[Music] [Music] uh want to welcome everybody tonight uh to our business plan development course and we have a guest speaker Alex Bruno and we're kind of wrapping up our curriculum uh uh this evening from the standpoint as we started off with a mission statement and going through all the various sections of the business plan now it's time to you know take our business to Market and and and when we take a business to Market we start getting exposed to things like business entities and Taxation and exposure to liability things of this sort and so now is a a you know a point in our curriculum where we want to start uh visiting the subject matter of business law 101 uh Alex Brun is our speaker tonight he is a graduate of UC Berkeley uh in uh his history um and then he also has his doctor of jurus from the uh UCLA law school without further Ado i' like to welcome Alex Bruno Alex so welcome to business law 101 as Harry mentioned I'm Alex Bruno and here's my the slide of me of who I am um uh Harry's mentioned I've been doing this for about 5 years uh with with Harry and it's been it's been great um to to to always deal with people in the entrepreneurship world because you're creating something out of nothing generally and it's it's always cool for me because I'm not really that creative so it's always good to hear people with their ideas and whatnot um so our office is located in Glendo uh our main office we also have a satellite office in Sherman Oaks uh we have two two two business uh two practice areas business law and Estate Planning and kind of how we work kind of explain how we work one is flat fee which is kind of like a Project based billing uh hourly which is the more traditional lawyer way give us a bunch of money and then we'll charge you by the hour and then we also offer what we call an ongoing subscription or a plan where we can um uh for for monthly rate or for an annual rate we can provide some legal counsel um I always like to meet my clients in person I like to interact with my clients in person but I understand that sometimes distance is a limitation sometimes time is a limitation so we do everything from the the phone calls to Thea email to Skype and FaceTime I had a couple board meetings I think I might have mentioned this in the last class where I had a couple board members in Japan and then we had a couple other at the at the table so that was really fun um what I do or what we do as a law firm here's a couple things that we do business planning and advice advice on company formation what kind of company you should be a corporation LLC we'll get into some of that today helping you review contracts that you may receive helping you prepare contracts that you need to get out and if you want to you've been so successful is now it's time to sell your business we're there to help you or you see a great business that you want to purchase we're there to help you as well so that's a couple things that we do what we're going to talk about today is four four subject areas one business entities uh the type of business entities we could talk about we kind of brought up um some questions offline and we we'll get into that today legal requirements what are the legal requirements that you need to operate a business in the United States state of California city of Los Angeles so that's one of those things that we're talking about there's going to be several different entities we're going to have to worry about what liability issues will a business face you know what are you going to face when you operate a business and the question that comes up a lot is I want to start a business I'm going to run out of money how do I get more money so how do we raise some funds for you quick poll how many people have a business right now okay what do you what do you do uh Film Production Company Film Production okay how many you thinking about opening up a business okay any type retail uh tell me what types retail retail online with the store um online okay how about your uh music publishing company okay to compete with like BMI and ASCA or something different uh that's not what they do but okay similar kind of okay representing copyrights oh interesting that's good okay so I mean just from that we have a a a wide variety of ideas of what we're going to do we're going to use Harry mentioned emth we're going to use kind of like an example from emth even emth was pies we're going to talk about cupcakes we're going to use Mary as as our example of a a business owner Mary's going to wants to open up a cupcake shop so she actually wants to open up a store and and she has to figure out what she wants to do first Mary comes into my office she's going to ask well what should I be that's her first question so there's all these types of entities that Mary can be one is a sole proprietorship another is a partnership if she had a partner a C corporation we were talking a little bit about that before an S corporation I'll explained today a professional Corporation if Mary was a certain profession uh limited liability company and there's some a newer entity that's been around for about 3 years or so called a benefit corpor a a b court and so an example if Mary comes into my office and we meet we kind of go through two two main issues Taxation and liability and we kind of figure out where this person or where you would stand in with those issues so if you're so proprietorship as we talked about before sole proprietorship is one one person um out on business for them themselves there's an advantage to it and there's also disadvantages to so propri ship one advantage is you don't have to worry about a lot of paperwork CU it's just few we mentioned it before we started you know you're using your own social security number you're using your own tax identification number to uh to start the business um the disadvantage is and that's why it's on this side of the liability uh grid is that you're personally liable for anything your business does so if you have personal assets that you're trying to protect you have a house you own you have accounts you own you do something wrong in your business and they come and sue you they're going to they're able to take anything they want um so you have no protection there from a liability standpoint okay we'll get into Partnerships let's get into Partnerships okay so Partnerships there's different types so with Partnerships the first type is well first the partnership is two or more people act serving in the business together with the general partnership uh with the general partnership there's there's liability exposure as well okay so just to know that there's a different type called a limited partnership or sometimes they are called family limited Partnerships if it's just a bunch of family members owning it depending on the structure of the limited partnership certain people in the partnership may not be be exposed for liability purposes the only thing that that's going to be exposed is the money they invest into the partnership so if they get sued the The Limited partnership might get sued but not their not the people not their ass not not well yes not not your personal assets CU I heard that Robert got you by someone for $22 million and he paid nothing just because they're limit the partnership well he also filed for bankruptcy I think Rich Dad for Dad yeah I think he I think he I think he filed we can look this up later and maybe put a little I think he also fil for bankruptcy but the the thing is when you have a limited partnership um the people that are