Small Business owners and Legal Questions

This week on The Outlaw Lawyer, Joe and I field listener questions around the theme of small business owners. And now, Outlaw Lawyer. Welcome in to The Outlaw Lawyer's.

Josh Whitaker and Joe Hamer, your hosts. Whitaker and Hamer law firm. They're the managing partners there and practicing attorneys here in the great state of North Carolina. Forty-six combined years experience between these two and offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay-Varina, and Galveston. And we talk legalese each and every week.

Always a lot of fun. You may find yourself with your own legal question, and if you need an answer, we've got a number for you. 800-659-1186.

That's 800-659-1186. Leave your name, brief description of what you're going through, and an attorney with Whitaker and Hamer will be in touch. You can also email your questions to the program, and we'll use them on an upcoming show, kind of like we're doing today. Questions at theoutlawlawyer.com. That's questions at theoutlawlawyer.com. That's questions at theoutlawlawyer.com. And please visit the website.

And again, that's theoutlawlawyer.com. Well, gentlemen, welcome in. Always a lot of fun to talk with you each and every weekend. And here we go again. What's on the show? Well, Morgan, I think today we get a lot of listener questions, and we appreciate these listener questions because they really make us think. And so what we've done today is we've got a whole show. All we're going to do is answer listener questions, and we've got a theme.

We had enough in kind of one area. So today's theme is going to be kind of targeted towards, I said a small business owner and RTs, but a business owner. So we're going to have some LLC questions. We're going to talk about some asset protection. We're talking about some estate planning for the business owner.

And so answering these listener questions will kind of be helpful, I would think, to a small business, a business owner. But before we get there, we're only about a week away from Christmas. What, a week? Maybe 10 days?

That's it. I mean, when this show airs, we'll be a week away. Everybody ready? Everybody done? I'm actually ahead of the game this year, which I am absolutely thrilled.

I'm not going out on Christmas Eve to do any last minute shopping. Knock on wood, I don't think I need to. So I'm good. I'm doing all right, Josh.

I'm doing just fine. You guys. So for me, the hard part for me, like I love shopping for the kids. My kids are all at fun ages. Lots of cool stuff I can play with, too.

I have a lot of ideas for them. I really enjoy that part, but I always have a hard time buying a present for my spouse. So your significant other, your girlfriend, your boyfriend, your spouse. That's always the hardest thing for me, especially when you've been married for a while. You both have the same bank accounts. You can buy whatever you want to buy for yourself within reason every day of the week.

I find it's really hard to get a good gift for the significant other. I don't know if you guys have. I'm done, but it took me a lot of time. I don't know if you guys have finished that up. Now, listen, let me just go ahead and state since we are recording. Actually, this will be the week. Gosh, this will air a week before Christmas. So we have to be really careful. We don't want to give anything away, right?

We don't want it to go out over the air what we got. But man, I tell you, the next show that we do, I think it'll be a lot of fun. But anyway, this is gonna be a lot of fun. I got a particular gift that you might get somebody that's practicing to become an MMA fighter. Okay.

And you'll laugh, but we'll talk about it. Are we still talking about gifts for our significant others? Because that's a very strange gift.

Yes, we are. It was a request, and I'm trying to surprise her, but she likes to throw the gloves, man. I think the last thing I'm gonna do is train my significant other in hand to hand combat just in case. Getting beat up by my wife is very low on my priority list this Christmas. I bought my wife something that she wanted and then stuffed it with something else that she wanted. Dear goodness, Josh. We'll have to tape some reveals.

You did Russian nesting dolls on your wife's presents. Did you guys see the Hurricanes game that got canceled? Because we got a lot of folks testing positive. Did you see that? I did not see that, but it's not shocking. I mean, the NFL and the NBA. I mean, I want to say Brooklyn won the other night with eight players. I was watching that game closely because they had 10 at one point. And if you follow sports betting at all, that was very relevant information. The fact that they kept hemorrhaging players, they were coming off of back to back.

