individuals over a hundred or more.

Then generally people use corporations, okay? And for that reason the ownership of the corporation is not really considered a very personal matter, or a personal decision because stock is traded, it changes hands. And you can just look at some of the large companies and see that that’s the case. Well with partnerships, the partnership is deemed more kind of like a special relationship. You would choose a partner because you find that someone has a certain skill or personality that’s unique. One person may be very good at the technical side, the other person may be really good at rainmaking or bringing in prospects.

So anytime you’re in any type of business, particularly internet business, you’re going to have some folks who are technically savvy, you’d have other folks who are better at bringing in clients or coming up with marketing ideas. And so there is a marriage there between the two parties. Well, because partnerships are generally smaller and there’s a much more intimate relationship that’s deemed by the law, there’s not that ability for someone to come in and seize the partnership interest. That’s because you choose to do business with one person, and the laws of each state protect that right.

So even though somebody may obtain a judgement against your business or against an individual in the business, they cannot come in and they cannot take that person’s ownership in the business. So if I go do business with a friend of mine and we both are members of the LLC, and let’s say he gets in a situation personally. He’s driving his family to the amusement park, he hits somebody, there’s a $500,00 debt out there, that creditor cannot come in and crack open my LLC and say, “Hey guess what guys? I’m the creditor and your new LLC member, or the new partner.”

They can’t do that, because there’s a Charging Order Protection which means that that individual can only try to get any money that may be distributed out of the LLC to my friend, but he can’t come in, can’t disrupt operations, certainly can’t open it up and pierce it, and get in. Now if it was a corporation, totally different ballgame. And you guys can summarize this any way you want, I’m sorry. If you want me to do a shorter explanation I will.

Sterling: That’s fine, I think we’re going to actually probably end up making this into two interviews. What do you think Jay? We’ll do a part one, and part two.

Jay: Yeah, that sounds good. It’s a lot of good information, it’s definitely stuff…I’m already taking notes on a couple of things that’s good for me to know.

Darius: I know, and then we start getting into…there’s a lot of other stuff I’d like to talk about too, like buyback agreements and buy off agreements and all that kind of stuff too that I’ll just kind of work in and you guys can do with it what you want. But it’s pretty important.

Sterling: I learned a couple of years ago, I read as much as I could about LLC’s and stuff. And then I actually went to an attorney of a friend of the family who told me about the LLC and explained some of the stuff basically, but even with all that I read and thought I knew, stuff you’ve said today, I totally didn’t know. And luckily I was directed correctly as far as having the LLC and stuff, but there was a lot of that stuff I had no clue about.

And what we wanted to do for our people is, we want them to have the benefit of learning more than what we knew if that makes sense. Like they shouldn’t have to go through what we went through, that’s what we’re trying to do for them.

Darius: Well yeah, that’s a reason I do this because there’s so much we all went through, that’s why we’re in this.

Let me just summarize and say that generally the LLC can use the exact same tax treatment as a corporation, or it can choose it’s own tax treatment. And for most small business owners that are starting out, tax treatment under what’s called Subchapter-S or an LLC tax under Subschapter-S is going to allow you to minimuze that self-employment tax and allow you to maximum the profitability of your business.

The second thing is, the LLC has some very powerful asset protection benefits. The first of course being that is requires less formality to run. Less formality, less meetings, less protocol means less mistakes. And the reason that’s important is, if you’re ever sued, and your web business is involved in the suit, one of the first things that the attorney who is bringing this will try to do is to try to sue you as an individual as well.

And they are going to bank on the idea or the possibility that you did not run your company correctly. And if they can prove that, then they can go through you and the LLC and now they have two sources of funds. What they necessarily don’t want is an LLC that’s going to stand up. And it’s going to stand up, because then they can only go after what assets are in the company.

So running it is important, less formality means less mistakes and that’s good because mistakes are things that if anything is ever brought to court, those would come out and they could cause you to lose that protection. And I can tell you a lot of stories about that, but let me just say that the folks that go and if you got and you have an attorney set up an LLC for you, or you have sort of like an instant LLC created, if you don’t know how to run the entity, and you don’t have information on some of the formalities and the absolute steps that you have to do right after you form it, that first meeting – what you need to do, what controls you need to put into place that if you are ever sued or if it’s every called into question, basically you’re going to be in big trouble.

And that is one of the key reasons why the information on this stuff is so important.  I mean you can go anywhere and find someone who can set up a LLC. And they set it up for you, they charge you $600, and then you’re done. But it’s like having a fancy Ferrari that you buy and you spend all this money on and nobody tells you how to run it or how to maintain it. So you go drive it around and you have no oil in the crank case, what’s going to happen?