investing money in a limited partnership the only thing they can lose is the money they invest in that partnership and then the people who are might functioning on behalf of the partnership might not be exposed either the thing is with a a gentleman like that cuz he invested in a lot of real estate um everything's going to be Diversified and they're going to be multiple entities as well so there might not be anything in his own name um he knows what to do well he he oh he does and he speaks about uh about that all the time he has a he has a very good business model um but so a limited so general partnership just to go back to the regular partnership because I think it's important for people to know is when you have a general partnership uh each partner can be responsible for the actions of the other partner so that's very important to understand that so if you have a partner and your partner does something on behalf of the business buiness and that's something that they do bad they're going to get in trouble for it you also can be exposed to that under a partnership not a limited partnership that's different limited partnership sometimes they'll talk it they'll talk about it as a person being a silent partner and so the silent partner is not going to be exposed because all they can lose is their little their their initial investment there's also something called a limited liability partnership which is going to apply to um individuals who are professionals such as Architects attorneys uh CPAs accountants they can become a limited liability partnership which would separate everybody's partnership so so each partner is not going to be responsible for the other uh but let's don't we have a what we do okay so what are you going to what would you do if you want to protect yourself your personal assets um one is you could start a corporation so what is a Corporation a corporation as as we kind of discussed before is a separate entity that you form I always say consider it like a like another another another person and sometimes I tell my clients this is your new baby so they get that because it's it's something you got to take care of it's something that's going to have its own name it's going to have its own tax identification number and it's going to have its own um things that it needs to be maintained but the reason why it's its own separate person is to protect you as the shareholder older of that company um from any personal liability um it's going to be it's made up of something called stock or shares and when you start a a corporation without doing anything else it can be called a C corporation and what a C corporation is think of uh Microsoft Apple the big companies they're all C corporations there is a concern with the C corporation and that is you're going to get taxed twice now remember when I said it's a separate person so having a separate being a separate person having its own number means you're also going to be subject to Taxation and what do I mean when it gets taxed twice well you're going to own the company as a shareholder so the way you own it is you own stock in the company the company can make money or lose money if it makes money it has to report that profit it makes and then after it makes that profit it can give you a dividend or a profit interest and then you're going to have to report that so the company's got to report it as a tax then you got to report it as a tax you can also choose to be an escort which we'll get to in a in in a second depending on the requirements you can be an S corporation uh but before I get into that I want to talk briefly about a b Corporation so what is a b Corporation a bcorporation is a for benefit Corporation it was just established in 20122 excuse me I was about to say 2002 2012 and it's it it toes a middle line so what does that mean it means that um if you have a company and you want to do a social purpose you want to give to a cause you want to you want to help help help a cause you can do that with a bore if you do it with a regular Corporation and you have outside shareholders your shareholders can get sued at can get mad at you and sue you and saying you didn't give me as maximum amount of money that you could get me but with the B Corp you can set aside profit share for a cost very popular B corporations right now are Patagonia The Honest Company if you heard that Jessica Alba owns her company it's called The Honest Company um Ben and Jerry's all all those company companies are held by certain shareholders but all those companies give money to to um social interest so that's what a b Corporation is a professional Corporation is something that I am link law Inc we're a professional Corporation because the state of California requires us to be a professional Corporation certain professions like we mentioned with the limited liability Partnerships like doctors um lawyers accountants Architects they have to be professional corporations they can't be a regular a regular C corporate S corporation we definitely cannot be a b Corporation it's not allowed by the by the by the rules now a different entity that's very popular right now is an LLC when we have a C corporation or an S corporation you have an annual duty to report to the state of California if you have it in California if you have it in Delaware which is another Pro uh a very popular state to to file things in you have you have an ongoing Duty and you got to have under these codes you have to have annual meetings you have to have meetings every year and anytime you do something you got to make you got to record it with an LLC in the state of California you're allowed to do away with some of those formalities you don't have to have annual meetings you actually only have to report to the state every two years so it's allows for a lot more flexibility than a regular Corporation would um and it also still allows for the liability shield and as this side mentions is these things can be there's a single taxation what that means is with an let's go talk about an S corporation so if you're a C corporation you decide to be an S corporation you just have to let the IRS know and you can only you only get taxed once so remember when I said the company makes a profit you got to report a tax then the company gives you a profit then you got to report that as a tax with an S corporation The Profit goes straight to you as the shareholder it only get taxed once for state and federal or just state for both okay for both um but there are some requirements to that and so let's talk about the requirements this is where the disadvantages comes in on this part by the way the reason why I have oh I just turned it off the reason why I have this here is because when we talk to Mary about what kind of entity she chooses she ends up choosing an escort because she has the most flexibility with that um and what we just talked about is this pass through taxation that's what I mentioned in terms of it comes straight to you also it's very important for companies that are starting up because when sometimes when you're starting up you're spending a lot of resources and a lot of money and you want to report those losses so if oh gosh I've got to get used to this here so when we let's go back so like with the c cor if you have a loss in the first couple years because you're getting a lot of marketing out you're trying to figure out the price of your product you're trying to figure out how much inventory you need you want to report those report those losses if you just have a C corporation