Episode 25: Inside Experts: All Things LLCs W/ Joel Ankney

Welcome to the 25th episode of the Self-Employment Success Podcast. I am excited to welcome back Joel Ankney to the podcast. Joel is the founder of Ankney Law- a successful law firm specializing in helping entrepreneurs buy and sell businesses, as well as commercial real estate transactions and small business support. He joined us back in episode 13 to share his success story and how he got to where he is today. Today I welcome him back to the podcast as an inside expert to discuss all things LLCs. In this episode we talk about the common questions and misconceptions that we come across working with business owners around LLCs from a legal and financial perspective. Joel wrote the book on most of these questions- literally he wrote a book about them, go check it out in the show notes. LLCs are incredibly important and powerful, and yet there is so much misinformation out there about them, so I am excited for us to provide some education and clarity to the topic. So with that introduction, I hope you enjoy this episode of the Self-Employment Success Podcast with Joel Ankney.

LINKS:

PeaceLink Financial Planning
Ankney Law
Joel’s book on starting a business!

TRANSCRIPT

Leland (00:01.15)

All right. Welcome back, Joel Ankeny, to the Self-Employment Success Podcast. We're excited to have you back on the podcast today. Thanks. I'm excited to be here. I'm grateful that you invited me back. Oh, man. It's easy to have you come back. We for listeners, if you haven't heard, you can go back. Joel has an episode where he tells us his story, his journey through self-employment. But he also is a lawyer and an attorney for self-employed professionals, helping them do everything from

getting established on the front end to mergers, acquisitions and succession on the back end. And he's a wealth of knowledge. And I think with self-employed professionals, oftentimes the legal stuff, the tax stuff, these are the things that get people really caught in the weeds and that people get really anxious about. And so I'm hoping today that Joel can share some wisdom and some nuggets that will shed clarity or give you action items, whatever it may be to

tip it off to you, what is a nugget, a wisdom, a best practice, something you see that would be valuable for a self-employed entrepreneur? So I, you know, you asked me that question before we started and I thought I would have one answer, but here's the answer that's popped into my head right now. Don't believe everything you read on the Internet. You know, there is so much mythology out there about starting a business and...

running a business, mythology about the law side of things. And I think that's, you know, I spend a good amount of time and I enjoy that, helping to kind of dispel those myths. A lot of times those myths are, I mean, I don't know where they come from actually, but they end up creating more problems for people when the answers are typically pretty simple. What's an example of that? Yeah, it's a great example.

are a great question. So one example might be that you, you know, if you're gonna start an entity like a limited liability company or a corporation, that you should think about starting that company in a state other than the state where you're located, like Delaware or Nevada or Wyoming, because people think that

Leland (02:29.11)

those states give you some sort of additional advantage. And typically they don't, frankly. I mean, my advice is typically always just to start your entity in the state where your business is located. And there's some reasons for that, but one of the reasons is that you don't get anything really greater by going to one of these other states. And it can be much more expensive to.

to go into these other states. For example, if you form in Delaware, you have to pay somebody to be your registered agent there. You have to also pay somebody to, you have to have a physical presence in Delaware. And there are companies that will, for a fee, provide you with a quote unquote physical presence. But then if you're in another state, you're located in a state other than Delaware, like we're in Virginia. So if you're in Virginia and...

you may have to then qualify your Delaware LLC to do business in Virginia. So now you've got two registered agents, you've got two state registration fees that you're paying, and you're really not getting any benefit from it, frankly. So, my mic is awkward. All right. So, to recap, people, what you see is they...

set up their business in like Delaware because it's more advantageous from a tax perspective or like a business regulation perspective. And that's kind of the misconception. Whereas typically, yes, you can do that. But the headache, the other fees, the other like all the other costs and issues associated with that tend to not outweigh the benefit. Is that what you're saying? That's exactly right. Okay. And because you're going to end up well,

One of the reasons why people set up in Delaware is they think they're gonna get some sort of tax advantage. Typically they don't. For example, they'll say, well, there's no corporate tax in Delaware. Well, that's true in other states as well. In Virginia, technically there's no corporate tax for small businesses. There is a, the Beephole Tax, the Business and Professional Organization.