Sterling: Yeah, it’s done.

Darius: Kaboom, it’s done, and that’s what happens with business entities, there’s a lot out there to set them up, there’s a lot of people that are trying to do it for you because it’s quick money, it’s pretty easy to do. It’s about as easy as filling out a driver’s license application or job application, or anything else. It is not hard, and if you in turn can make $600 or $700 on that, whoo, great! But what they don’t do generally is show you how to run it. And that can take hours and hours and hours of attorney fees, which is $200-$250 an hour. It gets costly.  But that’s what I wanted to say about that.

Sterling: Great, well now that’s where making sure we’re doing this correctly, how careful do internet entrepreneurs need to be about checking the availability of their desired business name?

Darius: This is a great question, and the example I gave you regarding the gentlemen that called me this week, I mean it’s amazing some of the stuff I get. I get people calling me and telling me all sorts of things and it’s sort of like I spit in my eyes and I go, “Oh god, don’t tell me they didn’t do that.” And one of these individuals, it was this situation where the attorney had filed the paperwork, but they had never checked for any other trademarks.

And that’s a huge issue, you want to be sure that the business name that you choose does not have any trademark issues, meaning that it’s not been registered as a trademark. What most people think is, well I’m going to set up a business, let me make sure the name is available. And so they come up with this snazzy name, Starbucks Coffee, great! It’s available! There’s not Starbucks in Alaska, and I’m filing in Alaska. There probably is one, but let’s say it was Starbucks. Oh, there’s no Starbucks on file in Alaska! Oh great, the corporation divisions will let me file my LLC name as Starbucks.

Well guess what? Could there be a Starbucks doing business in the United States under that name or a company with the name Starbucks? Well yeah, we all know there is. So whether or not the secretary of state…that’s the entity that you file your LLC paperwork with, whether or not the secretary of state will approve or not does not mean that you haven’t done an adequate name search.

I mean that’s kind of the first level, the trademark issue is the big one and most folks who are doing any sort of internet business as well need to think about that, because the domain name is similar in that let’s say a domain name is available. You got to Name Select or one of these others, and you say okay, let me see if ABC Flowers is available. Oh great, it’s available! I’m going to do it, that’s how I’ll do my business, under ABCFlowers.com.

Well guess what? There could be an ABC Flowers that’s doing business that’s using that as a trademark, just because the domain name is available doesn’t mean it’s trademark protected. One of the things that we’ve done in this program that’s really neat that will help folks who are also trying to determine that their domain name is a trademark is, we go through all the nuances of trademark searches.

Because whether you’re setting up a LLC, corporation, or you’re setting up a domain name for your website and trying to choose one, you’re going to need to search the federal trademark database, and you have to know how to do that. And we’ve spent time going through that because it’s very important. So I would say be sure to answer that question, yes it’s very important. And it’s something that we’ll show you how to do that you can use in a lot of different areas of your business.

Jay: So there you go, that’s part one of the interview with Darius, and we’ll have part two in the next episode. For those who are interested in more information about Darius and the course that he’s got called the Wealth Building LLC, you can go to InternetBusinessMastery.com/LLC. We definitely wanted to let you know about that, a lot of Internet Business Mastery Community members have already bought that course and put it into good action. That’s the one that we use for putting together our LLCs as well.

Sterling: Alright, we also want to let you know about our new call in number for any comments that you might have that you might like to get on the show. It’s 877-877-7507. Again that’s 877-877-7507.

Jay: That’s a lot of 7’s.

Sterling: Yeah it is, whew!

Jay: Must be good luck if you call that number!

Sterling: Well if you get your comment on the show, that should be pretty good luck huh?

Jay: It should be. Alright, as usual we’ve got a breakthrough that we want to share with you from the Internet Business Community. This one comes from Ron Davis, and this is something he shared in the Internet Business Mastery Academy Mastermind Forums. This is what he had to say.

He said, “My big breakthrough was to get my podcast going and into iTunes. At the beginning of the month, I only knew I wanted to do a podcast. Since then, I wrote a manifesto, recruited a co-host, bought and figured out recording equipment, repurposed old content for prequel episodes, created all the related content for the podcast, and submitted it to iTunes. It’s called the Shooting Beauty Model Photography podcast, and if you go to GlamourApprentice.com and click on ‘podcast,’ you can check that show out.

And just to make sure glamour is spelled with an ‘our’ – GlamourApprentice.com. I also want to mention, I mean that’s a lot to get done in one month so it’s a very cool breakthrough.

Sterling: Congratulations, that’s awesome.