They went to overtime, and I think they were down 10 going into the fourth quarter, and they still came back and they won that game in overtime. So a miraculous achievement for them. But yeah, COVID is really blowing up across every sport. If you follow sports tickers, it's like, it's crazy the amount of people that you're seeing testing positive and teams going into protocols just across literally every sport that there is. Well, we want everybody to be healthy, but this is a crucial time for fantasy league football owners. I mean, we're in the playoffs this week, and then you're going to have quarterfinals, semifinals and final. And you know, if these teams are decimated, what are these fantasy leagues going to do?

How are you going to award your money? I mean, that's a big question. Yeah, that's tough. But I mean, everybody's dealing with it.

Everybody's dealing with a level playing field. So that's when the waiver wire comes into play. I'm sure, you know, there's probably going to be, you know, due to some notable absences, you're going to see some guys that, you know, would never produce anything, probably putting up decent numbers.

So it's going to be a real test of the fantasy football general managers adaptability. When you were growing up, you ever remember like being on the basketball rec team? And you know, you only had like seven players show up, like three of them foul out. So you have to finish like the second half with four players.

You ever do? I had a great coach. I had a legend, a legendary, the John Wooden of rec basketball as my coach.

And so we rarely dealt with that because he was really good at managing foul trouble amongst his players. That was always a dangerous team. I always, you know, even, you know, if you're playing the team that only has four players, you can't lose, right?

You can't lose to the team that only has four players. I think we won. I think with you coaching, with you coaching me as a boy, and for our listeners who didn't follow that joke, Josh Whitaker was my rec league basketball coach. So I was giving him props on his abilities as a coach. Very much a roll the ball out there approach to rec basketball, but that's, it worked. It really worked. But I want to say we won.

I want to say we won a game with four players with you as the coach. Maybe so, maybe so. I, uh, you know, that kind of, that made me think about too, just here in the news, I saw, uh, there's a, there's a group of, uh, representatives who were pushing a four day work week, uh, bill that would make the work week 32 hours and anything over that would be, would be overtime. But that made me think about that too.

You know, this is how we're losing folks to COVID and these teams are playing short handed or not playing at all. What do you think about going to a four day work week? What do you think about that? I like it. I like it for us, our employees.

I don't know. I don't know who can get by with that, but, uh, for the two of them, for the two of us, uh, I can get behind that solidly. I, you know, I'd lean more towards, you know, maybe, um, Friday at lunch, man, see you later. I like that idea. Half day on Friday. Five day work week.

I can get by with that too. We we've got some, some builders that we work with in our practice that do exactly that. And they seem like some of the happiest people that I deal with in my day to day business.

So I got to say it's working for them. I think my dentist only works two days a week, man. I think like, I don't know that.

Are you sure? Are you sure he actually works too? I think he's Monday through Wednesday and Thursday through Sunday, he's at the beach, man.

I guess if you can pull that off more power to you. But, uh, I saw them really pushing this 32 hour work week and I keep seeing in the news how, uh, you know, you know, China's catching up with us on technology and everything else. I was like, I don't know that China's pushing for that four day work week. I don't know how that would go the opposite direction. And maybe we go seven day work week, seven day work week. Double down.

Yeah. We can cut the life expectancy down by like half by doing that. Probably, um, just work ourselves to death. Well, like, like Morgan said, we, we are focused on, uh, listener questions and we do have this theme, you know, we consult with a lot of, uh, you know, one of our practice areas is business law. So we spend a lot of time consulting with, I would say small, medium and large size businesses. So Whitaker and Hamer, me and Joe, we have clients, uh, that are, you know, business owners who definitely are localized. And then we have some that are, you know, United States across the country, and we have a few clients that are, you know, international. And, and so we, we see kind of every aspect, every level of business law. And, you know, you know, we consult with folks.

And so today, uh, I'm going to gear, you know, all my, all these questions are geared towards someone who, you know, I would say a small to medium sized business owner who may be listening. And so, uh, it's going to be interesting. Uh, we've got one, two, three, four, five. So a good deal of, uh, questions all geared to that topic. The Outlaw lawyers, Josh Whitaker and Joe Hamer, Whitaker and Hamer law firm folks, we talk legalese each and every week, and we're going to get into listener questions. We're looking forward to it.