Leland (04:43.434)

license tax, the business license. You have a business license probably from the city of Virginia Beach. Yep. And it's a gross revenue tax that you pay every year. But if you're a Delaware corporation or LLC and you have to qualify to do business in Virginia, you're still going to have to get that Virginia business license and you're still going to pay that local tax. So another reason why people

like Delaware, I think Delaware is advantageous, is because Delaware does have, it's very corporate friendly and it has a very well established body of corporate law. But frankly, again, I mean, we're in Virginia. Virginia is fantastic. The business laws in Virginia are very favorable to business owners for the most part. And so you really, again, you're really not getting much of anything except...

more administrative tasks and more fees to pay. Yeah. I mean, that makes sense. And it sheds light because I've even thought because there's a lot of like financial institutions that do headquarter in Delaware. I mean, it's so close. I'll just go put a desk on the other side of the line. But I hadn't thought about the fact that so many states do offer similar benefits. And I didn't think about all of the administrative burden because I've had clients who've reached out and said, you know, should I?

have an office in Austin, Texas, just that I go to once a month purely to get some tax benefit or things like that. And again, my advice to them was like, that just seems like a headache. And like if you're going to fly to Texas every month, what does that cost? And so I do think you're right. There's this misconception that, hey, do different states provide different value? Should I choose one that provides a lot more value? And

I guess what I'm hearing is unless your state is just totally awful to businesses, which is just not going to be the case, it's probably going to be more advantageous to just go the route of least resistance. Yeah. Well, and again, part of it depends on the size of the business, right? So if you're a, you know, if your revenue is 100 million plus a year, it might make sense to do some sort of planning like that. But you know, for the most part,

Leland (07:05.622)

people that I represent aren't in, they don't have those two sides of businesses. And so, you know, when you're, you know, for example, this week I'll be forming a new LLC for a local therapist. And then I'll also be forming another LLC for a financial services company that's located elsewhere in a different part of the state.

a week or two ago, I formed an LLC for a business that sells domain names online. And, you know, those businesses are using a Virginia LLC. All those businesses are located in Virginia. Using a Virginia LLC is going to work just great for them. It's going to, you know, make really good sense for them. They're not missing out on any thing because the size of their business.

doesn't really justify some sort of creative approach to formation and location and things like that. Yeah, I like the point of does your size warrant, or does your complexity warrant creativity? Oftentimes we feel like we read a blog online and automatically assume we need to get really creative and it's like, if you're just a run of the mill business, you probably don't need to do that. You're just creating.

you're solving a problem that doesn't exist. That's where you're creating complexity that doesn't exist. Exactly, exactly. I mean, and here's the thing too, if your business explodes, if it grows, you can change. You know, you can, you know, I've done that for people as well, where we migrate a business from one state to another state, for whatever reason, either location changes, or they grow large enough that they think they want to try and take advantage of some creative.

structure. But you're right. I mean, when you're just starting your business, I think it's a lot easier and makes a lot more sense to just stick with your state unless your state is terrible. And I don't, you know. There's not one that jumps off the page of me that's terrible. No, no, no. And I mean, we're in Virginia. In Virginia, a lot of people don't realize Virginia is a really excellent state from a business law perspective for businesses. And so, you know, why...

Leland (09:31.058)

Why try and find some small incremental difference somewhere else when you're already in a state that's absolutely wonderful for startup businesses? Totally. Speaking of LLCs, I feel like a common question I come across. It's probably a weekly conversation is just misconceptions around LLCs. And I did a really quick What Works Wednesday episode on

how an LLC is not necessarily a tax structure. It can create tax benefit, but it's designed to create limited liability. So can you speak to, hey, I'm starting a business, or I'm thinking about starting a business, when to set up an LLC, why you set up an LLC, and kind of dispel, I just feel like there's so many misconceptions out there, especially on social media, people are like.

