Hey everybody, hope you’re doing well. Economic Ninja here. I’m here with Ted and Garrett Sutton from Corporate Direct and I’m going to talk about what every business owner needs to fear right now. And the sad thing is, is you probably are going about your business, making money and everything’s good and you’re not afraid of this and you need to be because this kind of fear is going to lead to making money by saving money and that is having the proper entity formation. You know, we all talk about, like I talk about economic cycles all the time, right? Business booms and business busts.

We all know that stuff. We all remember the dot-com bust. We remember the housing bust and pretty soon you’re going to have the everything bust, right? It’s true. Everything’s imploding. But I’ve been working with these gentlemen for a long time and it blows me away how many sole proprietors we still see in the nation. I see people that don’t realize they have a business, they have a side hustle that could instantly be turned into a very legitimate business and be making them a lot more in tax write-offs legally. And so what I did is I set up, I mean, I met Garrett in 2005 and I met Ted, what, about a couple years ago? And your corporate law, right, was your thing.

And what did you finish in with your strength other than writing a million awesome books? Corporate law, ask for protection. And you’ve been a pioneer in the space because you’ve created like Armor 8 and all this kind of stuff. But one thing I want to ask you is what’s the biggest mistake that most business owners are making right now by not having an SD or what are they doing wrong with theirs? Well, a lot of people will listen to their CPA who many of them will say, you’re not making enough money yet.

You don’t need an LLC or a corporation. Build a hundred grand for an escort? Yeah. I remember that. So, you know, if you listen to your CPA, and I say that CPA stands for cannot protect assets. Or do taxes sometimes. Right, exactly. But if you listen to your CPA and you think, oh, I don’t need a corporation or an LLC, then you’re operating as a sole proprietor. And as a sole proprietor, everything you have is exposed to a claim against your business. And it’s so easy to set up an LLC and just have that protection.

It doesn’t matter how much money you’re making right now. It matters what you’re going to do in the future. And if you go into the future continuing to operate as a sole proprietor, everything you own, your house, the equity in your house, your bank account is exposed to a claim against your business. It’s so easy to set up an LLC or a corporation and be protected. You know, I love that. And I don’t want to piss off a lot of CPAs in this video, but I just did. And it’s true that I had my first CPA, my first S Corp, which S is a designator.

My CPA set it up and he didn’t do it right. And at that point, I was making over six figures a year in my real estate flipping business, but there was a lot of holes. What is something that people can… Because CPAs are like, a lot of them are historians, they’re not tax planners, right? Tax planning and bookkeeping or tax preparation is so different. What else are you seeing out there in the industry where people could be doing something better, not because they’re listening to the wrong people, but maybe they’re not listening to themselves and that gut feeling of what they should be doing.

Right. So I think you hit on one of them is that they don’t take the correct steps to set up their LLC, right? Yeah. You know, like my dad says, there’s people who just operate as a sole proprietorship, whether through the advice of their CPA or they just didn’t want to incorporate. And it’s really important to set up your entity, right? Because it’s the foundation for your house. So if you have that foundation in place, you set up your LLC, you do all the paperwork, you do all the filings, you’re going to be good to go.

So that’s one thing. I think another thing is that people don’t treat their LLC separately from their personal affairs. Because at the end of the day, setting up your LLC is only 10% of it. It’s how you treat it separately is the other 90%. So that’s, you set it up and then you treat everything separately moving forward. So there’s a lot of people who get careless when it comes to commingling funds. They use their business account for personal expenses and vice versa. They don’t hold annual meetings and have annual minutes, which is something that we harp on a lot is that you need to make sure that you’re treating everything separately and that you’re legit business.

And then another thing is just not having a registered agent. Yeah, I love that. So I’ll give an example of when I came in and I bought a property management company. And I love that Ted used the word legit. The first thing I thought of when I bought this company, I was coming in as a third equal partner was I need to make it legit. So I need a check from me going into their bank account. So now I’ve got some ownership, legal ownership if everything goes bad tomorrow. Then what they had in the state of California was a property management company that was under the wrong type of entity.

In that state, you needed to have a C Corp and they had an LLC. So that was wrong. And as a property management company, I immediately saw an opportunity and I called these guys and I’m going to put a link down below that’ll give you $100 off and a free consultation. Now I didn’t need the consultation because I’d already had a handful of entities that Garrett had set up years ago, Garrett’s company, Corporate Direct. I saw two opportunities, not a property management company, but a real estate brokerage and a construction company.

Well, now we went from owning an LLC to owning two C Corps. And it’s really important that the documents are done right. So I paid them to do it. It was super inexpensive compared to other legal professionals I’d use. And this is going to sound like a commercial because it is. Okay. I’m telling you, I’ve used them on what eight entity formations now for, I’ve done LLCs, C Corps. I’ve had S designators put on the ones and there’s really important things like filing deadlines. Like with the NAS Corp in the state of California, you have so much time to file as an S Corp because the state is rough.

