- Hi, this is Sylvia Gordon.
I wanna talk to you about four mistakes
that insurance agents make when they set themselves up
in a corporate manner.
So we're going to talk about single member LLCs
in this fascinating video,
stay tuned, where I go over four common mistakes
that almost everybody makes
and how to avoid them.
(bright electronic music)
So the four mistakes.
We will start off by giving you a nice disclaimer.
I am an attorney.
However, you need to consult an attorney in your state.
I am not giving you legal advice.
Consult your own attorney.
You got one.
So the first reason that you would form an LLC
is to protect yourself
so that you don't have personal liability
for your corporate deeds.
And there are many different ways
that you can set yourself up.
We're not gonna talk about the benefits
versus an S corp,
versus C Corp, and LLC.
I'm gonna talk about the difference
between a single member LLC,
and, briefly, about a multi-member.
Most of the agents that we work with
are gonna be single member LLC owners.
They're the only ones that own it.
They're the only member. Okay?
But they're establishing a line between them
and their personal life and their business life.
And that, we call in legal terms, a corporate veil.
So I have a veil over my corporation,
and if I want to remain separate from my personal,
I can't pierce this veil.
It's a little bit lingo the lawyers use,
but hang with me, I'm gonna get you there.
First of all,
as a single member, you're the only member,
you're the full controlling owner of your corporation.
Okay?
And there's certain things that you need to do
to keep this separate,
your personal life from your business life.
And it's not a lot of work,
but it's a little work,
and a lot of people don't do it.
They don't do it because they don't get checked up on.
So when you set up your LLC,
it's pretty simple.
You can go online. You don't need an attorney.
You can go online,
generally, to the Secretary of State's website
in the state that you're in.
And for under $200,
you can set up your single member LLC in less than an hour,
then go to the government's website
to get your new tax identification, number,
your new SS-4 for your new LLC,
and, boom, you're off to the races.
You will get your insurance license.
Then you will send that all through contracting
to get all of your contracts changed.
Everybody hates that part.
They're always like,
"Is there a way not to go through all that paperwork?"
And the answer's no,
you got to do it.
But then all your commissions
will now be paid to your corporation.
So for the purposes of my video,
this is when I'm talking about me as an individual,
and over here, for those of you who've been following,
is me as a single member LLC.
So the first thing you are going to do after you set up,
I've already explained how you pay your money,
you go online, you do it. Now you've done it,
and you're like, okay, I have a name,
and it says "Sylvia's Insurance Agency, LLC."
And I did the papers online. It was real quick.
I said single member,
and I chose me,
and I have a tax ID number.
Now what?
Now you will set up your operating agreement,
and your operating agreement is going to explain
how your organization works.
So, yes, you can pay an attorney a lot of money
to set this up for you, but you really don't need to.
There are many samples.
There's cheap templates
and there's some free stuff online.
You can go and get a sample operating agreement
and you can follow along and do it yourself.
Basically, you want to explain
how you're gonna capitalize your business,
how you're gonna,
what salary you're gonna pay yourself,
where you're gonna have your office.
Are you gonna lease?
Are you gonna buy?
You know, we can just put the stuff.
What are you gonna do with your business?
And you put it in there.
Ain't nobody has to prove it.
Nobody has to see it,
in most cases, for a very long time, if ever,
but you have to follow the corporate formalities,
the legal formalities.
If you want to, remember what I said,
that corporate veil,
if you want to be able to keep your business
separate from your personal liability,
you have to follow these formalities.
And a lot of people don't.
They're like, "Oh, it's super easy.
I just went online to Secretary of State,
I paid 150 bucks,
took me one hour.
I set it up. Boom.
I never did anything."
And I've been in business for 20 years,
and that might be true.
But if you do get sued,
say you were at work and somebody fell in your parking lot,
or one of your associates ran over somebody
on a work trip
or in your work car,
and now they wanna sue your business
and they want to go after you,
you're gonna wanna hope
that you have these legal formalities up to date.
So in your operating agreement books,
you will also be doing minutes,
and people get nervous.
They're like, "Oh, I got to have formal meetings
with myself?
I'm the only member.
This doesn't make any sense."
Okay?
The whole point is that you function legally
like a business.
So you're gonna have minutes,
and maybe you have minutes once a month,
maybe it's quarterly,
maybe it's monthly, weekly,
I don't know how good you are at keeping your minutes,
but you wanna put into your minutes,
you'll have a book.
And you'll say, you know,
like a big corporation,
where they have a shareholders meeting,
an annual meeting, and all of their minutes,
you've got to have the same thing. You're gonna say,
had a meeting.
I was present.
The sole owner, Sylvia Gordon,
and I decided that I'm gonna buy new desktop computers
for all my agents,
new printers.
I expect to spend about $5,000,
or I'm gonna lease a car for my key administrative person.
You can put your stuff in your minutes,
what you're doing,
and you keep that up to date year in and year out.
Maybe, like I said,
maybe you only do a couple of minutes a year,
but you need to have at least an annual meeting.