I just see things all the time that are just wrong. Yeah, I mean, can we have a whole conversation about what I see on social media as far as like, you know, if you, anyway. I mean, that would make a valuable episode. It is just, it sounds convincing and you look at it and I mean, truly I have people come up to me all the time. Like I saw this person talking about this specific insurance policy that's like a one size fits all for everyone golden ticket to wealth.

Like if it sounds too good to be true, it is too good to be true. Like if it's that good, we'd all be doing it. Yeah. Like and yeah, I mean, I think it's interesting. You know, you see these I spend a fair amount of time on Instagram and you see a lot of these reels pop up where they're like, you know, borrowed $200 from your mom, set up an LLC, get an EIN, go get a loan from and that's all garbage, man. That's like, sure, you can do that, but you're not they try and.

play it off as if you can avoid... Well, anyway, we just don't believe that stuff. Yeah. Let's not, let's go back to your question because I think it's a really good question. What is the advantage of having an LLC? So if you don't have an LLC, let's start there. If you don't have an LLC and you're the only owner of the business, you're starting a business and you're the only owner of the business, then what you have is a sole proprietorship. And a sole proprietorship...

Leland (11:51.214)

does not provide any protection from liability to the owner. So in the sole proprietorship, that means that your personal assets, your home, your cars, your bank accounts, things like that, they're all going to be subject or available to satisfy the business debts of the business. So if you have...

let's say you need some inventory and you pay $10,000 on credit for that inventory and then you can't pay the bill, then the creditor can come after your personal stuff, your personal assets. So that's the default. If you're in business with another person, you know, two or more people, then you have a general partnership. And it's the same thing. Basically, each general partner's

personal assets are going to be on the line to satisfy business liabilities of the partnership. So we don't like that. That's not good. We don't want that. We don't want that. We don't want our personal assets at risk because businesses fail and businesses have slow periods and businesses create liabilities that we don't want to risk our.

our personal stuff, our personal assets. So what do we do? So what we do is the law provides for different types of entities that can be created to create a shield in between your personal assets and the liabilities of your business. And one of them, you know, LLCs, Limited Liability Companies, really the default entity that we're using now. I've practiced long enough that I started practicing law.

when LLCs were just coming into existence and there were some states that didn't recognize LLCs and others that did, that all went away probably 20 years ago. So the LLCs are really the kind of the default, that's the entity that we should look out first and if there is a reason to use a different entity like a C corporation or an S corporation, then we can look at those as well. But the idea is that those three types of entities,

Leland (14:10.922)

Limited liability companies, C corporations and S corporations, they're really the same thing. A corporation just with different tax statuses provide, they create this shield in between your business liabilities and your personal assets. So what that means is that if you have a business creditor who is trying to get or collect on the debt against the business, that they cannot look through your limited liability company or your corporation.

to collect that debt, get it paid out of your personal assets. That's the biggest and the main benefit. And that's in Virginia, again, Virginia is extremely pro-business on this particular issue. And so there are, creditors can file lawsuits against people to try and get around the protection of the LLC or the corporation.

there's a fancy term for that. It's called piercing the corporate veil, where they try and pierce through the veil and get to your personal assets. But in Virginia, LLCs, unless you really screw things up, and we can talk about that, you're not gonna get through an LLC. You're not gonna be able to pierce that veil, that corporate veil. So they're very strong in Virginia and other states as well. But that's your...

your big benefit is that liability shield. So to summarize, when we start a business without an entity, an LLC, an S-corp or a C-corp, whether you're a partnership, whether you're a sole prop, you are the business, the business is you. Yep. So, and unfortunately we live in a highly litigious society, meaning you could get sued, you could take on a small business loan, have your business fail and still have to pay off this loan. And

So if someone comes knocking saying, hey, you owe us X amount of money, whether it's from a lawsuit or a failed business or a loan, they can then say, well, you don't have the money in your personal accounts. We're going to take your house as, you know, a levy or a lien. It's pretty extreme. But yeah, that would be the extreme example of that is they can come for Leland Gross personal stuff. Right. And no one wants that. That's just an insane amount of risk. And so setting up these entities, specifically the LLC, limited liability company.