you can't you only the company can report it you can't report it individually with an S corporation you can but there are requirements for the S corporation you can only have 100 shareholders or less you have to be a US citizen or be a legal resident okay you can't be a non-citizen and be an S corporation you have to try another entity um the shareholders have to be what I call human beings you can't be a partnership you can't be a corporation you have to be a human being also there's only one class of stocks so if you have should be say one class of stock uh if you have different if you want to have different classes of stock and sometimes you want to do that and we'll talk about that when on when we talk about fundraising um you can't do it with a nest Corporation everybody has common stock so someone wants to invest in you and says I want to get paid first before anybody else does you can't do it with an S corporation but these are requirements that you have for an S corporation and we' kep got through that really fast any questions LLC by the way offers a lot more flexibility because you don't have a shareholder requirement in terms of a number the sharehold the people who are interest holders or members of the LL can be Partnerships they can be corporations and and also there isn't a Citizens citizenship requirement or residency requirement but Mary was a is has a right has is a US citizen so she got to was able to do this and plus there's less than 100 shareholders so remember if you're going to try to also seek fundraising from it and you want to seek a lot of shareholders and as Corporation is also not going to be a way to go so we spent some time talking about what an S corporation is and what a regular Corporation is and an LLC yes is there any particular reason why you have to be a US citizen for an escort because uh um we have an economic development program I forget what it's called and maybe someone can help me but if you come into America and and pay up to I think up to or under a half a million dollars you get a visa and if you pay a million dollars uh and or if you do a half a million dollars and and if you do it in an economically depressed place you get you get a visa for 5 years and you have to employ at at least um I think 15 uh Green Card eligible employees um and then if you put a it's actually 10 or 10 10 so and then a million dollars it doesn't have to be an economically depressed area why why can you why C can you not be an an S corporation is there any particular reason well there there it's two they you're talking about two different agencies that probably don't communicate with each other one is the IRS is telling you you can be an S corporation you're talking about immigration and naturalization so immigration Naturalization that's like ev5 is is one of the one of um one of the Visas you're talking about um and I don't know what the other one is maybe someone else knows um to but but but it's it's it's different and in term that's a relatively new program so you never know this S corporation requirements might shift but essentially they're trying to give people who who have have reporting requirements um in the United States an an opportunity or an advantage to save some money and so if someone else wants to foreign invest you still have to deal with the double taxation issue but I think maybe it could be just as simple as they're not there yet okay um so what I was mentioning before is that we have these corporate structures S corporation C corporation we also have an LLC which is going to protect you from liability if your business something goes wrong with your business and you get sued or or someone has a dispute with you there are exceptions from the liability Shield okay the liability just because you have an LLC just because you have a corporation does not mean you automattic you're going to be protected for everything so let's talk a little bit about those exceptions one is if you're personally negligent okay if you make a mistake yourself you're not going to be able to say oh just sue my company and don't come after me I don't know how that uh the Rich Dad Poor Dad guy got away with it I have to look it up afterwards but as far as I know they have nothing on their own so he didn't have any assets he wasn't holding any assets they have nothing their houses their cars everything they own actually is their companies okay so we'll talk about well so he he could not so in that situation he wasn't personally he was probably liable he was probably found responsible but he didn't have any assets that he he personally held so there was nothing that they could recover I was going to ask about the loyalties but I think you're going to come up here in terms of Duty of loyalty yeah okay uh well let's talk about these and then maybe we'll get maybe you might have a specific question and we can talk about that so so the first thing is if you make a mistake yourself um and you're you're negligent you could be held personally responsible best example I can give you is myself as an attorney so if I make a mistake that's called malpractice and if I do malpractice I can't say just Sue link law Inc I'm not responsible you have to you can you can come after me for that issue another thing is if you sign a contract and you're personally guaranteeing the contract you're you can be responsible for that and that happens a lot with companies and business owners that want to you know engage in business and they have a new company so if you wanted like let's use Mary as an example let's not forget about Mary we still we still have her she's opening up a cupcake shop and she needs a location well she's going to get Ed into a lease and she's going to say well use Mary's cupcakes incorporated as the lease holder well the the landlord's going to say well that's great but you just started Mary's cupcakes in 2015 I want you Mary since you have the good credit to to guarantee this so Mary's going to personally guarantee it so if the business fails and her company goes bankrupt unlike what what our Rich Dad Poor Dad was doing he was probably he was not personally guaranteeing certain de venues Ventures um if Mary's personally guaranteeing it she's going to be responsible for that lease and same thing this happens a lot with contracts too if you're Contracting with certain vendors and they're asking you for things they might ask you to sign off on it I mean as as as an attorney I always you know one of the things I tell my clients is if you can get it under the corporation or the LLC that's the best way but always be advised that if I was on the other side I would say I want you personally responsible for that contract um another exception to to liability or the limited liability is comingling so comingling is when you mix your personal funds with the company funds so this is something that you got to be careful of cuz remember we're saying we have a separate company now you got to treat that separate company as it is separate and you can't just use that separate company's money for your own personal purpose you have to have a purpose first before you use it so that's what comingling is and um a common example would be you know you go out to dinner and there's no business purpose for the dinner but you're using the company credit card if I came I'm coming here to Harry's class and I swipe the company card well that makes sense cuz I'm I'm doing this but if I want to just visit UCLA for a Saturday if I don't have a business justification I'm comingling the