We've got a lot of them. Some of these topics or issues may be close to what you're dealing with, but if you've got your own individual questions, give them a call. 800-659-1186.

That's 800-659-1186. You can email your questions to the show and we'll use them on upcoming additions, questions at the outlawlawyer.com. That's questions at the outlawlawyer.com. And please visit the website, the outlawlawyer.com.

We're back on the other side. Welcome back to the Outlaw Liars, Josh Whitaker and Joe Hamer, Whitaker and Hamer law firm. They're the managing partners. They're practicing attorneys here in North Carolina, 46 combined years experience between these two and offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia.

I'm Morgan Patrick, consumer advocate and sometimes referee, but we talked the legal topics. There are a lot of questions coming at you today and we're looking forward to that. If you have your own set of questions and you need some answers, here's a number to remember. 800-659-1186.

That's 800-659-1186. You can also email your questions to the program and we'll use them on future additions, questions at the outlawlawyer.com. Always go to the website though, the outlawlawyer.com. You can kick the tires there. Guys, first question.

All right, Morgan. So the first question, I kind of wanted to start at the beginning. So this would be someone who was starting a business. So you could be starting your first business. You could be starting a side business.

You know, all kinds of fact patterns that this question could come up. But again, I kind of take our listener questions and kind of take names and situations and facts out of them and kind of meld them into something that's more of a general question. And so I boiled down a couple of questions to just, you know, I'm starting a business. What entity should I operate under, right? Should I operate my business as a sole proprietorship, doing business as, you'll hear that a lot of times, a limited liability company, an LLC, there's a corporation, there's a partnership.

There's all these different entity structures and they all offer different protections and different advantages. And so if I were to sit down with you, you know, and ask you, you know, say, Hey, Josh, I'm thinking about starting a business. Here's the business. The first thing I would ask you is what are you going to do?

What are you planning to do? You know, I want to figure out how risky your proposed business will be. I don't know if you start the same way, Joe.

I started the exact same way, Josh. And, uh, cause I mean, I think that's, that's the place to start for, for everybody. Because when you're, you know, outside of the strategical aspects of business, the marketing side, the, the logistics side, things like that, what you're going to do, how you're going to make money. You're really coming, you're coming to an attorney and you're really discussing, you know, liability is the primary thing that we're looking at. We're looking at limiting your liability, uh, giving you the most protection that, that you can have. So that, you know, if something does happen, God forbid with your business that you're individually, you're going to be protected as much as you possibly can be. And, you know, this is, it's a good general question and you know, we're going to, we're going to take it in one small segment, but, but honestly, Josh, I feel like this could probably be its own show, you know, you could do an entire show about just this topic. So we're going to kind of try to boil it down, but to answer your question, I started the exact same place because that's the natural starting point for what we're discussing.

Yeah. If you come in and tell me you're starting a business, um, you know, shipping dynamite and blasting supplies, or you're going to be running, uh, you know, a three story, uh, bar, you know, with lots of steps and a lot of people drinking, you know, I try to, I try to look at what's your risk here. You know, if you get sued by somebody as you're conducting your business, if something, if you're at risk for somebody to be hurt, um, and sue you, that's, that's kind of where we, you know, we drive. And if you think this business, I guess another thing that, that kind of is important is if you think this business is going to make $4 million next year, as opposed to $4,000 next year, you know, that's, that's something else we look at.

So we look at your risk, your liability, and what you think this is going to make to detail how we're going to, how we're going to set this up. Um, but I would say, I almost never recommend a sole proprietorship or you'll hear people say a doing business as, cause that's basically just you, right? So that's if, um, I mean, maybe if you're just building some furniture in your basement and it's a side gig and you're not going to take it mainstream and people aren't coming to your workshop and. It would, it would have to be, you know, so low risk. Um, and, and even that, I, you know, I'm using that as an example, but I almost never recommend a sole proprietorship or a DBA.