Leland (16:34.322)

limits your liability so that they can only take the assets that are in the name of the business. Yes. But let's talk a little bit about that because creditors are smart and they hire expensive lawyers. And so there are ways that they get around the liability shield. And it's just the way business is done. And as a startup business and a self-employed individual, you're going to have to just live with that. So for example, if you do go to a bank to get, say,

The bank is going to make you personally guarantee that loan. And that's the way they're going to get around the liability shield. Because now you have, even though you have the LLC in place, they know that they can't get to your personal assets because the LLC protects you. So they get something else from you and they get that personal guarantee. Now, you know, so then you may ask yourself, so big deal, so why even do the LLC? Right?

because there are going to be some creditors who don't get a personal guarantee. And so, for example, I've had some, say, retail businesses who have entered into leases for a shopping center space, and the landlord did not ask for a personal guarantee. So the tenant is the LLC, and there's no personal guarantee, so there's no promise by any of the LLC owners.

to cover the debt if the LLC cannot cover the debt. And I've had maybe two or three of those businesses, especially right after 2008, and COVID as well, who they had to shut their doors. And fortunately, even though the landlord tried to come after them, we were able to say, there's no personal guarantee, the LLC has no money.

So you can file a lawsuit against the LLC and you can even get a judgment, but there's no money to pay that judgment and you can't come against the, you can't come after the individual owners because they didn't personally guarantee. So in that instance, the LLC was wonderful. I mean, we were able to protect a client from a pretty significant debt in a time when they were really distressed anyway because of the downturn in the economy.

Leland (19:00.414)

So, so there are, yes, creditors can get around it by asking for personal guarantees, but that shouldn't stop you because there are going to be other instances where you won't be asked to give a personal guarantee. So that liability protection will be valuable to you. So a question I have is when, oftentimes when you set up an LLC, they don't always come with an EIN number, the employer identification number. No, they don't. They don't. You have to go.

thing you have to go get in order to set up your bank accounts, set up payroll, things like that. You have to have your business coded under the number. But oftentimes I find these startup single member LLCs where all they have the LLC, but all of the LLC's assets are in their personal bank account. So they just use their own personal checking account. It's a big no no. And would that be another way that they could come around is like, hey, everything is comingled.

You have the LLC, but. But if you don't, you're not using it. Yeah. Everything is still that's because that's the thing that I've just as the in the financial planning side, seen this and been like, we need to get your business bank account set up. This is yes, you have this LLC. But again, it's like you have you bought a shield and you just laid it on the ground over here. You're not actually walking into battle with the shield. OK, so good question. And and what you're talking about is that fancy.

term that I use, piercing the corporate veil. And along with that, when you set up an LLC or a corporation, they have what are called corporate formalities that you have to follow in order to qualify for the limited liability protection, the liability shield. If you don't follow those corporate formalities, then your creditor is going to be able to pierce that

and get to your personal assets. And you're talking about the kind of things that a creditor is gonna look for as far as how you've disregarded the corporate formalities. If you don't have a separate bank account, or even if you do have a separate bank account for your LLC, but you're still co-mingling your money, your personal and your business money, if you don't have a separate EIN, if you don't have the...

