Single Member LLC Mistakes You Should Avoid - 4 Biggies

hey Jim Hart back out you hear from Hawthorne law and today I want to share with you how to avoid the four risks that are inherent with every single single-member LLC that are out there so my name is Jim Hart I am the founding attorney at Hawthorne law and basically what we do at Hawthorne law is we provide legal information tips and strategies that you can use to help protect your online business and we do that mostly through this YouTube channel so please don't forget to subscribe hit the little button below and hit the little bell thingy as I like to say and so you get notified whenever we post new videos going into the end of 2019 there was this renewed effort to build up this channel in the past several months I've started posting a little bit more regularly and my goal for the remainder of this year and moving into 2019 is to post videos on a weekly basis and then also one idea that I have in mind is to do regular Q&A sessions on either Thursday or Fridays of each week where I'm just gonna basically go in and answer viewer questions so if you want to hit me up with a question if you want to send me something you can either leave a comment below or even better than that go to my Twitter it's at Hawthorne LG I believe that's right on Sega let me check yes that's correct at Hawthorn LG go ahead and if you want if you got a question just go ahead and send me a tweet there and just mention me in the tweet and I think that's how that works I'm not very good with the Twitter's but I think that's how that whole system works so anyway that's the best way to reach me all right so let's jump right into what I want to talk to you about today and today what I want to share with you are the four things that you can do to avoid the risks that are inherent in every single single-member LLC and before we get into that let's do a little background here so I've talked a lot about LLC's on this channel and one thing I want to share with you today is what an LLC is now when we say single member LLC and bear with me please because I've got I'm getting over a sickness which is why I don't know that I posted last week I've been having a lot of coughing and Flemmi stuff disgusting you don't want to know anything about that but basically bear with me if I start hacking up a lung here in the middle of this video that's why so let's start with with the single-member LLC we call it a single-member LLC because when you're talking about an LLC the person that owns the LLC is called a member so that's different than like a corporation where the person that owns the corporation is a shareholder so you might own stock in a corporation but when you're talking about an LLC if you own the LLC what you own is a membership interest and if you are the only person that owns the LLC you are the sole member or the single-member owner of that LLC so single member LLC's are different from multi member LLC's where there would be a number of different owners and there's a whole different set of problems that come along if you do have a single member LLC and that's what I want to talk to you about today now the reason all this is important is because when you have a single member LLC a lot of the reasons that most people form a single member LLC is because they want some level of liability protection in other words if their business does something that causes them to get sued then they want to make sure that the person that's suing the business can't come after if their personal assets does that makes sense if that makes sense just comment below and say yeah I'm getting what you're saying so far that would be helpful when somebody does that and they're able to sue the LLC and they go through and sue the owners of the business as well and they're able to get at those personal assets that's called piercing the corporate veil you do not want that to happen and there are four primary ways that that can happen and that's what I'm going to talk to you about and how you can avoid the risk of that happening with your LLC so basically the first thing you're gonna want to do when you're a single member LLC to protect yourself is you want to make sure that you follow all the appropriate proper legal formalities that are required to operate and own a LLC so this is going to be you want to do the same things for a single-member LLC that you would do if there were multiple owners and it was a multi-member LLC or if it was an even bigger business than that the the biggest most important thing you want to do you're gonna want to have what's called an operating agreement an operating agreement is an agreement between you as a member or owner of the LLC and the LLC to make sure that the LLC is run in certain ways and that means that it talks about how you're gonna take a salary and might talk about how you're going to choose to buy property for the LLC the type of business that you're gonna be engaged in the type of insurance that might be required where the business is going to be located all sorts of different things what happens if you decide to dissolve the business how much money you're gonna contribute to the business to make sure it's adequately capitalized all these things go into the operating agreement I know what you're thinking well that's I gotta take a phone call all right so I'm back that that one phone call turned into roughly an hour and a half a phone call it's three phone calls right in a row so anyway what was I saying so I know what you're thinking about these out braiding agreements you're thinking well that it's all well and good but why do I need to do that if it's just me if I am the only owner of the business why do I need to have a contract with myself about what I'm supposed to do and how I'm supposed to run the business this is why I'm in business for myself I want to be able to do my business the way I want to do it and I don't want to be bound by all these legal formalities well okay but if you want to protect yourself against potential legal liability if you want to protect yourself against somebody suing you and getting at your personal assets then you need to follow these legal formalities that's what I that's all I can tell you so the operating agreement is a big one that you're gonna need to do another legal formality is to make sure you keep track of key decisions that are made in the business and you do that with meeting minutes so you're gonna have regular meetings of the members and in this case it's gonna be you and you and you're just gonna have a meeting with yourself and you know let's say you decide that you want to buy a you know a brand-new laptop for the business well then you're gonna have a meeting with yourself and you're going to say today we we had a meeting of the members of the LLC and we be it resolved that we decided to purchase a new Apple aerbook and the cost of this is going to be $2,000 and we are going to use the firm or the business credit card to purchase this equipment and pay for it out of the profits of the LLC something like that anyway that's what you do that's how you do you write that all down you include it in a notebook or an online file that you have that's got all this information handy that's what you do that's that's another legal formality the heater just popped on I'm going to turn that offices and make noise so another thing that you're going to need to