Lessons

Lesson Info

Business Types

All right let's dig into business types this was something I added per your request so I am going to fly through this all right first of all soul proprietorships d be a partnerships corporations thes air the type of legal options that are out there for you each comes with a ton of pros and cons I will tell you that we are in fact and as corporation that's how we're set up and hopefully by the time we get through this it'll make sense why so a sole proprietor is not a legal entity and what that means is the business is not its own entity the business is you you are the business so if anything happens anything goes wrong you are ultimately responsible for that uh you can operate under your own name right? So you you would typically file a schedule c at the end of the year so from a tax form perspective you don't have to file corporate taxes you're just filing taxes under schedule c which is part of your ten forty okay so it's just an ad on form uh the business lives and dies with the own...

er so if you have a business set up and you are growing your business and god forbid something happens to you business is done it's over because it's tied to you that's actually very important where did the assets go? What if your husband and wife team if you die should your business be over what about your wife do you want her to own the business or what about your husband? Where did the assets go? Do they go to the state or do they go to the surviving partner if your setup is the sole proprietor you're gonna have a bunch of issues here but mostly personal liability so any debts you incur god forbid something goes wrong with your your business and you can't pay your debts they can reach through to your personal assets they can take your home they can take your car's taken reaching all your personal assets that's because your business fails that is a big liability also any accidents what if somebody trips over a bag in an event that's a real scenario somebody absolutely can trip on your bag what if I'm in aa sketchy part of town and god forbid something happens to one of my clients I don't want to go out of business just because something unforeseen our unfortunate happens I don't want to lose my home because something happened so I need to protect myself so a sole proprietor has a lot of exposure and so here's some of the pros and cons first of all, they're easy to form there's no formalities no extra forms to set up a sole proprietor you can mix business and personal assets right? So typical you're operating out of the same checking account which has got its own set of issues, simpler taxes, no special tax forms have to be filed. You're just filing that schedule c which is part of your personal taxes but the biggest con okay, first of all, it's less professional if you ever want to get a loan at the bank you're applying for the loan, not your business. That's also problematic, right? So we just went for the we just got that new building I didn't apply for the home. I was a co signer of the loan, but the business was able to get that loan because we have the history and its its own entity. But the biggest challenge here is the personal liability d b a stands for doing business as so this is your operating name, so you can actually be a sole proprietor doing business eyes right? I could be south and kata doing business as salvador cincotti photography and all that doesn't just create a business name for me, something I'm operating under, but taxation wise, everything's the same as the legal entity, right? So for a while we were scp, which was the corporation doing business as studio c, right? So it creates this separate checking account. What if I wanted I wanted to open a separate checking account for studio c so funds were kept different so I had to have that d be a studio c so that it can go open checking accounts, file separate tax forms things things along those lines right? You're keep different books partnerships there's two types general and limited in a general partnership okay let's just say it's me and taylor where fifty fifty owners in a limited partnership okay? And we're liable by the way so liability is there so if you're a partnership, the liability still exists between you and your partner so once again any debts anybody, any accident things like that if you're in a partnership both you and your partner are responsible for those deaths those liabilities on for any accidents that would would come of that there is more administrative complexities you gotta keep track of paperwork things things of that nature in a limited partnership you've got general partners which are liable they're running the business but then you've got limited partners who may be our investors right? So it's a photography studio this is not something that's typically what you'd be looking for here right? Unless you're like raising big funds to support your business which typically it's not how photography studio's work right? You're the you're the owners of that so just keep in mind the big thing here is in a partnership you once again I have a certain sense of liability that you don't want for your business pro con shared cost to start up our pros shared responsibilities right between you and your partner shared risk although I would make the argument that if you and your partner are husband and wife team, there really is no shared risk shared responsibilities because here they're talking about shared risk being financial risk shared responsibilities being around financial and business responsibilities as a husband and wife team you're in it together if something was wrong financially you both fail but khan's lack of control ofthe control right? Because you've got a partner in that business on like sole proprietors, general partners are personally liable for the the the debts and liabilities in obligations of that cos this is something you want to consider, but as