Leland (21:20.938)

you know, the business license in the name of the LLC. If you don't, if you haven't titled, if you have assets that have a title associated with them, like motor vehicles or trailers or things like that, if you haven't titled those assets into the name of the LLC, these are all things that the creditor is going to look for so that they can argue to the court that you have disregarded corporate formalities and therefore,

the creditor should be able to pierce through the liability shield and get to your personal assets. So, yeah, absolutely. And some of these things can be seemingly kind of unimportant to people. Like, for example, I have people ask me, well, why, you know, when you have a limited liability company, you should have a document called an operating agreement or an operating statement.

And I'll have people say to me, well, I'm just a single member LLC. Why do I need that? I don't, I don't. And I say, well, you, you know, from, for day to day stuff, you don't really need it, but the bank is probably going to ask for it when you open a bank account. If you, you know, go for a loan, they're going to want to see that. And so, you know, for example, I'm working on a closing a transaction for the purchase of a business right now where.

the individual, my buyer has a single member LLC and he's had it for a while now, but he's never had an operating agreement and he had to go get a loan in order to pay the purchase price for the business. And that's one of the first things the bank said is, where's your operating agreement? He's like, well, I'm a single member LLC. And they said, we don't care. Our checklist says you have to have an operating agreement. And these are just good practices in order to...

be able to demonstrate that you're following corporate formality so that if somebody does try and pierce that liability shield, you haven't given them any ammunition, any evidence to do that. Yeah. For those listening, if you're not familiar, an operating agreement kind of spells out how the business will operate. And it's the reason why single member LLC, if you're just a single person, don't think you need it.

Leland (23:41.554)

It's used with partnerships and that's kind of the common thought is, hey, me and my partner, we need to figure out if they want to leave the business, how that works, or if they die, how that works. Does their family, am I now running the business with my business partner's spouse? Do I have to buy them out? Kind of a lot of that stuff, but it is helpful. A bank's looking at it even if you're a single member because they're saying, what if you die? How are we going to make?

policies are in place if you die or you leave or you sell your business to make sure that we, you are, your business is set up and legitimate enough that if we give you a loan, we can be guaranteed for that. Would that be correct? Yeah, I think that's, that's absolutely correct. I mean, you know, over time, it's interesting because the older, the more I practice and the older I get, the shorter my documents become. We like that. Because I'm kind of like, yeah, this is so yeah, if you have a

if you have two or more owners of a limited liability company, you know, I have a particular template operating agreement that I would start with, and it's probably 20, 22, 23 pages long, because it does address a lot of these issues about what happens if somebody wants to leave, what happens if somebody becomes disabled or passes away. How is

you know, how are revenues going to be distributed, allocated, losses allocated, things like that. How's, who's going to, you know, what are the voting requirements going to be for day to day decisions versus significant decisions? Are we going to appoint like one person to be the president or the manager? You know, these things are all, but with a single member LLC, I have a operating agreement that's probably four or five pages long, where I've cut out a huge amount of that stuff.

And, and

Leland (25:37.602)

That you, you have a, that's me, hold on. For some reason it's not charging. Oh no.

Leland (25:47.614)

We can cut out this clip too, so you're fine. Yeah, I'm sorry. I'm gonna just mark it so I know where it is. I don't know. I think we had this problem the last time. Try that outlet. That plug doesn't work or something.

Leland (26:02.934)

Okay, I think we're good now. Sorry. Oh no, you're fine. So what I was saying was, before we had a technical difficulty, was that, you know, I use a much shorter operating agreement with a single member LLC, but it's got enough in there to satisfy a bank, a lender, things like that, anybody that you need to show it to. And yeah, I mean, it's...

it's worth it. And it's the right thing to do. Yeah. Well, and again, it's, if you're going to go through the trouble of creating a business, you want to be protected. And so you set up the LLC because you want the shield and all of these things are basically making the shield stronger, more fortified. So that you're not, your shield isn't a kid's like cardboard shield made out of the Amazon box. It's like a real...

