Starting a business, business structure, tax identification, business insurance, liability protection, operating agreement, succession plan, separate bank account, payroll taxes, business formation, legal advice, business growth, business disputes, business taxes, business entities, Scott Bowen, NetParadigms, 616.
What To Do When… You Start a Business.
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The objective of the What To Do When… podcast is to discuss common legal scenarios faced by everyday citizens in Virginia. Critzer and Cardani practice law throughout Virginia and focus their practice around the state’s capital of Richmond, in the Piedmont region. Tune in and subscribe to learn about legal topics such as reckless driving by speeding, bad lawyers, Will Knows Weed, juvenile defense, juvenile sex crimes, reckless driving, the legalization of marijuana in Virginia, divorce 101, Child Support, There is Still Hope, and others.
What To Do When… You Start a Business.
On this legal video podcast chat in Critzer Cardani’s What To Do When… podcast series, join our hosts Scott Cardani and Jackie Critzer as they chat about What To Do When… You Start a Business. This video and audio podcast episode focuses on building a solid legal foundation for your business here in Virginia.
Tune in today for not only our top take-aways, but also some chat about the following subject matters and other helpful action items from a ‘legal chat slant’ from Critzer Cardani’s legal partners.
* Scott Cardani emphasizes the importance of acting like a business from the start to avoid future legal issues.
* They highlight the different business structures available: sole proprietorship, partnership, LLC, S Corporation, and C Corporation, as well as some of the tax implications.
* Business insurance and the steps required to obtain it, including getting a tax identification number (EIN) and registering with the state corporation commission.
* Jackie and Scott advise against using the same bank account for personal and business transactions to avoid commingling funds and losing liability protection.
The objective of the What To Do When… podcast is to discuss common legal scenarios faced by everyday citizens in Virginia. Critzer and Cardani practice law throughout Virginia and focus their practice around the state’s capital of Richmond, in the Piedmont region. Tune in and subscribe to learn about legal topics such as reckless driving by speeding, bad lawyers, Will Knows Weed, juvenile defense, juvenile sex crimes, reckless driving, the legalization of marijuana in Virginia, divorce 101, Child Support, There is Still Hope and others.
Thank you for sending us your feedback, questions, or topic suggestions for future #WTDW | What To Do When… episodes by emailing [email protected].
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Transcript:
What To Do When… Intro 00:01
Welcome to What To Do When… A podcast from real lawyers with real perspective, where we explore a variety of legal issues and scenarios. Each week we focus on a new topic and discuss what to do when and if any of these legal scenarios ever happened to you or a loved one. With over 40 years of combined legal experience, our hosts offer their unique perspectives and insights on a range of real life legal situations.
Jackie Critzer 0:28
Hi there. Welcome back to another podcast here in Richmond, Virginia, at Critzer Cardani, I’m Jackie.
Scott Cardani 0:34
I’m Scott. Jackie, What’s on the docket for today?
Jackie Critzer 0:37
What To Do When… You’re Starting a Business,
Scott Cardani 0:40
Ooh, starting a business. So the entrepreneur out there, correct?
Jackie Critzer 0:44
Sure. I mean, maybe you don’t even know you’re one, but what we know is starting a business. Sometimes it’s just a landscape business, right?
Scott Cardani 0:53
Yeah.
Jackie Critzer 0:53
You got a mower, you have a weed eater, trash bags, a magnet on your on your truck door, maybe a trailer, and off you go. Is that enough? Scott?
Scott Cardani 1:02
Absolutely, that’s exactly where you want to be anytime that you are in a situation. I believe that you’re beginning to take money from the general public to do them a service. You have a business, and you really should start acting like a business. Because if you don’t, there’s kind of hiccups and things you can run into cause you a little problem down the road where you’d need us – after the fact.
Jackie Critzer 1:23
So if you’re acting like a business, what sort of steps do you need to do to actually be a business?
Scott Cardani 1:30
Wow – that’s an interesting thing. So first thing is to have integrity.
Jackie Critzer 1:37
Hmmmm….
Scott Cardani 1:37
Just kidding, but that is such a big deal. You know, if you’re going to start a business, do what you say, prompt, follow up with your promises, those kind of things. But, um….
Jackie Critzer 1:47
Under promise, over deliver, all those things.
Scott Cardani 1:49
All those things.
Jackie Critzer 1:49
I mean, these are just general.
Scott Cardani 1:51
But it’s really important. You’d be surprised. I mean, if you want to be successful, it’s actually so easy out there now, because most people, there’s a lot of businesses that don’t do what they’re gonna say they’re gonna do, and don’t follow through, and people get left holding the bag. We have the we have those clients all the time who are suing a business because they are promised a deck and they got a tear down in a junk pile in their yard and left with nothing.