we look at corporations okay, they're created at the state level, right? So we're a corporation and as corporation in the state of illinois were separate legal entity, the business has can have a life of its own um they're immortal, so if something were to happen to me, the business doesn't die that's very important now, right? I don't want something to happen to me and my wife I can't continue to run the business or something happened her and I can't continue to run the business and so we want the business the corporation to be immortal it is its own person in the eyes of the government an ass corporation or corporation in general is its own person it can operate as a person it consume people it can be sued um now here's where things get interesting with an s corp income in losses are passed through to you as an individual and here's why this is important so let's say you're lets you starbucks starbucks is a corporation starbucks pays income tax as a corporation, right? So let's say starbucks makes a million dollars they're now going to pay income taxes on that million dollars now they pay you is an employee you are paying taxes on money that starbucks has already paid taxes on do you understand this is what you're paying taxes to times, so I know this is something you want to glaze over because it's business and it's like I'm boring show me more pictures, but this is very, very important as you're setting up your system here and getting started don't discount this you don't want to pay taxes twice so you would never set yourself up is a corporation, but ask corporation gives you the benefits of both worlds and as corporation your income, your only taxed once okay, so let's say our business makes one hundred thousand dollars were on ly paying taxes on a personal level, so we're filing personal income taxes based on that hundred thousand dollars it's very important you taxed want but you have all the benefits of a corporation from a liability perspective, meaning somebody trips over a bag okay and sues me. They can't sue me personally, they can sue the company, they can bankrupt the company, but they can never reach through. Get my home, get my cars, get my retirement funds. All of that is protected. And if you don't think this is important as a photographer, as an entrepreneur and business owner, you are going to immediately starting down the wrong path to set up yourself is a corporation. It is typically going to cost you about a thousand dollars in whatever state you're in that's about the cost, right? You gotta get attorney filed the paperwork do not do like legalzoom or anything like that. Just pay somebody, let them do it. Um, pro con right income from profits or losses of the company or passed to the shareholders? Who are you? The husband and wife team on those are reported on your personal taxes. That's what you want you want to pay personal tax? Is it's a much lower rate than paying him at the higher rate? And if you're not making money right now, you might be thinking, why do I care about this? I don't even make I don't make enough money to worry about this. Well, the whole point of everything we're doing and teaching you and you're learning is hopefully to get you to a point where you are making money and so you have to start laying the groundwork and foundation to get you there there's limited liability okay? So the entity right? Because that corporation is its own thing its own entity you are shielded your assets are shielded from anyone reaching through piercing what they call it piercing the corporate veil reaching through and getting your assets you never want to put in your assets at risk that would just be irresponsible, right? You don't want you don't want to ruin your entire life because god forbid somebody trips on the sidewalk in front your building this is reality again we just got that building guess who owns the building? Who would you guess owns the building? Anybody nobody everybody fall sleep s c p so salvador cincotti entire fee owns the building so if somebody trips on the sidewalk in front of scp they would be able to sue scp and put scp out of business so no they don't we actually have a separate corporate entity that was set up was called do well properties so we have an llc called do well properties do well properties who I am the main shareholder of do well properties I personally am the ceo I own fifty percent taylor owns fifty percent we own do well, properties do well, properties owns the building. Okay? So god forbid somebody trips and falls, they would be able to bankrupt a building that has no money. Okay, they would be able to bankrupt the company that has no money. This is intelligent business practices. You have to do this to mitigate the risk of your business. And so now we've shielded scp, which is a tenant in the building. So I c p pays rent to do well properties. So even though I'll ultimately own it all legally, we have protected all our assets. Yeah, I had to pay an extra thousand dollars to set up that bill that the corporation on the building but it's the smartest thing I could have possibly done to protect my assets. We have to think that way. Unfortunately, the world we live in, we have to protect ourselves, print on the corner of the building and sue do pursuit, do well properties. Would they be able to basically take the building that right? That would be rare so that the asset of do well properties, right? More than likely, if that were to happen and it went to trial or something like that, or we settled out of court on ly thing, that somebody would have to come along and place value, too. The building let's say but the value of the building wouldn't be it's a million dollar building the value the building would be the equity that's in the building so if there's only fifty thousand dollars worth of equity in the building the truth is because the bank owns the rest of the building right? In reality we none of us really own