Global Law TV


Have you always wanted to start a business or grow your side hustle to its potential? Learning about the legal strategies is the first step to do this. Geremy Johnson, Esq. discusses the legal, financial, and tax variables of starting a business in the United States.

How does a Person Create a Business in the United States of America?

From a legal perspective, starting a business is like creating another human. For example, every person in the U.S. has a birth certificate and a social security number. From a business perspective, a birth certificate is similar to an Articles of Incorporation for an LLC and social security number is similar to an EIN number, which is the Tax ID number of the business. Once an entrepreneur has those two documents, he or she can go to a bank and open up a business bank account.

Every year entrepreneurs have to file taxes. If it is a single member LLC or sole proprietor, the entrepreneur fills out a Schedule C. If the business is a partnership or multi-member LLC, the entrepreneur fills out a Schedule K-1 and a Schedule E.

WHat is a Series LLC?

The Series LLC is a relatively new LLC that offers the same advantages as an LLC but takes it a step further. Entrepreneurs often will protect themselves and their personal assets from being held liable for the things that go on in that business. An LLC is a great legal entity for this type of legal protection.

But maintaining all of these LLCs can get very costly because every single year an entrepreneur has to pay renewal fees to the State the LLC is formed in. A Series LLC can be helpful because it offers the equivalent to a master LLC; and in that master LLC, it has separate Series or sub LLCs that offer the same legal protection of our regular LLC.

For example, instead of each piece of real estate being in a separate LLC, an entrepreneur can just have one Series LLC that covers all the real estate and each Series or each sub-compartment will have a house in it. That gives the entrepreneur the same legal advantages and opportunities that a regular LLC has. In addition, with a Series LLC, the entrepreneur only has to pay one renewal fee and potentially only have to file one income tax return.

Unfortunately, only a small number of states offers a Series LLC. In addition, all states don't recognize the total advantages of a Series LLC.


Where Can an ENTREPRENEUR find a Free Business Bank Account?

When entrepreneurs start a business, they should open a business bank account for financial reasons and help entrepreneurs create a separate identity from themselves. Entrepreneurs can create an LLC and get an EIN number, then they can open up a business bank account.

Often times, when entrepreneurs start businesses they do not have much cash. They should open a bank account at a bank that offers free business checking account. This is where the bank does not charge a monthly fee for the business account.

If you are in Atlanta, Georgia, Citizens Trust Bank allows a free business checking account. If you’re in Philadelphia or New York City, Citizens Bank offers free checking.

Explain the Membership Interest in the LLC.

According to the U.S. Small Business Administration, a small business is a company that has less than 500 employees or makes less than $7.5 million a year. That's roughly more than 90% of all businesses in the U.S. Now, when those businesses form, they typically form around an LLC. And there's a lot of confusion about an LLC. In particular, a lot of people think that LLC has stocks. But, that's not correct. An LLC has membership interest. Membership interest is similar to a pie.

For example, if the business is a single-member LLC, the entrepreneur owns 100% of that pie or that membership interest. If the business has other owners, the entrepreneur owns a slice of that pie or a percentage of that total membership interest.

The entrepreneur can sell the membership interest based on the terms of the LLC’s Operating Agreement.

What is an Operating Agreement?

When an entrepreneur is creating an LLC for business, he or she also wants to draft an operating agreement. An operating agreement details how the business is going to run on paper. It governs the internal operation of the business in a way that fits the needs of the business.

Some of the things an operating agreement discuss includes:

  1. financing of the business,

  2. operation of the business,

  3. a potential end or the business being dissolved, and

  4. etc.

An operating agreement is a good idea when the business is owned by more than one person. Even if the business is owned by one person, it's still a good idea because it governs the internal operations of the business. If the entrepreneur ever decides to sell the business or look for investors, a savvy buyer or savvy investor is going to look for an operator agreement in his or her due diligence process.

How Do ENTREPRENEURS handle an IRS Audit?

Oftentimes, individuals or companies will be audited by the IRS. The IRS sends these individuals a deficiency letter. When that happens, the person has a right to appeal the letter. The first thing you want to do is file a petition in the U.S. Tax Court. A petition is important because it states the reason for filing the appeal and whether the law is on the individual's side.

Once a person files the case in U.S. Tax Court, begin to look at the case very closely with the help of an attorney. Individuals want to gather business records, witnesses, and start preparing so he or she can actually win the appeal.

Before going to trial, take some time and negotiate with the IRS. Many times, appeals settle and going to trial is expensive. The IRS often doesn't want to go to court.

But if the person can not settle with the IRS, it's time to go to trial. Take confidence in the preparation of the appeal and walk out the court victorious.

Copyright Global Law Media and TV 2019

Any content and information on this website is not to be used as legal advice and no attorney-client relationship has been established with Global Law Media & TV.