make sure you keep good record of to make sure that you adhere to all these legal formalities is you need to make sure that you have good tax records in place for the LLC so you're gonna want to make sure in all likelihood you'll want to hire a bookkeeper who can make sure that you've got your your accounting set up correctly and that you've you keep track of everything correctly that way and you want to make sure you have good records in place so that when it comes time to your taxes that you've got a clear delineation of what was done for the business and what was not done for the business know I've got something in my eye so along those lines another thing that's really important is you need to make sure that you have separate bank accounts a bank account for you personally in a bank account for the LLC so this is again very important to make sure that you don't violate what's called the alter-ego doctrine which basically is a doctrine that says that you are basically the same as your business and if you are the same as your business then that's going to be problematic and that's a way that somebody can come in and pierce the corporate veil so if you just use the LLC as your personal bank account or let's say you set up the LLC you follow all the paperwork so you've got an LLC and then you just deposit everything from the LLC into your personal bank account that's a problem you need to set up a separate bank account with a separate key i n for the LLC all the income from the LLC goes to that if you need to if you want to take a capital draw I've got another video I'm going to include a link up here to how you how to pay yourself out of the LLC it's a fairly simple process but it's going to depend in large part on whether or not you elect S corporation status that's another video which I'll probably put up here as well so that's another another thing to consider you want to make sure that you have a separate bank account for the LLC and yourself personally if you want to take money out of the LLC that's fine pay yourself out of the ll or if you need to put money into the LLC to pay bills then you make capital contribution or a loan to the business to pay your bills and then you do it that way but make sure you have the two separate bank accounts so that was a long way to say the first thing which is to make sure that you follow the appropriate legal formalities for your business so that nobody can pierce the corporate veil that way the number two tip I have for you on how to avoid liability with your business is to make sure your business is adequately capitalized so what I mean by that is when you when you get money into the business you want to keep it in the business to pay the operating expenses of the business if you money in the business and you immediately take it out and put it into your own personal bank account and you think oh well now they can't get that money that's a problem because they could technically get that money if your business is not properly capitalized to pay for the expenses related to that business if it's undercapitalized then that is a reason why somebody would be able to come in and pierce the corporate veil so that's number two number three is to avoid commingling personal and business funds we already kind of talked about that this is the alter ego doctrine again just you need to make sure you have two separate bank accounts one for the business one for your personal we already talked about that I'm not going to dig too much into that right now number four is a big one this is something that a lot of people mess up quite a bit and you need to be very careful of and that's that you need to act as the owner of the LLC so when you like I just I've got this brand new it's not new but I've got this this beautiful new office condo that I just leased in the name of my law firm to house my law firm it's great we got six offices we've got a lot of room a lot of space when I signed the lease agreement I signed it as the the president of the heart Law Firm which is the name of my law firm I'm this is the Hawthorn law I'm doing businesses Hawthorn law the name of the business the name of my parent company is the heart law firm and I signed the lease as the president of the heart law firm and anytime you enter into a contract whether it be with somebody as an independent contractor or an employee or whether you're doing work for somebody on a consulting basis or something like that anything you might do where you have to enter into a contract where your business has to enter into a contract business is the end it needs to sign the contract and you will basically sign it as you know the name of the LLC by your name as owner or member or whatever it might be I'm a president of my my corporation because my law firm is formed as a professional association which is a type of corporate entity it is not formed as an LLC but if I were an LLC I'd be owner or a member or something like that struggling today man all right so there you go four things that you need to think about when you are forming your single-member LLC to make sure that nobody can see you and get at your personal funds and let's just run through them again number one you need to follow all the proper legal formalities number two you need to make sure your business is adequately capitalized number three you need to avoid commingling funds and number four you need to make sure you act in your capacity as owner or member of the LLC whenever you're doing business for somebody else and you're signing contracts those are the four things you need to know hopefully this has been helpful to you make sure if it has leave a comment below let me know hit me up on the Twitter's and at Hawthorn at Hawthorn LG I think that was for Hawthorn law group at one point but that's why it's Hawthorn LG also I think I'll throw in law might have been taken so hit me up on the Twitter's if you got questions I still have a ton of questions from people that'll love comments and the questions in the comments although I'll tell you it's gonna be easier just to ask more questions on Twitter I think we'll probably come up with some sort of hashtag for that so that I can just fall through and just answer all those questions that way and what I'll do is I'll look at your questions on the Twitter's and then I will answer them live which would be kind of cool right so that's it make sure you like the like the video comment below subscribe all the type of things all the all the places and and we'll be back next week with another riveting exciting episode of Hawthorne law TV or whatever we're gonna call this I'm not quite sure yet I got to go I got a I got a run my family's got dinner for me at home so I gotta be out of here see you later folks later bye bye still there we go turn this off [Music]

Channel: Hawthorn Law

Views: 750,077

Keywords: single member llc mistakes, single member llc, limited liability company, how to pay yourself as a business owner, how to pay yourself llc, how to start an llc, forming an llc, how to form an llc, starting an llc, single member llc taxes, single member llc s corp, owners draw, single-member llc, start an llc, form an llc, llc vs sole proprietorship, hawthorn law, llc explained, operating agreement for llc, legalzoom llc, legalzoom, llc tax benefits, ein number for business

Id: u79tuv98f2A

Length: 13min 15sec (795 seconds)

Published: Wed Dec 05 2018