our homes the bank's own him on the building so they would be able to sue for that small amount of money and that's usually and that's how the world works or what we're doing what I'm teaching you isn't something that's unique to me this is something that is a responsible business owner in the united states or america this is how you're running this stuff so you'd be sued for what assets are there ultimately in that building which in this case wouldn't be very much on I've got to do that to protect my building so I hope everybody kind understands that definitely people are like I don't think d in boston says I don't think people understand how valuable this info is yeah, this is not something you're picking up a book and be like how to protect your assets right it's not there and so you've got to be able to do that it's very valuable information and you're getting once again just kind of real world what's going on in our business and how we're set up and this is maybe not even really photography related. Eso itt's, just general business practices and this escort thing. I see a lot of you. I'm curious right here. How many of you are so proprietors? Three three ofyou, tyler. That surprises me. Uh, what do you llc? Escort escort, escort soul problem, right? He said, yeah, so you guys were so problem. You guys gotta make that change immediately. You're established enough to make that change, so I would worry now when we started off, of course, we were a sole prop for our first year, and then once we started seeing where the business was going, we immediately went to an escort. So if you're that weekend warrior and you're just kind of experimenting, just understand that even though you're just experimenting and you're playing weekend, you know, dress up on the weekend and you're a photographer. You better understand that if somebody trips over your bag, you are going to be personally liable for what happened there. Or if you miss pictures, you could be suit. And we do have a lot of questions about the difference between escort and llc. So there's s own llc, limited liability corporation, right and escort. You've gotta look there's going to be very, very subtle differences in those differences between a limited liability corporation and an s corporation or even a c corporation or proper corporation what's going to happen is going to be tied to number shareholders things along those lines s o you know if you're gonna have more than and I don't know the number more than fifty shareholders or how many shares you're gonna issue you have to look at a different corporate structure so the truth is I think for our escort I think there's only been ten shares issued I own five shares of the business taylor owns five shares of the business but if we wanted to be traded ah publicly traded company that off initially wouldn't work because then suddenly there's millions of shares being traded so it's going to come down to things like that I don't want to give you the wrong advice on and I don't know all the subtleties but it's going to be along those lines so make sure you check into that online right so just googling thes air things you want to do though definitely get into an escort I looked at all the business structures that I thought made sense and the ass corp was where we ultimately ended up I felt like that was the best thing for the liability perspective somebody getting her tripping falling getting sued anything like that as well as the income breakdown so from an income perspective I don't want to pay corporate taxes I want pay personal taxes so it's kind of the best of both worlds consulate right here is one of the cons and this is going to end up being kind of the difference between the llc psi corp escort on an s corp you can't have more than seventy five shareholders right? So clearly salvador some kind of a target is never going to be owned by more than two people on that's just myself and taylor we don't anticipate bring in any partners but if we ever decided to let's say we went with that salvador's and kata franchise idea and we wanted to grow this thing and we wanted to get investors into the business the escort would probably not b the right set up for our company and we probably have tto reincorporate using you know, different articles of incorporation so that we could have more shareholders so like I said for based on what we were doing and where we're going with the business that's what we were trying to accomplish uh, profits and losses air distributed direct proportion so that could be problematic to as a con as a husband and wife team the money you know it's za same bank account but if we were not a husband and wife team on I oan sixty percent of the company and my partner owned forty percent of the company distributions profits would have to be distributed equal to the ownership interest, so I would immediately get sixty percent of profits. My partner would get forty percent. So that's just a con in our scenario, it's not a con, because it was all going into the same bank account. So, first of all, from bryce mansfield. Sal, what do you mean? If you miss pictures, you could be sued. If you miss the kiss in the wedding, they could sue you for that. Yeah, well, may be a dumb question, but I don't know it's. Not a question that's. Why we're having this conversation so welcome to america, where anyone can sue anyone for anything, right, aiken to you because I don't like the color shirt you're wearing doesn't mean I'm gonna win, but these frivolous lawsuits happen all the time. So there are our industry is riddled with true stories around us, and there was a scenario where and I think it was even in pgn magazine. I can't remember a photographer missed the first kiss or something like that happening. Mr shot. Well, the bride came back and said bride was an attorney. Of course said, you ruined my entire wedding now that I don't have that the entire corps, the day has been