My name is Garrett Sutton and we're going to be talking about asset protection. This is what you
need to know as you build your businesses, invest in real estate. As you grow your assets you need
to protect them at the same time. Let's look at these entities real quick and understand the
differences. So you have the corporation, we'll just put it as abbreviated as Corp. We have the
LLC and we have the LP, the limited partnership. And this could be an S or a C alright. And that
just relates to taxation. For businesses, a lot of people would use the corporation. In some states
you can't operate through an LLC. In California, there's certain restrictions on those who are
professionally licensed. You can't operate through an LLC. If you're going to go public you're going
to have 400 shareholders you need to be able to have people invest in and out of the stock. The
LLC really doesn't work well for that. There are restrictions on ownership which is a good thing
but when you're going to go public, you're going to want to use a corporation. Now, the reason you
would use a C corp instead of an S corp, the S corp can only have a hundred shareholders and to
go public you need at least four hundred people or more. So the S corp is good for the smaller
business. We really like the S corp taxation which we'll talk about in a second, but the C Corp would
be your choice for going public. As well, if health care is an issue for you, if you need to pay those
healthcare premiums the C corp allows you to write those off as a business expense and so
you can use that as an expense of the corporation and not pay it yourself. With the S Corp, the LLC, or the
LP, if you own more than 2 percent of the company, which you will, if you own more than 2 percent of
the company the entity the corporation or LLC can pay the healthcare premiums but that payment comes
back on your tax return as income, meaning it's an expense to the company but it also shows up
on your return as income. The S corporation while it can it can pay that you're going to it can pay
that expense on health care it's going to that extent benefit you received it's going to show
up on your personal return and be taxed. So if health care is the issue the C Corp is a good
way to go. The LLC we really like for real estate. The LLC and the LP offer great asset protection
and the LLC, if it's taxed as a partnership, you don't have those darn payroll taxes to pay.
If it's a real estate entity - the same with the LP. The corporation, if your give it to trade
or business you're going to be paying payroll taxes on your salary income and if you own the
business that's 15.3% it's the seven point six five percent that you contribute as an employee,
and the same amount that you contribute as the employer. So if you own the business and run the
business that's fifteen point three percent so we would like to minimize payroll taxes especially
since if you're a younger person there's a pretty good chance you're not going to see that money,
because in the statements they send you they say we're bankrupt. I think that's a way for them to
look for higher revenue but they do admit that the system is going to be bankrupt very shortly so to
minimize payroll taxes is a good thing. You've got to pay a certain amount of them but let's not pay payroll
taxes every dollar of income. So if you have an LLC that operates a business all the money's flowing
through the LLC under current IRS regulations are subject to those darn payroll taxes. We'd rather
save on that. So if we have the LLC taxed as an S corp you can minimize your payroll taxes. For
example, you have a hundred thousand of income, and a reasonable salary for someone to run this
business, would be sixty thousand. Fifteen point three percent is paid on the sixty thousand, but
on the forty thousand in profit you can take as a distribution. You'll pay ordinary income
on that but you won't pay the fifteen point three percent in payroll taxes and so, that can save you
fifteen point three percent of $40,000. That to me is somewhere over six thousand a year so we
can save six thousand a year by structuring this properly and you'll work with your advisers - you
want to have a team of advisers that will help you structure this properly. Now, the LLC that owns real
estate that's not a trade or business if it's a passive holding entity the money flows through
and you don't owe the payroll taxes. You'll owe taxes you can shelter that with depreciation
and that can be a very good way to build your estate and pay less in taxes. But the business
that wants to operate as an LLC, but is operating a business, many of my clients have the LLC taxed
as the S corp. Now, why doesn't the corporation offer the great asset protection like an LLC?
And that has to do with the charging order which is not available to corporations except in one
state one state I mention that provides charging order protection for corporate shares. Meaning. of
you get sued as an individual someone trying to reach the corporate corporations assets has to go
through the charging order procedure just like they do with an LLC or an LP. In that scenario,
by using the state of Nevada, the only state so far that provides charging order protection for
corporate shares - by using a Nevada corporation you are much better protected and we've had a number
of clients in New York and other states that don't have the charging order that have taken their New
York company, merged with a new Nevada company and then they bring the Nevada corporation back
to new york to do business. And by doing that you have the charging order protection baked
into the cake. A lot of our clients when they're starting new corporations that they have to be
a corporation, they will set up in Nevada and then qualify or register with the local home state to
do business in their own state. So it's important to realize that we have asset protection via the
charging order for Nevada corporations, but the other 49 states don't have that protection. I'm
often asked what resources are available to people starting a business or investing
in real estate. And we offer quite a few. I would encourage you to go to the CorporateDirect.com
website. That's CorporateDirect.com. We have a lot of articles there, a lot of resources
you can access. As well, you can sign up for the newsletter and we're keeping you informed. Alll of
our clients are kept informed about key changes in asset protection laws. So we want to make sure
you're up to date on what you should be doing to protect yourself. And so go to Corporate Direct,
look at the site, sign up for the newsletter and I guarantee you'll get some great information.