Knights shield. Right. I can't actually stand that. Like you said, you didn't just set it aside. Here's another just a little tidbit that you would think is not that big of a deal. But when you have an LLC or a corporation, you need to make sure that you sign everything you do. You do it in the name of the LLC and the corporation that you don't just sign your personal name to things that you sign, you know.

law office of Joel Ankeny PC by, and then I signed my name and then I put my title president or something like that or Leland Gross. You know, because I had an instance years ago where I had an individual who had an LLC and he hired an architect to do a significant amount of work. And with the architect, you know, the architect had a contract and my guy signed.

the contract just signed his name to the bottom of it. Didn't indicate anywhere in the contract that he had an LLC or anything like that. When he, again, economic downturn, he couldn't pay the architect, and the architect sued him, and the court said, you didn't sign in the name of your LLC, you signed in your personal name, so it's a personal debt, right.

Leland (28:16.214)

Man, I need to go back and look at everything I've ever signed. But yeah, I mean, so again, I guess another way to phrase that is once you have the LLC set up, use it. Use it the right way. Use it. Make sure that you're signing things correctly, that you know, that you're... I've seen clients come in who have a lease, an office lease or a shopping center lease, and they have an LLC.

But in the lease, the tenant is identified as their personal name. And I'm like, you know, that means you're personally liable under the lease. They're like, well, I have an LLC. And I said, yeah, but you didn't. You're not using it. You didn't. Yeah, you didn't make it the tenant under the lease. And so these things are, they seem pretty, like, insignificant until there's a problem. Yeah. So the last misconception that I hear all the time

Again, I don't work with people from the legal side. I'm working with people from the finance side is people saying, well, you know, I'm an LLC, so taxes like I'm taxed as an LLC. And the misconception there is that an LLC is a pass-through entity. So it's kind of, it's kind of like a tax chameleon. However, you decide to file your taxes from like a business standpoint. Okay. Do you ever come across that from like a?

Like if you're taxed as an LLC, but you're just a single member, it's going to be the same as if you're a sole prop. It just passes through and it's Schedule C, self-employment income, whereas you can choose to be taxed as an S corporation or, you know, a partnership or things like that. It's not necessarily a specific tax status. So are you able to speak to that at all? Do you ever see that on like a legal front or? Not really. That's a really good question for a CPA.

I will tell you that if you are a single member LLC, you do have a couple of choices for the way that you want to be taxed. If you don't make a choice, then you're going to be taxed the way that you're talking about as what they call a disregarded entity. So the IRS will essentially just, and the state tax department will essentially just ignore the existence of the LLC for tax purposes.

Leland (30:39.37)

You can also though, even as a single member LLC, you can file documents with the IRS and elect to be taxed as an S corporation. And in that instance, then yeah, it is a little different. You know, what you're going to get is even though you're a single member LLC, you're going to get a K1 that you're going to attach to your 1040. And then you're going to pull that net revenue number off the K1 up into your and put it into your.

gross revenue calculation on the front of your 1040. But in the end it's essentially going to be a pretty similar impact on you. They're both pass-through entities.

Leland (31:25.062)

I want to define some of that because K1 schedule C1040, those words we're using for anybody who's just a regular person on the street is like, you just lost me on the IRS. But you can define it if you want. But my best advice is I think we talked about this in the last step time you interviewed me. I'm like, just hire a CPA to help you. I mean, there are a lot of them out there who help small businesses for very reasonable fees, and it is totally worth it.

you should build that into your startup budget, and your annual budget, because they will save you a huge amount of headaches. And, I mean, the IRS is, they're not, I don't know how to put this, I don't mind paying my taxes, but because I think, you know, that's, but I have had so many issues with the IRS telling me, oh, I didn't file this quarterly report, and I have proof that I did.