ruined. And and I'm gonna sue you for damages. I'm going to sue you for my flowers because I paid a hundred thousand dollars for the flowers. I'm going to see where I was a high end wedding and she ended up suing him, right? For somewhere in the neighborhood, like seventy five or one hundred thousand dollars. Now she didn't win because what he had to pay for an attorney, he had to go to court. He probably distress on his life was not worth it. It was probably at risk of losing everything. And what happens when you get sued for that much? You have to understand that to defend a lawsuit like that, it's probably gonna cost you anywhere from ten to twenty thousand dollars, which is insanity for most businesses from photography. Studio's, you could be bankrupted if you had to settle out of court for twenty thousand dollars. Where did you come up with twenty thousand dollars in cash. And so that's. Those are the kind of things that you have to understand and consider so yes, your bridegroom. If you miss a shot, they could absolutely soon you. I'm not saying they would win. Maybe they would when it just depends on the judge, but I'm telling you, they could sue you on you, you would have to defend that case. So you have to protect yourself. So might seem like a silly question, but it really it really is. And I'm glad they asked it. Another question from molly. Mom, um, can a single business or single shareholder form an escort? Absolutely right. They would own all the shares, so in that particular case, you still want, so if you're just a single photographer it's your business, you would be one hundred percent shareholder of that company, but you still get to enjoy the benefits off being escorts. Oh, all your all the liability, right? You're shielded from your person out personal assets. And then, of course, you've got the tax base that you're protecting yourself from his wells. You're in paying taxes once. I think when I send for us corp, we had teo, like only one person can be three rolls of company, and there had to be a second person for secretary somebody, not their legal owner of the business. But when lindsay and I did it, we just did it, you know, fifty, fifty, but I was ceo and whatever else, and she was secretary and some things so that's exactly right right? You can only play so many rolls inside the company but just because somebody's secretary doesn't make them a share holder right? So there's a difference there, of course and so your attorney might be able to play one of those roles as's well, right, so the attorney you're working with to set this stuff up there you might play one of those roles for you a swell and it's not all gravy here, right? So every year we have a fee to maintain our corporation because there has to be directorsmeeting articles have to be filed with the state every year, right? So we're kind of going through that right now where we've got to make sure we've got the minutes from corporate meetings that I don't really take place, right? It just seems like it's another grab for people that find a way to make money so I gotta go sit down my attorney, talk about the business, fill out the paperwork and say, yeah, we had our corporate meeting here's our minutes, our notes, everybody signs everything we filed it with the state so there are administrative overhead to maintaining s corporation or any corporation for that matter, but um the benefits far outweigh the risk of a sole proprietorship you talked about like the possibility of being sued if you miss an important shot or something like that is that something? And I know you're giving us the contract with the course materials is that something that can be protected or kind of disclaimed somehow in the contract so that that can't happen that's exactly right so in our contract it's a great point. So the contracts included with the course in the contract that stipulates two very important things first and foremost, you cannot sue us for more than you've paid us that's actually probably one of the most important stipulations you can put in your contract think about why that's important even if I miss a kiss okay, which I never want to miss a shot, but mistakes happen. Okay, what if I lost a memory card? Right? That's that's a reasonable thing that could happen? What if I lose the memory card? Do I want my bride coming up to me and saying when my wedding was one hundred thousand dollar wedding plus all the pain and suffering I'm suing you for three hundred thousand dollars? She could do that by having that clause in my contract that would at least protect me and saying, if you're going to sue me the most you consume me for is the five or seven or eight grand that you've paid me so that stipulation number one number two in the contract there's a separate bullet where it says we do not guarantee any single shot because that's important, who knows? What's gonna happen. The priest could stand upright in front of them while they're kissing. I've had weddings where the priest doesn't even make them kid. And so we were at a wedding just recently. The precinct didn't even tell them the kiss they didn't kiss. They started walking down the aisle. We were repositioning ourselves, right? They get halfway down the aisle and kiss. We didn't get the first kiss because we weren't there. We didn't expect him to kiss there, but they're family was yelling at him to kiss and we were already out of position, so I wouldn't want to be sued for that. Now what did I do? Of course, immediately I went to the climate said hey, man, you didn't kiss it the altar. We didn't get it. I said, are you ok? If you know, if I just get you back up there really quick and give each other a kiss. So I'm not gonna wait until they come in two weeks or three weeks later to talk to them about that. I'm going to make him know right then and there hey, your precinct let you kiss so at least I can try and divert some of the potential issues that will come up.