So I guess, um, Judd, do you ever run into a situation? I guess that makes us, you know, we're not CPAs. I should, I should say me and Joseph were licensed North Carolina attorneys were licensed to practice law in the state of North Carolina. Neither one of us are certified public accountants. We're not CPAs.

We don't give tax advice. But just as a general rule, a sole proprietorship, a DBA, I guess that makes your taxes probably a little simpler to file, but you're wide open, uh, to getting sued and they're getting to everything you own, right? They're going to all your personal assets, everything you own in your name, uh, is subject if you get sued and you operate under that structure.

Yeah. And you make a good point, Josh. We, you know, a lot of times when we're discussing business planning and we're talking to folks about, you know, their, their business planning strategy, one additional step that we're, we're generally going to recommend, especially if you get into more complex situations, is consulting with a CPA as well. Because we, you know, we can advise, we can advise as to your liability, how we can protect you, how we can protect your assets, but there's only going to be so much, you know, so much advising we can do on specific tax related questions that you may have.

So a lot of times, you know, we're going to work in conjunction with a CPA, uh, recommend that you discuss this with your CPA to get some additional followup because, you know, that tax piece of the equation is also important. It's something that, you know, we're not going to be able to help you as much with, but, uh, yeah, the sole proprietorship, the DBA, y'all almost never recommend it. I'd almost say we never recommend it, you know, because the cost benefit analysis that you do, cost of setting up a simple LLC, a simple corporation that you own solely. It's not great, you know, it's not a massive undertaking and the level of protection that you can gain by doing that, if you do things correctly, and if you manage it correctly, it's going to be, it's going to be an exponential benefit in the event that something goes south, as opposed to if you were just doing business as, you know, whatever name you're doing business as, or if you're just a sole proprietor, or if you're just operating as an individual, you know, that, that extra layer of protection for the cost that it's going to be is always.

Going to be what I would recommend to a client. Yeah, there's, there's almost no reason again, uh, over time it's gotten cheaper and cheaper to, to pay an attorney. Some folks, you know, might, might have the experience to kind of do a lot of it themselves, but yeah, the sole proprietorship DBA, I think there was a, used to be a misconception that I offered some sort of protection and, and it offers you no protection at all. So, you know, an LLC or a corporation, we kind of lump those together, even though they're two different animals, because they're an entity that has a liability shield, right? So if you start your LLC, uh, the outlaw lawyer LLC, you know, you can't sue Josh Whitaker for, for, uh, something I said, maybe I defamed you on the outlaw lawyer. You want to sue me for something where you're not going to get to Josh Whitaker, you got to sue the LLC, um, and the LLC is only going to have what it needs to do what it needs in there.

Right? So my, where I live, my personal house wouldn't be in that LLC. Uh, you know, I, my personal assets are going to be somewhere else so that if you sued, if you sued the LLC, you're not getting to me personally under most circumstances. There are exceptions to that rule and we'll, we'll talk about those in a minute, but yeah, a small business owner, if you're doing anything, uh, remotely that has any risk of you getting sued, you're opening up to the general public. Um, you're going to interact with the general public, put something into the, what's the law school term for that, putting a product into the, what, the stream of commerce, um, opening yourself up to liability. And there, there's no reason not to go and organize as an LLC or corporation.

Um, and, and, and, and I completely agree, Josh. And like you said, it's that liability shield. It's the fact that, you know, you've, you're gonna, you own most likely the traditional individual that hasn't done any kind of advanced estate planning, everything you own. You're going to own that in your personal name for the most part outside of, you know, the things that you conduct with your business and being able to, to create that separate entity. You never plan on getting sued. You never plan on something going wrong. You never plan on, you know, how incurring any kind of liability, but, but you can't predict the future. You don't know what's going to happen. And in the event that something like that does occur, that you do get sued, being able to shield those assets, being able to prevent, uh, a massive judgment being filed against you personally.