And I had, I mean, last year I had a number of notices from the IRS saying that I didn't pay certain things or I didn't file certain things during 2020 during COVID. And I did, I had done it all. The IRS had just lost it all. Solid. And I actually was worth it for me. I paid a couple hundred bucks to have a CPA.

go to bat for me and deal with the IRS and straighten everything out, sit on the phone for a couple of hours with them. But yeah, I think it's, you know, you can, you know, the 1040 is the personal income tax return that people file when they itemize their deductions, their personal deductions. The K1 is a schedule that gets attached to the 1040. It is a schedule that shows

deductions and revenue and then eventually net revenue for a pass-through tax entity like an S corporation or a multi-member LLC or a partnership. And then the Schedule C, like you said, is another document that gets attached to the 1040 if you're just showing self-employment like a sole proprietor. So at the end of the day,

Leland (33:40.906)

Joel's completely right. I completely agree with you. Just hire a CPA. A CPA, an EA, anybody that does taxes and knows what they're doing can represent you before the IRS because you should always tip your server, but you don't have to tip the IRS. So just pay them what you owe them. Like, we're happy to pay our taxes. We don't need to overpay them or get lost in like fees and penalties. But I hear people talk about their LLC as a tax thing.

as a tax entity and just, I don't even think they know totally what they're saying. Yeah. But at the end of the day, with an LLC, the beautiful thing about it is it's a chameleon. If you don't do anything, it acts as if the LLC isn't there from a tax perspective. It flows to you. Right, if you're a single member LLC. If you're a single member, you're going to be taxed similar to a sole prop. If you have a partner but you don't opt, you're going to be taxed as a pass through partnership. It's taxed as a default.

But then you can choose to opt into these other things like an S corporation, which is really trendy right now. Like I'm one of the LLC's I'm setting up next week is a single member LLC, but the CPA has advised the client to also elect to be taxed as an S corporation. And I think, again, really, you know, when I sent the CPA an email yesterday, just asking

him to confirm that advice, he sent me like a six paragraph email back explaining why, yes, confirming, but then explaining why. And that would have been information that I would not have been able to explain to my client. Yeah. It is very trendy because it's really advantageous. And I think, well, I can't speak for the IRS, but I know they've tried to close some loopholes in the S-Corp world for that because it is.

it can really help you by cutting down on self-employment tax and FICA and things like that. But that's a whole conversation for a different day. Talk to your CPA. Yeah, you need to have a CPA on and talk through that with them. That's a great idea. Well, for everyone listening, get your LLC set up, set up your shield. You want to protect your family. You want to protect yourself, but make sure you do it right. Don't just go on legal zoom and get an LLC that's

Leland (36:04.438)

doesn't have anything attached to it and that you never use because that's your cardboard shield and we need the knight's shield from the round table setup with all these things in place because you want to protect yourself and that's the best way or that's that is a solid way to do that. The the last thing I'll ask because you had mentioned this when we talked yesterday was at what point if I have this LLC and

I'm using the operating agreement and I've got the EIN number and it's all set up and bulletproof. When do I need insurance? Oh, that's a great question. And the answer to that really stems from or grows out of the fact that a limited liability company, a corporation, none of these entities will protect you from liability associated with your negligence. So for example,

I, for my law firm, I have an S corporation, but I also have malpractice insurance, partly because the bar requires me to have it, but also because my corporation will not protect my personal assets from malpractice or negligence claims. Malpractice is a negligence claim. So if I have a client who claims that I was negligent, they would be able to get around my...

corporation shield and get to my personal assets. So I have insurance to cover that gap. So, you know, for example, if you are in an industry or a type of business that has the potential for exposure to negligence claims, then you definitely want to talk to an insurance agent. For example, I have several clients who are fitness instructors and those fitness instructors, you know, if they're negligent.

in their training or whatever, they could get sued personally. So their LLC is not going to protect them from that claim. So I think again, the starting point is asking yourself, what am I going to do in my business? And is there the potential for somebody to file a claim against me because I'm negligent? And based on the answer to those two questions, you want to then go talk to an insurance agent. And insurance isn't terribly expensive.