other thing is kind of what we're talking about with that example is under capitalization which I don't think they did they might have done it that means is you have a shell of a company you have a company you start it up but you don't have anything in it and in California that's a big bad thing to do because then they can come after you personally and come after you the only thing is as that example that you gave is does do they have anything to come after um another thing is you don't have insurance you have to have insurance um we'll talk about the types of insurance in in a in a little bit but you have to have insurance um as a shareholder or as a director I'll get into that right now you had your question as a director of the company so you're going to have different roles in a company that you start you're going to be a shareholder which is one who owns the company you might be your own director which means the one that kind of manages the company and you might be an officer in the company as an officer or director you have certain duties to the company a duty of loyalty a duty of care and the is it's essentially a responsibility that you have to the company remember what I talked about the B Corp and the B Corp says that you can give certain amount of money to a cause to a to like a nonprofit cause like Patagonia gives the Green Piece which is a a nonprofit cause that they they they like um on with the B Corp they're kind of saying you don't have you have your duty to the shareholders is not the same um your duty of loyalty to the shareholders is not the same because you've agreed to that but keep in mind that especially when you have outside shareholders it's a lot easier when you're just holding your own company to yourself cuz you know it's just you but when you have outside shareholders and investors you have duties to each one of them to to be loyal to them so not start a competing Venture unless you're allowed to do that you can't start the same company with someone else um not you know not comingling funds not under capitalizing it and doing things that are in the best interest of the company and if you don't then that's when a shareholder can come back to you and say you did a couple things wrong one you didn't maximize more profit like you promise two you you used resources for something else and then you know three um you weren't as loyal as you said you were going to be but inherent in each company you're going to have a certain responsibilities and you got to be wary of that that's where we come into play and say make sure we get all the paperwork right to help protect that so we're going back to Mary and Mary's uh Mary's growing Jane's coming aboard she's going to going to be a partner um and Mary's also going to hire a few employees so we got to talk a little bit about what legal requirements Mary or any business owner has to have um to operate the company well since we're in Los Angeles let's talk about the city of Los Angeles business tax registration if you start a company in California you do business in in California you do business in the city of Los Angeles you need to register with the city um if you don't even if you're a consultant and you do a little bit of work but someone else reports you on their taxes they're going to come after you and ask you for money so there's really at a minimum cuz I'm not going to say it's a maximum at a minimum there's three levels of Taxation that we have to worry about the first one's at the city level so um city of Los Angeles is very important that we have that registration take place if you do um there's advantages to um you um offline before we started there was a question about you know is there a way small businesses can have an advantage is there special structure unfortunately there isn't a specific small business company uh that can that can be a little bit streamlined but if you do your registrations with the city of Los Angeles there is something called a small business exemption and they won't charge you a tax for for a year if you have a certain gross receipts under like 100 $100,000 but unfortunately in California a small business has to report just as much as a bigger business has to they got to report to the city they got to report to the state they got to file state taxes they got to file federal taxes the only difference is when we're talking about big big business and we'll talk about that with the fundraising part is um when you get a bigger when you have a bigger business such as an apple such as a big Corporation they have a little bit more reporting requirements but all the rest of the businesses are kind of stuck in the same so whether you're making no money or a good amount of a good living you still got to do all those reporting um the Board of Equalization is up here because this is for people that sell retail that's why I asked that question about retail people that sell a product and if it's a product you got to collect the sales tax a state sales tax if you don't they're going to still ask for some money okay so you have to have that additional registration if you sell a product retail um if you're using a name that's not your own name you got to get a doing business as or fictitious business name so if Mary's cupcake shop is really called Mary Enterprises LLC or Mary Inc um she has to get a dbaa Mary Mary Inc doing business as Mary's cupcakes if you have employees you have to get Workers Compensation Insurance I've had many a client I will not name them since we're being recorded um that thought it was optional in the state of California workers compensation is not optional and if any of you are following this and asking me and could ask me well what about having an independent contractor something called a 1099 doesn't that I mean uh uh is that uh is there a an employee number rate so if you under like five or 25 employees it's not required but if you have over 25 it is is there any kind or that does not matter no so the question was is there a minimum or maximum a a threshold before you get have workers compensation if you have one employee you will have to have Workers Compensation Insurance the question that comes up is if the employee is not an employee or an independent contractor at$ 1099 are they cons you know do I have to have work Compensation Insurance um if they're in that category no you do not but as if someone's anyone's following this whole lawsuits against Uber you know that this there's a shift in California as to what is an an independent contractor and what is employee so you have to be very very careful as to how you structure that and that's shifting every day also when you give employees you have to pay into something called unemployment insurance as well um so um it's it's something that you have legal requirements you have to have right flip to the next one let's talk about some liability issues a customer slips and falls inside the store an employee John hurts his back lifting a heavy box another employee Alice complains that her manager Jim is harassing her the milk company that you know Mary makes the cupcakes for and makes the coffee frequently delivers late or fails to make any deliveries so we have a series of liability issues here um that Mary's going to face one the first is premises liability so premises liability is the customer slips and falls inside the store if you have any type of public space where someone comes in and they can get hurt slip and Fall's the easiest thing but you know if you have a desk that has a sharp point on them