It's going to be just overwhelmingly beneficial to you and give you a whole lot of comfort and a whole lot of peace of mind in that situation. The other thing that we're going to ask you about is, well, who, who are the owners going to be, right? Is this going to be a single owner?

Is this you and your wife going to be 50, 50 owners? Do you have a, a potential business partner, business partner who's going to invest here with you? Because we got to talk about your ownership structure. And so in an LLC, that means you might have multiple members, right? We're going to want to know a member is an owner of an LLC and you can have one, you can have two, you can have five. You know, we, we talk about, all right, well, who's going to have a membership interest. Who's going to be an owner and same thing in a corporation and owner is a shareholder.

I think more people are kind of more, uh, more accustomed to talking about a corporate structure than maybe an LLC structure. It's a little different animal, a little more flexible, but so we got to talk about who's going to be an owner. Those owners going to share profits and losses. What owner is going to make decisions about, you know, what, you know, and who's going to manage the day to day affairs. So in an LLC, that would be a manager corporation and maybe a president and a vice president, a secretary. Um, so depending on again, what you're planning to do with this entity, um, how many owners you're going to have, who's going to run it, where the investments coming from to start it up. There's a lot of things that, that will go into this discussion of how do, how do I create this entity? And, and like you said, Joe, one of those, one of those will also be tax concerns. How do we want profits and losses to be shared?

Um, and again, we don't, we don't get too much into that. It's just simple, simple country lawyers, but your CPA, uh, would also, that's the next stop. A good CPA is worth their weight in gold. You can't, you can't do a lot these days, uh, without a good CPA giving you some advice.

I really liked that man. Simple country lawyers. We need to put that on a t-shirt. I feel like, but that could be a new. You talked about flexibility, Josh, and, and, you know, really both of, you know, whether you go the corporate route or whether you, you form an LLC, you really do have a good bit of flexibility in, in how you operate. But this comes back to, you know, one thing that we haven't really discussed heavily at this point, and that's making sure that you consult with an attorney who has experience with this, who's licensed in the state of North Carolina. Uh, because there's a lot that goes into drafting, whether it be your operating agreement, uh, whatever it may be that governs the way that that entity runs. And you want to make sure, especially if you're in a situation with multiple individuals, um, you may be doing business with your best friend. Uh, and, and it's not always going to work out the way you want it to, especially on just the handshake understanding. So memorializing the terms of your agreement at dictating how everything's going to run, making sure that there's no loose ends.

There's, there's nothing that can be misinterpreted, putting it all on paper. It's going to just save you so much trouble. It's going to protect, uh, those relationships. It's going to protect your, your business, and it's going to keep things from falling apart. Far more so than if you're just operating off of, Hey, this is how we got a simple, we got to just a boilerplate agreement and we're just going to kind of operate on this understanding between each other. Because we've seen that go south so many times that, that it's, it's, it's almost like it's an inevitability if you don't have it stated clearly how things work. That's a good point, Joe, real quick.

I know we're coming up against the break, but that's another good point. When you, when you organize an entity, an LLC or corporation, if an LLC, you're going to have an operating agreement. If you're a corporation, you're going to have an incorporation agreement and some bylaws. But one, one of the things you'll lay out is what happens if you want to leave, right? What happens if you want to sell your membership interest? Do you want to sell your shares?

That's one of the things that we would, we would talk about. Like what's an exit strategy. If somebody wants to leave, they have to offer you first to buy it out. How do you value it? There's a whole host of questions when somebody wants to, to leave one of these, especially if everything works out and your small business builds over time and is very valuable.

If you didn't take the time to do it on the front end, you can't, you can't do it on the back end. And at that point, it's too late. You know, you're, you're stuck with kind of the default provisions, but, but Joe, I know we're up against a break coming up next. I want to spend a little bit more time talking about the liability shield, what that actually does and how you protect your assets.