Leland (38:29.306)

And for example, I mean, you may, I don't know about you, I know about me, but like my fitness instructors, some of them belong to national associations and those associations offer discounted policies because they sell to the whole group, that kind of thing. So, there are affordable policies out there to provide the protection that you need. But yeah, you definitely.

It's a question that you have to ask yourself. Just setting up the LLC is not enough to protect you 100% and bulletproof you from every possible claim. You also need to think about, what am I gonna be doing and is there the potential for any kind of a negligence claim against me? Totally. In my industry, that's the error in emissions. So we need, similarly, I'm required to carry it. Our national association provides it or provides the opportunity to get it out of.

severely discounted rate. Yeah. I mean, for example, if you, uh, let's say you're a lawn care business, right? You, and you have a fleet of vehicles and I mean, you're going to get auto insurance vehicle insurance, um, for those vehicles. Um, because there's that possibility that they could be in an accident and, and it could be your fault and that would be a negligence claim and your LLC is not going to protect you from that. Um, so, um, you know, we can think of a lot of different

businesses. You and I are in service businesses where we provide professional advice and that opens us up to potential negligence claims, errors and omissions claims. But yeah, fitness instructors, companies that have fleets of vehicles, companies that provide services, right? You've got handyman services, they're in people's houses, you're an electrician. I mean, there have been... I live in a neighborhood where the houses are...

I mean, for Virginia Beach, they're kind of old. They're, you know, 50, 60 years old. But, you know, we've had a couple of houses burned down because the electrician, they had they put an addition on the house and the electricians didn't wire it properly between the old house and the new addition. And the house burns down. I mean, that's an issue, right? Your LLC is not going to protect you from that kind of problem. Totally. I mean, yeah, you can go on and on. You have a you own a storefront and

Leland (40:54.494)

you mop and don't put out the wet sign and someone comes in. You don't have every person who comes into your store, sign a waiver to say like, I won't sue you if I slip on your floors. But you know, that's a really good point too. I mean, these are really complicated questions. And if you, if you do have a retail presence and you have a shopping center lease, the landlord is going to require you to have insurance anyway. So, so, it's just another thing to add to your checklist. You need to ask yourself,

And you need to explore whether or not insurance can help protect these types of gaps completely. Well, I want to wrap out this episode because it's been such a good conversation, but I appreciate you being here. We're going to have to have you on again because I just feel like you're a wealth of knowledge for the stories. That's the problem. You get me going. But it's helpful. We learn through story. And so like hearing and hearing an example of a real life situation is what educates us more so than.

a textbook saying this is what heirs and omissions insurance is. It's like when is a time where I would need that? What's a story you've come across that? So you're a wealth of knowledge and a joy to have here. And I appreciate you giving more time. Yeah, that's great. Can I plug my book? Oh, yeah. Go for it. I love it. I'm going to put it up in front of but this is this I mean these questions are a lot of these questions are addressed in this book. It's called Before You Leap.

your legal guide to starting a freelancing business. And so- And I've read the book, it's awesome. Oh, thank you. It's so helpful. We'll actually link the Amazon to the show notes on this. Oh, thanks, yeah, that's great. But a lot of these questions are addressed in the book. And so, you know, I believe if you go on Amazon, you can actually look at the table of contents. And the table of contents is designed to be driven.

the organization, the book is driven off of these types of questions that people typically ask me. So if you're curious, I think you can look at the table of contents and you might say, oh, well, I don't need to know any of that. And then you don't need to buy the book. Or you might say, oh, those things look really interesting. And yeah, I think that would be really helpful. Yeah, it's clear. It's concise. It is very practical. A 10 out of 10 read if you're starting up a business or thinking about it. That's wonderful. Yeah, thank you.

Leland (43:14.282)

Yeah, of course. All right, well, Joel, thank you again for being on the Self-Employment Success Podcast. Yeah, thanks for having me. I love talking.