We all know that, but they do them in every state, right? So I’ve got Wyoming’s, I’ve got California, I’ve got Nevada, I’ve got all over the place. But my point being is that one thing that they do, which I really appreciate is they can not only do the initial formation, but then they can keep up with the documents later for a very minimal fee. And I always have them do that. They make my corporate meeting minutes each year. They also do the registered agent service, like you were talking about, right? People don’t have that because you not only want anonymity, but in another video we did, registered agents are important because if you have our suit, you need to be able to, so you don’t get a default judgment, you said.

You want to know that you’re being sued. A lot of people don’t want to know. You see these videos of people running away. See, here’s the thing. If you don’t get no proper notice and they get a default judgment, good luck trying to get the insurance company to cover a claim. As soon as you get sued, you want to call your insurance company and let them know, and they’ll get an attorney on your side. But running away from a judgment is not a good idea. You need to stand up and make sure that you are going to be heard in court.

I love that. And then what if you guys, either of you chime in, when somebody goes from a sole prop or sole proprietorship to an LLC or a C Corp, does that change how you’re viewed in the business world? It does. How does that work? Well, there are two things. One is when you have ink or LLC on your business card, it just shows that you’re acting in a professional manner. And people respect it when you have a formal entity to work through. It’s a sign of professionalism. You know, it’s funny you say that because we just formed a new company, and it’ll be one of the biggest companies in the I believe in the next handful of years.

And I’m going through texts with the CEO and the COO, and they’re like, ink or LLC, you know, not ink or a corporation and all that stuff, like which one’s better? And people are chiming in old stories of what’s more powerful, you know, but they don’t understand how important a name is or a designator. I love that. Exactly. You want to put people on notice that you’re a corporation and have protection instead of being a sole proprietor. I have plenty of horror stories about that. The second thing, though, to your question, Ninja, is that the IRS realizes that if you’ve taken steps to incorporate or form an LLC, you’re serious about business.

If you operate as a sole proprietor, the IRS has this attitude that maybe you’re fudging the numbers, maybe you’re playing games. The audit risk for a sole proprietor is five times greater than that of an LLC or a corporation. And I actually know the exact reason why that is. And this is why. Because the IRS, when you’re under a sole prop, and let’s say you’re riding off your car, they get to see it all. They look down and they go, whoa, you got this much income in your job. You got this much income in your business.

You wrote this off and that off, but that seems like you’d be using that in your personal business. But with an LLC or a corporation, you file that first, and then you have what’s called flow through. You know, you get your profit and loss from your LLC or your S corp. And then those gains or losses flow through to your personal. And so they are looking at two different records or two different write-offs at different times. Right. Right. And so the sole proprietor, again, the IRS just has this prejudice against them because it’s so easy.

It’s the low hanging fruit. Too many people, if they’re not incorporated, you know, maybe they’re not doing the bookkeeping right either. Yeah, totally. You know, so the IRS figures we can go after these people because so many of them aren’t doing things properly. They’re not doing the books properly. They’re not, they haven’t taken the steps to protect themselves. The IRS also thinks, well, how serious are you in business if you haven’t incorporated? Yeah. Right. I totally agree. So you’re so much better off by setting up the corporation or an LLC. Yeah.

And just to clarify something, when I made the joke about a commercial, I’m not being paid to do this. It’s an affiliate link, right? You get a hundred dollars off, I get a hundred dollars, everything’s out in the open. And I love how we structured that because this is a product that I really believe in and it helps people. But you also get that 15 minute consultation. But this is what I suggest and he does not know I’m doing this. There’s a lot of books. I don’t know why, but Garrett loves to read, write books.

I have a hard time reading or writing, but they’re amazing. And what is it, veil not fail is your most recent. I highly suggest before you do this, read the book or skim through the book. Watch, this is his channel, Tenero. I always forget. Tenero. What does it mean again? Well, Tenero de Nero in Spanish means to have money. Okay. Gotcha. So Tenero de Nero, we shortened to Tenero. Yeah. And I think I was telling you that you got to start a YouTube channel a while back, right? Yeah. And it’s important, right? So get to know their minds before you have that 15 minute consult.

And I guarantee it’ll feel like an hour because you got a ton of info because you asked the right questions and it’s a lot easier than you think. So Ted, do you want to close on anything? Yeah. So, you know, there’s a lot of free information out there. Corporate Direct also has a YouTube channel where I post videos once a week. There’s a bunch of videos, a bunch of shorts. If you have any questions about anything, you can just go to the channel, type in whatever you want in the search bar and there should be an answer for you.

Yeah, that’s pretty sweet. So yeah, do that before your free 15 minute consult and yeah, it’ll go work. Yeah. So stop and hopefully you have a good healthy fear for corporate legal liability with your business because all I’m going to see is you guys crush it and you can’t crush it if you’re burdened with lawsuits or bad with the IRS. Okay. Thank you guys so much for joining. Thanks, Ninja. It’s like the most mellow I’ve ever been. What did I eat before this? With the employers. I’m getting ready for it. Yeah. The economic Ninja is out.

It’s nice. Sweet. [tr:trw].

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