and they cut themselves they can be they could they could sue you and that could be a responsibility um we also talked about the employee lifting his his back hurting his back lifting the heavy box well that that is called that's the workers conversation that we're worried about and we have to make sure we have insurance for that another employee is complaining that her man her manager Jim is harassing her well that could be something that we're talking about in terms of you know sexual harassment discrimination something of that nature that's another liability issue we have to worry about the other thing we didn't look about with with this one is that Jim if we do anything an action against Jim because Jim might be bugging Alice and Jim Jim could make a claim for us depending on his age saying you're discriminated against me because of my age so there's all these little issues that come up when you have employees the milk company part is what we talk about contract disputes the one part of my example that I don't have in there is the Americans with Disabilities Act so in the United States there's this this um law called The Americans with Disabilities Act so anybody that comes into a public fac a public facility and public we're talking about public here is not just like UCL campus we're talking about any kind of uh store restaurant uh retail space where someone can come in restrooms restrooms that's very popular and there are people especially in California have this happening to clients where there people that are going to they just go into stores left and right trying to look for mistakes going to the restrooms and seeing is the mirror too high is is the handle too low things like that and then do lawsuits and so that's something that you have to be aware of malpractices and misfeasance malpractice is what we talked about is like someone doing something wrong and making a mistake misfeasance is kind of like what um we were mentioned talking about earlier is you have a duty and you mess up on your duties that you have to others employee liability we talked about workers compensation we talked about sexual harassment we also talked about suing someone based on age or firing someone based on age these are all liability issues that you have to you have to to look into so how do we protect against liability well the first thing that we talked about was was creating a separate entity creating that separate person that's the first way you're going to Shield against liability another way is make sure you have insurance now the key with insurance is one size does not fit all there are so many different insurance policies for different things so if you think you go to an insurance broker or insurance agent and ask for a business policy they it can cover one thing it might not cover the other things that we pointed out so the business policy might cover the person who gets who gets hurt in your store they might not cover when um you fire fire the manager for doing a wrong thing or the the employee sues your company because of what the manager did so it's very important that when you look for insurance you you let them know your needs and make sure that the insurance covers it cuz there's a lot of different policies out there have well-written policies if you have well-written policies in place as a business you're going to be able to protect against a lot of the things that happen so just going back you know if we had a a written policy as to how things should be lifted and if there's things are a certain height a weight it shouldn't be lifted maybe John never hurts himself if we have a policy as to how managers should treat their employees we might never have a complaint by by um Alice also have properly drafted contracts um we're in an age where you can Google a lot of things you can find anything you want by Google the problem with having everything else by doing a search like that is it might not apply to you um and in our situation with Mary not getting her milk on time or not at all um if she had a properly drafted contract she would she would have a way to get out of that of of that contract and protect herself um I've had situations um where a client comes to me with a contract that they prepared themselves and a lot of it doesn't apply to them we've had situations where you have a dispute everybody's based in California and for some reason the contract says we're going to solve this dispute in Michigan or in another state somewhere it doesn't make any sense because they just copied it from somewhere and used it or and so it's it's very to utilize and make sure it's properly drafted make sure it's reviewed and make sure everything in that contract applies to you cuz if it doesn't apply to you it shouldn't be in that contract intellectual property so one way is to make sure you're not using someone else's marks so a lot of people have intellectual property they have logos they have pictures they have things that are copyrighted we talked about copyrighting things you got to make sure that you're not using someone else's marks without permission if you have special marks you know like Mary has a logo here it's not very well it's it's nice I like it um and she if she trademarks this she's going to protect herself so no one else can use it so you want to look into that so let's talk about a little bit about about fundraising Mary needs money for renovations she also wants to open up a new a small Cafe next door so remember Mary was already growing she got a new partner she got a bunch of employees she got hit with a lot of liability issues but guess what we took care of it she's okay um we got we had enough we had the right insurance so everything was protected um plus she had her Corporation so she's all right but she wants to grow oh you have a question sorry just because what you said what if she didn't without getting too into it what if she didn't have the correct Insurance then she's going to be she could potentially her company could be liable so long as she didn't do anything wrong herself her could be liable and then that could be person that Sor that got hurt mhm well workers compensation is something that you it's a requirement it's the cost of doing business if you're going to do this in in California but the person I me I don't think you just meant that I meant think you meant the person that slipped and fell and didn't have the right insurance so if they get a judgment against against Mary's cupcakes Mary's cupcakes is going to have to pay that judgment the question is are is she going to have the money to do it or is that going to you know kill the business kind of like are our description of uh K was what's Rob Rich Dad let's just call him Rich Dad Rich Dad um but that's the thing so you you want to make sure you have insurance in place for the the cost of the premium is going to be a lot more worth the headache of something going on but my concern with clients is always is you think you get one policy and that policy might not cover what you think it covers cuz everything has a separate section to get covered okay so let's go back to Mary wants some money okay so Mary wants to raise some money what does she do well there are very ways various ways to raise money um one is from family and friends and when I have family and friends up here I'm not talking about Investors I'm not talking about them buying your company that's over here I'm talking about Mom can you give me $10,000 to start a company mom's not going to expect to get paid back so she'll