Jackie Critzer 2:13
Well first things first, we need to decide, yes. I mean, is this all proprietorship? This is a partnership? Is this an LLC, which stands for limited liability company or corporation, an S Corporation, which is a variation of a regular corporation. So there’s S corp and C Corp. Well, what’s the real distinction there? It’s really a tax issue. It’s more than that, but how the taxes are applied and how you either pay as a corporation or you pay as an individual, or claim income as a corporation, or claim income or loss as a corporation, makes a difference.
Scott Cardani 2:52
It really does. And I think what also when you start getting the corporation side, the LLCs and the S corps, is when you start to shield yourself from liability of the company.
Jackie Critzer 3:02
Correct.
Scott Cardani 3:02
So you know that comes in when you’re trying to grow a bigger business. Usually, like Jackie said, There’s partnerships and sole proprietorships, and they don’t have the protection. I mean, you are out there on your own, and let’s just keep with the lawn care business. I guess. Say you’re running a lawn care business and a stone kicks up and takes out a paint a big picture glass window in the front of the house.
Seriously.
Takes it out. You’re talking probably 3 or $4,000 to fix that. You know, do you have business insurance? If you don’t have business insurance.
Jackie Critzer 3:34
What do you need… But what do you need in order to get business insurance? You probably need a tax identification number. So that’s an EIN you have to register with the federal government, and then you take that to your to your state corporation commission right here in Virginia or sec, and you register your business. Now, does a partnership or a sole proprietorship necessarily have to go through those steps? No. Is it better for you to do so? Yes. And the reason that Scott was saying are the liabilities, the liabilities really can bankrupt small, small companies, and they can bankrupt large companies as well, who, in fact, do have the protections of varying degrees of business types.
Scott Cardani 4:16
Which gives me a little quick aside that’s very important when you’re looking at business. Say, I’m trying to get like Scott Bowen to do my job for me, you know, and he’s been in business for a while. Really good way to know that is to look and see how long they’ve been in business. If he says to me, I’ve been in business for 30 years, and you look on state corporation commissioner, and he’s been in business for two years, that means he’s probably bankrupt before, or done something before.
Jackie Critzer 4:41
Obviously not honest about the current status of what’s going on. That is not who Scott Bowen is. We do business with him all the time. We appreciate the great work that he does with our website and our marketing. Check them out, by the way, at NetParadigms.com. But there are people who the better business bureau is not rock solid because. So many people aren’t registered with the business, Better Business Bureau .
Scott Cardani 5:03
They actually got in trouble recently. So there’s a whole bunch of stuff with that. But, yeah, you’re right. I mean, there’s my point is this, somebody may be doing business for 20 years, and maybe they did it as a sole proprietor, maybe they worked for somebody else. But if they say, My business has been, you know, maybe you should check that out.
Jackie Critzer 5:17
Operating…
Scott Cardani 5:17
So that’s just a little side that I’ve learned over the years, watching people. You know, a lot of small contractors will bankrupt, bankrupt, bankrupt, bankrupt, bankrupt.
Jackie Critzer 5:24
Change the name.
Scott Cardani 5:25
Change the name, and leave people holding the bag. It’s just really unfortunate.
Jackie Critzer 5:30
Well, so not only do you need to decide the corporate structure or the business structure, whether it’s an LLC or what have you, and you can go to a corporate attorney. You do not have to spend big, big money to do that. There are a lot of people in Richmond, including us, who can help you with the formation of your business, help you with the paperwork and getting it all filed. And it is not expensive. I think it’s $100 with the state corporation commission to file, to do your filings. But you register your name, so no one else can use your name, but we can help you do that, but it’s more than just filing the paperwork with the state corporation.
Scott Cardani 6:05
Remember, there’s these Delaware corporations, and the reason people go to Delaware and some other states is because they don’t have state tax and that does save you a lot of money, and there’s a lot of reasons to do that. The problem is that you just do this online. If you don’t know what you’re doing, you can set up a corporation easy enough. I think anybody could set up a corporation. But what we see all the time is, what do you want your corporation to be? What do you need in your corporation? What? What functional things do you need, especially when you start to add somebody to your business, that really becomes a part important. How do we make decisions together, who you know? How do we really? How do we handle disputes when there are disputes.
Jackie Critzer 6:41
Really, and that’s an operating agreement. Some, some, lots and lots of businesses should and do have operating agreements. And it isn’t just, let’s say Scott and I, for example, okay, who makes who gets the final word? There is no final word. If we don’t agree, we don’t agree, and it’s tabled. But what happens when somebody dies? What happens when somebody has to move away? What happens? It’s called a succession plan, right? So it’s what happens when one of the partners or one of the owners in the business no longer wants to be a part of the business. This isn’t a forever thing. You don’t have to be locked in forever, but you do need a succession plan. And if you don’t have an agreement in writing and an operating agreement on how to make that happen, you’re only setting yourself up for bigger problems down the road.