You need to have at least some minutes for the year.
People always ask me, "I don't really like doing paperwork.
I'm an agent.
I'm really good at sales,
a people person.
I'm not so much a paperwork person."
What happens,
say, hypothetically,
if I don't keep my meetings up to date,
my minutes?
Am I going to get in trouble by the IRS?
No.
None of this really comes through there
unless you have a problem,
In which case, then you will need to produce the documents.
Could you go back and recreate the minutes
from the last 10 years
based on your planner, and your notes,
and your business journals, and all that stuff?
Yeah, you could,
and that could still be acceptable.
It's not the best way to do it.
The best way to do it is to be beyond reproach.
I am a corporation.
I am an LLC.
I do operate as a separate business entity.
I follow all the legal formalities,
and here's my minutes.
They're rough, whatever,
you know, might be two paragraphs, once a month,
that counts.
Have good tax records.
Hire an accountant.
If you're going to want to have the benefits
of being a separate corporate entity,
you could take the extra step and have an accountant,
so you have completely separate tax records.
It sounds simple,
but I know you,
I've worked with thousands of agents,
and I know agents like to cut corners.
I'm an agent. I like to cut corners.
But keep separate tax records.
And remember that you need two separate bank accounts.
Okay?
Personal bank account,
your LLC bank account.
And you're like, "I know I'm just getting started.
I don't have that much money.
I have set up an account,
it's accounting,
and it's a lot of work."
You always ask me, do I have to do this?
Yes.
You're trying to operate as a business.
So I think you can get away with cutting all these corners,
and then when something bad happens,
that you'll be able to say,
"Well, don't take my house, and my bank account,
and my IRA.
Don't go after that."
You build those a wall around your personal assets now,
and you build the wall brick by brick
by following all the legal formalities,
by having separate bank accounts,
by having that tax accountant,
doing all these little things,
doing the minutes every year,
that keeps it separate,
so that if it ever comes to bear
that somebody is coming after you,
they're only going to be able to take the assets
in your corporation, not your personal assets.
So the IRS, isn't gonna ask for that.
If you wanna sell your company,
if you wanna,
if you wanna pledge it,
people will like to see the proof
that you are established in how you're operating,
but, in most cases,
and if everything runs smoothly in your life,
and there's no problems,
nobody's ever going to need to want to see
and verify that you have followed all these formalities.
It's only when things get bad,
that you're going to wish that you had.
One of the biggest mistakes that agents make is they
use their corporate bank account
as their personal bank account,
'cause they're like, "Nah, nobody knows,"
and they pay for it.
You know what I'm talking about?
A lot of you are out there guilty.
You're like, yeah, I know exactly you're talking about.
Do not do that!
There is something in the law called the alter ego doctrine.
And we need to make sure
that you have two separate entities,
and that you are only using your business account
for business expenses, verifiable.
Okay? Keep your personal hands out of your business account.
And people do tend to blur this
and then they tend to get in trouble,
so just keep it separate.
Remember, you heard it here first.
The next mistake people make
is they fail to adequately capitalize their business.
Okay?
Simple.
I don't need to go into this.
The next one,
avoid co-mingling the funds.
Again, we need to have alter ego,
corporate veil,
keep it separate,
business, personal.
It's just a, you know,
it's an attractive thing to use those corporate funds
to do stuff.
Don't do it.
And you're going to get in trouble in the end, you know?
Just keep it separate.
Okay, this is a simple one, that,
and the fourth point,
that people make the mistake on.
Say, I'm going to sign a new lease
for Sylvia Gordon Insurance Agency,
I want to sign that in my corporate capacity,
so I am obligating my corporation
and not myself personally.
So when I signed that lease, I won't sign Sylvia Gordon.
When I do that, that's just me as a lady.
That's personal.
Okay?
I want to sign it in my corporate capacity.
Sylvia Gordon, owner,
Sylvia Gordon Agency, LLC,
sign it in my capacity as the owner,
say owner or member,
and, boom, now I've only obligated myself
in my corporate capacity.
If my business goes bankrupt,
and I default on my lease,
they can't come after me,
my personal assets for that five grand a month,
for the next three years for my lease.
And agents make this mistake all the time.
Now, a savvy person would say,
"I want you to sign in your personal
and your corporate capacity,"
because they're like, if this business goes up,
I want you to do that.
You don't want to do that.
This is a business lease for your business
that you wanna sign,
and obligate only your business.
So make sure that when you sign any legal document
for your business, you're signing in the correct capacity.
Just say Sylvia Gordon, owner,
Sylvia Gordon Agency, LLC.
There's a lot more to this,
but that's some simple, basic things to do to help you,
your single member LLCs,
function separately,
so that you can protect your personal assets
from your business liabilities.
Thank you for watching.
Consider hitting the subscribe button somewhere.
They're always moving it around here somewhere.
Of course, if you have any questions,
I'll be happy to answer them, free of charge.
Key point there.
Ask me in the comments below,
or you can email me directly.
I'd love to help you.
Thanks for watching.