So add more asset protection up next. The Outlaw lawyers, Josh Whitaker and Joe Hamer. Whitaker and Hamer law firm, 46 combined years experience between these two offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia. They are the managing partners at the firm, practicing attorneys here in North Carolina. If you've got your own legal question, if you're a business owner, obviously we're focusing very much on this today and you've got questions outside the questions we hit. You can always call 800-659-1186. That's 800-659-1186. We'll email your questions.

We'll use them on a future show. Questions at theoutlawlawyer.com. And always go to the website, theoutlawlawyer.com. Welcome back into the Outlaw lawyers.

Josh Whitaker and Joe Hamer, your host. Whitaker and Hamer law firms where you can find them. Managing partners there, 46 combined years experience and offices, well, they're everywhere.

Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia. They are practicing attorneys here in the great state of North Carolina. Again, we're going to hit these legal questions. If you're a business owner, you don't want to miss the rest of this show. But if you have your own question and you want some answers, call 800-659-1186. That's 800-659-1186 and leave your name and contact information briefly what the call is about. An attorney with Whitaker and Hamer will be in touch.

You can also email the show questions at theoutlawlawyer.com. We'll use them in future editions. Guys, I know we're going to continue with it looks like asset protection. Yeah.

And this will spill over our conversation before the break. We were talking about entity formation and why you would take the time and energy and money to organize into an LLC or a corporation. And one of the things was a liability shield. If someone sues you, as long as you're doing what you're supposed to do and you're not committing any fraud, you're not LLC assets.

Right. Your non-business assets would, in theory, be protected. And so that's very important. That's we call that a liability shield any time. And we've we kind of talked about this a little bit, but any time you're putting yourself out there, you're inviting the general public into an office or a retail space or you're creating something that's going to go out into the world, be sold, possibly resold to somebody else, you you want that that shield. And so there's a couple of things you have to do for that shield to take effect. And so the first one is you can't create an LLC, go out and commit a bunch of fraud.

Right. And expect that LLC to protect you. You know, if you if you do something bad, if you're a bad actor, you commit fraud, unfair, deceptive trade practices. There's you know, if you get get sued for something like that, well, then we've got this thing that can happen called piercing the corporate veil, which basically just means if you do certain things that make you a bad guy and you get sued, you get called out for those things. If someone wins and they get a judgment, you know, they get a court, they get a jury to side with them, they get a judgment against you for those things.

Then the court's going to allow your personal assets to be attached by that judgment, meaning your LLC. Did you know? Good. You didn't you didn't use it in the right way. And, you know, they get to you. That's just that's kind of part of the deal. So you can't use this LLC.

You can't use this liability shield for bad things. I think that's how I would say it, Joe. Yeah.

And and that's correct, Josh. And this is it's a it's really a good thing if you you know, it's something that it's a protection that you want just for the general public, as an individual, as people who are doing business with with companies just in the general course of our day to day lives, because this is it's a general protection for the public. You know, you want to have you want to be protected from fraud.

We all do. And while we're sitting here advocating for everybody to go out that that operates a business and make sure that you're incorporated, make sure that you are set up in the proper way to shield yourself from personal liability. We're not advocating doing that just so that you can commit fraud on a wide scale basis. And if anybody could create a business and then go and do whatever they wanted to, and then only that business could be sued. And a lot of times, you know, the reason that this this is a thing in general is because, you know, we're talking about shielding assets from liability and people who do this and do it properly. You know, their their business isn't isn't going to own a whole lot of things as far as assets go in a lot of cases. And that's the whole point, right? You want to prevent as a business owner, you want to prevent someone who's suing you from coming after your house, your personal house, your personal things.

And that's the whole point. But you don't want to allow someone who's a bad actor, like you said, Josh, to shield all of their things to sit here and defraud people in some manner. And then when they get sued, it's just essentially a shell that owns nothing. And there's no recourse for the person who's been done wrong. We want to make sure that you can't just use this in the wrong way.

And there's there's other things there's other things short of fraud or bad acting. And so I use a lot of people will start an LLC. Let's say let's say you got a duplex, right? And you rent it out and you've got some residential tenants and you you've put the property right. You've put the property into an LLC and that property is there. You can't do things like not have insurance.