well depends my mom she might want my money her money back but uh you know that's that's one option right if you have that option ask for money they can give give you money and it it would be a gift okay not a not a loan but a gift it could be a loan as well but but generally it's like you're asking for money from someone you're begging your family and friends for money another one is you can get loans right if you can there's there's a lot of small business opportunities out there to get small a small business loan you can um you can take a personal loan out yourself which I don't really recommend um um you know you can get a line of credit on the business sometimes if you have a retail business one way you can get a line of credit on the equipment you have you can get a line of credit on the inventory you have you can do those things to kind of get you some cash flow in um another one that we're going to spend some time on is you can sell a piece of your company okay you can sell shares of your company that's what we call about Securities but depending on on what you want to do um there's several ways you can sell the first one is the most popular not the most popular one but the first one is the most known one which is you do a public registration with the SEC you go get traded on NASDAQ or NY on the New York Stock Exchange the problem with that is that it's very expensive um and by very expensive I'm talking hundreds and thousands of dollars um it's very expensive and if you're not going to raise if you're not Twitter you're not going to raise I don't know how much they raise it might not be your best R because because of how expensive but there are other ways we can raise money and we can raise money through a private through some private offerings okay but we have to kind of look into when we're raising money through private offerings whether we're dealing with accredited versus unaccredited investors so let's talk bit briefly about unaccredited investors unaccredited investors s are people who are not really knowledgeable about you know taking risk and giving PE and giving companies money okay so this is usually the other version of family and friends um people who want to give you money because they they believe in you they don't really believe in the company but they believe in you they they may not know the risk that they're taking and an accredited investor is someone who has at least 200 ,000 in annual salary or has a million doll of net worth excluding any home any person their personal home and with an accredited investor they know what kind of risk they're going to get into do you have a question let say I and doesn't the unac don't you have to show that you've known the unaccredited investor for over a year is yes okay yes and that's the so there's there's something called so let's go with the unaccredited investor so un accredit investor there has to there's a knowledge requirement actually with the credit there should there is a little bit of a knowledge knowing requirement as well uh but with unaccredited investor you have to know them for a certain period of time um you can only raise up to a maximum of a million dollars and um you are still required to do all the disclosures you have to do for an accredited investor I actually would stress it more within an unaccredited investor because like I mentioned they don't know the risk they're taking and it's usually a personal relationship you have and you're really running the risk of affecting that relationship if your if your business does not pan out so what we do is when we're making up a private offering we have a couple items in place I just gave you some examples of certain things that would happen one is the private placement memorandum now a private placement memorandum is like a prospectus that you would get from a major company it's going to be a a not a booklet per se but it's going to be a pretty extensive document that's going to show all the risk factors that a company is going to have it's going to say all these things that could happen it's going to describe the structure of the company it's going to describe who's going to be the director of the company who's going to be the officers of the company what the company's going to do um what your financial forecasts are going to be if you're not operating yet and if you are operating what do the financial statements say but essentially what you want to do with a private me placement memorandum is disclose everything you want to disclose everything that someone should know before they invest in your company and you really want to pay attention to this private placement memorandum when you're dealing with unaccredited investors and you're you're going to use that exemption approximately just so we can put it in perspective here how many pages long how large of a document is a private placement memorandum and as an attorney how how much time do you spend developing that that could be a real time sync it takes a lot of time it it it takes a lot of time um there's not a um an average page number but you know if you want to look at a lower lower private placement memorandums we're looking at 40 to 50 pages at the lower end that's longer than the business plan exactly cuz you're going to use as you see here what do you need before you start you're going to need a business plan I'm going to ask for your business plan I usually ask my clients for a business Plan before they before they meet with me so I can know where they're going cuz part of us deciding whether you're going to be an es Corp and LLC or a B Corp is where are you going to be in 5 years so we can plan accordingly instead of oh we wanted to start as an escort but guess what I'm changing my mind cuz I didn't have that business plan in place so now I want to be an LLC well with the business plan you're going to you're going to highlight a lot of you're going to highlight the market you're going to highlight the opportunities um and you're going to highlight some of the issues already the private placement memorandum is less of a of a I would call it less of a marketing piece than a business plan because business plan is going to have a lot of Market structure private placement memorandum think of it more of a disclosure piece where you're really trying to disclose all the potential pitfalls for your company but you're going to use as a basis to discover those pitfalls is the business plan and just us you know in terms of time you can tell we're drafting a 50-page document it's not going to be a couple hours um but part of if you have someone that wants to come in and invest in your company you're going to want them to fill out an investor questionnaire why do we want this because we want to confirm that they're accredited investors we want to make sure that they've told us you know this is why I have this is my my income disclosures this is where I'm at and this is how I I know I I can take this risk the subscription agreement we're going to utilize as call it like a bill of sale so it's basically an agreement between the company and the and your new investor saying I'm going to invest in your company this is how much I'm going to give you and this is how much stock I'm going to get in in in place of it there are other agreements that depending on the type of offering you're doing that might come into play but these are the the three of the of the more common ones there's also another way to to invest to have people invest you can have people loan you money and with the promise