Scott Cardani 7:26
Especially if you get very successful, that’s when the problem comes.
Jackie Critzer 7:29
Sure.
When you’re all strapping together trying to make $25 bucks, usually get along really well. But, when you start to become a wealthy Corporation, then, you know, somebody wants to buy a truck and somebody else doesn’t. And so, you know, whatever it is, you know, there’s all kinds of things. And you start a business with the idea that you’re going to be successful. So plan to be successful. And a successful plan in a business means you set up the right structure, you have an operating agreement, you do the right things up front, and then you have the success in the wind blowing behind you.
An important piece, and we don’t need to go into there are we could probably do a whole mini series on business formation, but I will tell you this. We have seen in divorce cases, in bankruptcy cases, in custody, not necessarily custody, but child support or spousal support cases. We have seen these small business owners who decide that they’re just going to keep their business bank account and their personal bank account as one account. So number one, everything that can that goes into that account is now paid, used to pay a mortgage, a car payment supplies for whatever business you’re running, gas for running to and from the job sites, also your car. It now makes it so difficult to retrace your money and you are putting yourself in jeopardy by doing that, it is always a better plan of action to have a separate bank account for your business. Just have it designated as your business account.
Scott Cardani 8:55
For each and every business.
Jackie Critzer 8:57
Absolutley,
Scott Cardani 8:57
I would say you have multiple businesses. You have multiple accounts. It seems like a pain in a button. It is somewhat can be an accounting frustration. But you know what, if you want the protection, especially if you’re going to be a C Corp, an S corp, or an LLC, you pretty much have signed off and done nothing by starting a corporation. If you don’t separate the bank account up, because, right? They can do what they call piercing the corporate veil. That’s right, Your protection just goes away immediately because you didn’t set up separate institutions for each thing, separate, bank account, separate….
Jackie Critzer 9:28
You can’t commingle funds. That’s really a big no no and and in that same vein, if you hire people, you need to pay them and also pay the taxes. So you can have your 1099 employees as your contract employees. But there are very specific rules that limit you in what a 1099 person can do. Now, a w2 a wage employee. Most people, if you work at 711 or Kohl’s or the bank or you receive a w2 and here’s, you know, your annual income. Um, those as an employer, you have to pay taxes. Not only do you take it out of your employees payroll, you take out the taxes they have to pay, and then you take that and you send it to the IRS, because when you don’t, they will put you in jail. Okay, but you also have to cover Social Security taxes, and you just have to be very wise about how to do your payroll. Can you do it yourself? Of course, can you don’t have to hire somebody to do your payroll, but you better get smart on it. However, there are lots of payroll companies and bookkeeping companies in the Richmond area who can help you and across the country for that matter. So it’s really wise to seek counsel from an attorney. And…
Scott Cardani 10:40
Yeah, you’re right. I just want to say, folks, you really got to watch your taxes and have very, very smart people. There’s a rule that I’ve used for years, and if, when I don’t use it, it bites me in a butt, but the people helping you with your taxes should make more money than you do, because they’re going to be looking at the tax code differently for extra things, because they’re going to try to shield their money and make sure they get the most bang out of their buck. So you don’t want to just throw your money into the government, because a lot of times you’re throwing money that you shouldn’t have to pay, or don’t need to pay, but you need somebody who can figure that out. And I realize when you’re starting out of business, all those things are really tough. There’s actually some really cool companies that just come online, like 916, who can if you have a passion for a business and you don’t want to do the business side of it, these companies will come alongside, help fund it. They’ll teach you, they’ll do all the structure stuff for you, the business stuff and all that kind of stuff. And all you have to do is run your business. If you want to cut grass, you go cut grass, and they handle they handle the rest, right? They handle the corporate structure stuff. So that’s really cool stuff. But anyways, the taxes burn so many people. The agreements burn so many people. So, you know, you have to set it up. We just want you to start out in the right foot. We want you to be successful. That’s the key.
Jackie Critzer 11:53
Don’t build a house of cards. Build a strong a strong structure on a strong foundation. Start with the basics. Meet with an attorney, even if it’s just for an hour, to figure out what the first and maybe first 10 steps are. You can read online. You can do a lot of things, but you know there are specific local and state rules that you need to follow, so we’re happy to answer those questions for you. You can reach us at [email protected] or give us a call at (804) 793-8010.
Have a good day.
Thank you.
Scott Cardani 12:25
Like and Subscribe.
What To Do When… Outro 12:27
We hope you’ve enjoyed this episode of What To Do When… For more episodes, be sure to subscribe to our podcast and we encourage you to check archives to listen to previous topics. Tune in next week for a new episode and some fresh perspective from Critzer Cardani.
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We look forward to helping you in this venture and Good Luck!
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