Right. So if one of the tenants, the house, one side burns down, the other side burns down. People are hurt.

People are injured. And it turns out you don't have appropriate insurance. You know, that's something that that a judge, a court may allow someone like if that tenant sues you for damages and there's no insurance, there's no assets in the LLC.

The LLC basically has nothing. Then then that's one thing not properly being insured. You know, they may be able to get to your personal assets. That's one thing I always tell people is make sure you have good insurance. You know, get that cheap umbrella policy with your with your homeowners, with your landlord policy. Make sure you have plenty of insurance within reason. Right. You know, don't don't be uninsured. That's one thing you can't co-mingle assets.

Right. So you'll hear attorneys say that a lot. Your LLC needs to have its own account, needs to have its own EIN number, needs to file its own tax return. You need it doesn't need to pay your personal bills. You need a separation between yourself and this business. You need to treat this business like another person. It's its own person.

It's its own thing. So it needs proper insurance. You don't co-mingle assets, business assets or business assets, personal or personal. You know, when you make your profit, that can go to you personally. But you can't don't pay your home electric bill out of your LLC and, you know, no, no co-mingling. And so you've got to you've got to treat the entity like it's doing business.

So that's that's those are things that people a lot of times get a little sloppy on, get a little messy on. But it's a big deal if you get sued for something and we have to fight this accusation that you you've co-mingled it. You haven't used the LLC properly.

And that's a super important point, Josh. And it kind of it goes back to what I said earlier, as far as making sure that you've consulted with an attorney that that knows the proper structure that can advise you on these things, because you can do everything right to a point you can you can set up the business properly. You can have all of the correct documentation in place. But if you get into the back end, you start operating the business. And like you said, you're just co-mingling funds. You're not really operating the business as a separate entity.

It's going to kind of defeat the point. And you could be looking at a situation where all of that, that liability protection that you have paid good money for and taken all these steps to achieve is just basically going to go out the window and you're going to be right back essentially operating this business as yourself. And you're in essentially the same situation as if you were just a sole proprietor or an individual. So, Joe, I think the I think the lesson here is and again, I know this didn't make a lot of sense. I remember when I first started the you know, when I first started the firm, when I first started any of the businesses I've been involved in, especially early on, wasn't swimming in cash and have a lot of money to spend on attorney's fees and CPAs.

Didn't know any CPAs, you know, didn't know any attorneys offhand. And so I get it when people first start out and maybe don't have a lot of money. This seems like something you can maybe put on the back burner, you know, like, well, I'll just get started. I don't have enough money, you know, a couple of years down the road. I'll look back and try to get everything set up. And people do that all the time. I get it.

But man, sit down. You know, if you're going to if you're going to dedicate enough of your time to start a small business, sitting down with with some professionals like right out of the gate will save you so many headaches. I remember the first year we had the firm and I knew I was going to have to pay some taxes. I was you know, I hadn't consulted with the CPA. I hadn't taken my own advice because I didn't want to spend money on the CPA that first year.

I didn't know what I was going to make. But I remember saving some money. I didn't know what self-employment tax was.

Right. So I was saving what I thought I know what I had paid when I worked for somebody else as an attorney. I was kind of putting income tax aside and things like that. And then I get to the end of the year, whoever, whatever, you know, whatever low level tax company I could afford to pay to do my taxes, came back and said I owed blank because of self-employment tax. What is this?

What is this craziness? You know, because I just had no idea. And it's not fun to get blindsided like that, especially in business. And if I had just met with the CPA right before I got started, it would have cost me some money that I didn't want to spend. But I sure enough wouldn't have been surprised at the end of the year with my self-employment tax bill.

And I would have done some planning to maybe make that less brutal. I guess is the word. Yeah. And it's a cautionary tale, Josh. And one other point that that kind of brings me to is, you know, you talk about the fact that you're starting a business. You may not have a ton of money to put in on the front end. You don't know how it's going to go.