of either you're going to pay it back or if you get more money from another source it's going to convert into Equity so if you've ever heard of something called a convertible note um that's that's another way to do it so you get someone to lend it you have uh terms in place as to how people are going to lend you money how you know what percentage they would get their money back but if they hit certain conditions for example you get this first round is just going to be loans but you go out to a venture capitalist and they give you a bunch of money before you get money from them the the people who lent you money is going to convert into equity for them so that's another option part of what you need to do before you start giving offerings at least private offerings in this in this sense is what would talked about having a business plan in place you also want to make sure if you're already operating or even if you're not operating have financial statements in place you got to meet with an accountant and make sure that you go over your financials because your investors are going to want to see what kind of financials you have you also want to make sure all your paperwork for your corporation or your LLC is up to date um that's a part of the review that you need to be done because part of the due diligence that they're going to do is they're going to want to see that you have a company that's that well put put in place um but change the slide um uh to bring the first uh three items there the private placement memorandum the investor uh questioner Subs subscription agreement can that also be called a stock purchase agreement stock purchase agreement is a little bit different okay um subscription agreement is yes and no just so that the class can understand not just your firm but any typical Business Law Firm what is are we looking at in terms a professional fees for those three documents in well not for yeah it's average is not for those three but there's also going to include you know corporate record review making sure all your records are up to date so let's say you had a corporation since like 2012 but you haven't done anything we got to update that so that when you start talking to investors it's all looks clean and everything's up to date and all your paperwork's in place but in terms of a ballpark let uh a ballpark you're you're looking at $10 to $30,000 plus you're also going to depending on the amount of CPA account you're going to use double that amount for for the financial statements cuz they're going to have to do work for it so when you're looking the fund raise and I'm I'm giving you a wide range it could be less it could be more depending on your need but when you're looking at fundraise you you got to put that into consideration because you can't just say I want $50,000 cuz all your money is going to get eat up in legal cost you got to look look at at the amount that's going to be utilized there is using there is another form that's going to start on May 16th how many people know about crowdfunding okay good good there's something right now that's basically called donation based or rewards based crowdfunding like indeg go and gosh how did I forget the most the most famous one yeah Kickstarter thank you thank thank you to the audience um and but with those it's you're just donating money and by donating money you're going to get a token back you're going to get a film credit you're going to get a t-shirt back there's something called Equity crowdfunding that's going to start on May 16th where you can actually give uh sell your company to the public um on a micro basis so you can sell to a lot of a lot of people that you don't know what we talked about in the beginning is there's got to be some kind of relationship with either an accredited investor or an accredited investor between your company and um and you with this crowdfunding there hasn't doesn't have to be relationship but there are limitations and I still think that we're at a stage right now where it might not be the best for a company there's a million doll limitation um you had a question related to that um yeah somewhat like when you get a um private offering or some sort of like money coming into your business do you pay some sort of like um fees or like taxes to the government if money comes into your company it well that's why it's very important to to consider how you structure your company CU it's going to really depend on how you structure your company you can issue a bunch of shares or you can have let's say you have $100,000 100,000 shares but you only going to hold you start your company you're only to hold 10 if you only hold 10 there's 90,000 shares that you can sell there shouldn't be a tax implication for that if you if let's say if you if you decided to give yourself all 100,000 and you're selling some of your 100,000 but you bought it at a dollar a share but now you're selling it at $5 a share well there's a $4 gain there so there could be a tax issue depending on on how you hold your company's shares so that's why it's important that what we do with our clients is we do make a reservation even if they don't you know we went through their business they don't want to ever sell to anybody else we still reserve some some uh we we like to reserve some shares for them if they want to do that just in case to avoid that but you always want to look out for capital gains depending on shares that are issued um but it's it's all on on you um structure it back to the equity crowdfunding um there are limitations million dollar maximum cap maximum fund rise so what does that mean we're talking about you know 20 to $60,000 of fees for um for legal fees and and accounting fees so you're already getting some of your stuff eaten up depending on the level depending on the level of how much you're going to raise like you're you're getting above the $500,000 Mark these financial statements have to become close to like kind of audited statements and that's why that that account that accounting fee gets so high because they're actually kind of giving you like like like very detailed financial statements but that's all required because um by the SEC for you to do this also you have to use these portals there's going to be portal portals that are similar to Indiegogo similar to Kickstarter but it's going to be on the equity fundrais and everything has to go through those through those portals um but I still think that the the number is kind of low based on like the amount of work that has to be put into it um if if it was a higher fund raise that you could do it it would make sense but you know clients they're considering it now they they're trying to go for the million doll Mark as opposed to raising $200,000 because it doesn't make sense cuz all the requirements are generally pretty much the same questions recor my question is going to be about asset protection okay you know they say that in 2014 I think 400 more wealthiest people in the United States pay average 16% tax but you know many people are paying more than 30 or 40% of their income uh just because of their asset asset protection ways I know that many of them have some companies in Delaware or Nevada MH and some places like this was can we do same things like they do well it it all I mean as protection well the basic form of asset protection is what we're talking about right now is forming an LLC forming a basic Corporation what you're kind of talking about is from a tax perspective is sometimes individuals will have companies um that