Jay: He’s been definitely taking some massive action there with his podcast, and that was actually a little while ago. I’ve been holding on to that breakthrough because I didn’t have a chance to share that one, but it’s been doing quite well for him, that podcast. And he’s still trucking along with it, so excellent job Ron.

Now another thing I want to point out is I remember…I mean Ron’s been a long time member of the Academy. He joined at the very beginning when we first launched it, and at first, he was doing a very cool thing called Distinctions For Life. I’m not sure if he’s doing that still a little bit as well putting out some videos and things, but he also kind of had in the back of his mind, apparently he’s been doing photography and model photography for quite some time.

So he had in the back of his mind that that’s something that he really wanted to tap into as well, and so what was really cool was I remember a few months into the Academy being up and him working hard on this Distinctions For Life thing, he kind of decided you know what? This other glamour photography thing maybe fits better the things I want to do. So what was awesome is he quickly shifted gears and immediately started putting up a blog. And again, that’s one of the awesome things about internet business is that you can shift gears quickly like that.

If you find that something’s not a good fit for your definite major purpose or maybe you find that the market’s not working out as well as you thought, or whatever the case might be, you can shift gears on a dime, just boom like that. So that’s another little tidbit I wanted to share about Ron’s story right there. So thanks for sharing that breakthrough with us Ron!

It’s time for the Internet Business Quick Tip…

Jay: On this episode’s Internet Business Quick Tip, we’ve got a click tracking tool that we love using especially on our newsletters and Twitter to find out how much people are clicking on things. It’s a very good metric to know, it definitely lets you know what’s popular. I mean when somebody clicks on something, it shows a certain degree of interest.

So as we’re sharing and testing lots of things that we throw out on Twitter to see what gets the most clicks, that gives us lots of insights about maybe content that we’ll take over to the blog or into the Academy or onto the podcast and things like that. So we like to regularly track the number of clicks. In fact, I don’t think I put anything on Twitter without using something that tracks the number of clicks because I want to know what’s interesting people.

Sterling: Yeah, there’s a lot of things you can use this with. You’re talking about tracking and that’s what I do, but I also test time of day. Like I can put the same Tweet one day at 9:00 in the morning, and one day at 4:00 in the afternoon just to see which one gets more clicks. Do people click more in the afternoon, or more in the morning? More at lunch time? I mean there are so many things that you can do with this BudURL, I just absolutely love it!

Jay: So yeah, the site is BudURL.com, and they’re constantly improving their service. There’s a free version as well as some paid versions as well. And just today they sent out an email with some new features that they’re working on, some stuff that sounds really cool. So we definitely highly recommend this, and like we said there’s a free version so you can start testing it out right away. So take a look at that – BudURL.com. So I guess the Quick Tip is to take a look at that and put it into use, and also the side and maybe even more important tip here is that you should be tracking everything that you put out on your newsletters and to Twitter and see what people click on because this is extremely valuable information when it comes to knowing what kind of content your market enjoys. So give that one a try.

Sterling: Yeah, definitely. I was going to just mention that because of BudURL, yesterday I put out two Tweets – Twitter posts – and one is about the outsourcing blog post that we talked about. And this was yesterday, which was actually a Sunday afternoon, and I got a 109 people clicked it so far, and I also talked about a book I’m reading called Atlas Shrugged, and I got 67 on that one, and that hasn’t…I guess it’s been twelve hours.

Sometimes depending on how many people you have, I’ve gotten up to 400 people click, and I would never have known that without the BudURL, or something that tracks my clicks. And again, like I said before I know which times of the day, what days, all that kind of stuff. So definitely check it out and start adding it to your newsletters, Twitter posts, even blog posts.

Sterling: Now if you’ve like dozen of other resources such as this one, you can find them in the Internet Business Mastery Academy along with video tutorials of us showing you exactly how we use them. And to get a 30 day no risk trial membership to the Internet Business Mastery Academy, visit freeaudiogift.com.

That’s it for this episode of Internet Business Mastery, until next time we wish you ultimate success in your internet business.

You’ve been listening to the Iconiclass of the 9 to 5, and the purveyors of freedom and fulfillment – Sterling and Jay! Sterling and Jay invite you to discover one of their most popular audio programs ever, the free builders of designing your ultimate internet lifestyle! Visit freeaudiogift.com now and sign up for the free weekly Internet Business Mastery email newsletter! And you’ll get instant access to the life changing audio presentations, pulled directly from the content of the acclaimed Internet Business Mastery Academy membership community. Go now to freeaudiogift.com! Internet Business Mastery – free your mind!