control their Investments and if they control their Investments sometimes they're able to get a a dividend out which is going to be at a less taxable Source than ordinary income cuz in paper that they're getting like uh $10,000 or $20,000 a year for salary but that's not yeah which is it depends on the jurisdiction that you do because certain certain and it's it's it's a a an it could be a potential red flag for certain agencies such as the IRS cuz they want to see a reasonableness between your salary and the amount of dividend you're going to get cuz if they see that in that invert part they're going to probably look at the books and make sure but there are ways that we're talking about the wealthy sector where they control their Investments via you know different types of forms llc's limited Partnerships um things like that and if they're they may not need a salary from that because those are extra Investments and they're only going to get you know something that's going to be um taxed on the capital gains basis as to ordinary income which is what you're kind of talking about and they'll get you know taxed at 10 15% um the capital gains rather than you know the the 28 to 40% ordinary income would get taxed out how about you organizing a company in another state and living in California okay good question you can do that but if you're going to be work operating that company in California you have to register as a foreign company in California and California will charge you so California will charge you so what I tell my clients is that's as if we're forming two companies so we forming one in Nevada Nevada used to be popular it's not as popular anymore Delaware is still popular for other reasons especially if you're going to seek outside investment it's a corporate friendly it's corporate friendly well Delaware is the first state in Cal in the United States that's had a corporation so so like 16 years after the country was formed there was the first Corporation so they have a history of stuff um but you have to register in California still and so it's like having two companies because you got to do a whole registration in California and pay a whole set of tax taxes based on that registration California is also yeah most and Most states are catching up to that too um yeah so the minimum fee just so we know the minimum fee you have to pay to the state is $800 a year that's the minimum fee that you have to pay Franchise Tax Board the Franchise Tax Board yes um and then based on your entity there's going to be another you know and based on your entity and how much you make there's going to it could increase yeah I'm um I know it's going to vary but you know for you know people like us who are trying to start our own small businesses and we're obviously starting out which one is recommended um I know there's probably specific things for specific ways that you set it up but which one is I guess most popular most recommended I I I feel like I see a lot of llc's out there so there has to be a reason why and then how difficult or easy is it to to set up well um llc's are very popular as I mentioned because llc's are very flexible in their management and and what what that means is you don't have to have an annual yeah annual statement annual meetings so a lot of a lot of people do it but it really in terms of what I see I see a lot of Corporations and I see a lot of llc's it just depends on the need if we're going to hold real estate we're usually going to put it in an LLC it just makes it's it just makes better sense um from a flexibility standpoint plus there's also tax situations cuz what I like to do is I partner up with my client's accountant and try to figure out what's the best state because we want to look at their big Financial picture because there could be tax issues based on either way and it's it's really going to vary um some clients who are concerned with the amount of structure that a corporation has would would will default to an LLC but then sometimes we've had clients where they end up becoming moving from an LLC to to an as Corporation because it just makes a better tax situation even though there's this extra requirements of annual reporting but it's really split between you know a corporation and LLC so I mean is there a big issue on SL providership why you should or shouldn't well the concern with I mean why you should is if you don't want to deal with all this paperwork just do a s propri ship the only thing that I would tell everyone is if you do a soul proprietorship use a different name go to down to the county and get a fictitious business name a DBA um why you shouldn't is the fact that you could get personally exposed and be subject to a judgment so remember that thing we're talking about uh the example of someone getting hurt at a store if you held it as a sole proprietorship you could have a judgment against you which typically my old uh litigation memory serves me correctly judg last like 10 years and they can get renewed so if you ever get that inheritance coming in from whoever and you have this judgment against you they could they could come collect on that judgment as opposed to you know you're shielding your your personal stuff from from that read it maybe send it to you yeah a good ide do you have student discount go we give a we give a a business law 101 discount okay do you have more questions fantastic don't um so I want to I want to wrap up uh uh Alex's uh presentation by um you know in life there are three people that you have to have connected to you as you go through your journey in life one is a CPA you need someone to communicate to the IRS because they get these letters and they speak a language and it's not a good idea to communicate with the IRS yourself really need to work with someone who understands the laws and all the power they they they they they have over they can just turn your checking accounts off uh the next professional you need to have a relationship with is a doctor particularly if you're going into business because a lot of stress you could have a heart attack and what do doctors do when they meet you they want to do a physical on you they want blood they want to stick their fingers all kinds of funny places and say does that hurt and and uh so they want to get a feel for how you're doing physically so if you need to get a cold and and uh you need a antibiotic you just call them up and there's your antibiotic so by the same token you also need an attorney and and it pays uh tfold to invest into someone like Alex the very very beginning you know just a a get to know you fee uh and at the beginning of his presentation he reviewed a number of uh packages that uh he can engage you with um but I would strongly encourage uh uh wherever you are in the world to start a relationship with an attorney right along with your doctor and right along with your CPA CU When the proverbial you know what hits the fan and problems start to grow it's just it's very stressful you're not really thinking straight and so you need someone who's neutral speaks the language knows the structure can take a look at the letters and really tell you is it a problem or not and so I can't I can't uh uh encourage you more uh enough to uh start a relationship early in the process of starting a business uh with an attorney uh to that note I want again thanks Alex and he's going to be around after to answer personal questions get a business card for him stay in touch you never know when you're going to need a good attorney thank you [Music] [Music]