There's a lot of a lot of speculation involved there. But the reality is, if you don't do these things on the front end, that, you know, with every year that passes, it's going to be, you know, in theory, you're going to get busier and busier. You're going to have way more things on your plate that that are going to be seem far more pressing than going back and and making sure that your business structure is correct and that you've done these things on the front end.

So doing those things ahead of time, going into the process, you know, prepared, set up correctly. You know, it's going to save you so much trouble because if you don't do it, you're going to you're going to fall into that trap of just, you know, continuing on the way that you are. You'll keep kicking it down the road.

You'll get to it when you get to it. And then before you know it, you could be making substantial amounts of money. You could still be organized incorrectly. You could still have some of these issues that you could have taken care of on the front end for really not an incredibly large cost. And you're just going to be in so much of a better situation if you go ahead and take care of it on the front end. As much as it may seem like it's a headache or it's unnecessary or you don't feel like you've got the resources that require you doing that.

You know, we would always recommend to go ahead and do it now so you don't have to come back and revisit it down the road. I'll tell you, Joe, one of the one of the things I've been very fortunate as I represent a lot of business people, businessmen, businesswomen who are very successful in the fields that they they have pursued and in representing them. You see how these these people handle their affairs. And so there's no really successful person in business who doesn't take care of this stuff right out of the gate.

Right. So if you've got someone who's opening up a side business or renting out a new property or branching into a new business with someone else, they're going to make sure an LLC, a corporation, there's going to be some structure to it. Like we talked about earlier, they're going to have an agreement that says this is who absorbs losses. This is who gets income first to pay back this loan.

This is how we separate. You can't sell your interest to anybody. But these people, they get first rate of refusal. I mean, there's all kinds of planning that goes into a successful business because most businesses you start aren't going to last forever. They're going to get bought out. They're going to fail.

People are going to split. And the planning part. We all have a tendency to skip over the planning part.

We're excited about what we're going to do. But you always pay for it. You always pay for it. Folks, I mean, it's about making sure you have, I liked what Joe said, I mean, ask these questions. I mean, if you are a business owner and you don't have your organizational skills going, I mean, it could cost you down the road. So ask the question, spend a little extra money up front, but make sure you have your all your ducks in a row. And, you know, that comment about, you know, a good CPA worth their weight in gold. I mean, think about that if you're getting into if you're a business owner currently or you're thinking about getting into business for yourself.

We're taking questions again. This is about owning a business. And if you're in it, you want to listen. If you're thinking about getting in to business ownership, you want to listen to the rest of this program for sure. Josh Whitaker and Joe Hamer, your hosts. You can find them at Whitaker and Hamer Law Firm. Forty six combined years experience and offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia. They are the managing partners. They are practicing attorneys here in North Carolina.

And again, we talk legal each and every week. I'm Morgan Patrick, consumer advocate. Here's a phone number, 800-659-1186.

That's 800-659-1186. You can leave your name and contact information briefly what it's about. And an attorney with Whitaker and Hamer will be in touch.

You can also email the program. Questions at The Outlaw Lawyer dot com. Talking more small business when we come right back. The Outlaw Lawyer's on the air. Josh Whitaker and Joe Hamer, your hosts. They are the managing partners at Whitaker and Hamer Law Firm. Forty six combined years experience and offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia. They are practicing attorneys here in North Carolina. And we talk legal topics each and every week.

I mean, real estate closings, estate planning and administration, personal injury, criminal and traffic, family law. It's all in there today. We are focusing on, well, you, the business owner. And if you've got your own questions, you can certainly call 800-659-1186. That's 800-659-1186 and leave a brief detailed message.

How about that? Your name and contact information and an attorney with Whitaker and Hamer will be in touch. And you guys can talk and see if the firm can help you. Also, you can send your questions to the program.

Questions at The Outlaw Lawyer dot com. And we will use those in future programs. So, guys, we're going to continue on for the business owners. Yeah, Morgan, we're going to we've we're kind of fashioned this whole show to be advice, general advice, always general advice to, you know, a small business owner, someone who's just starting a small business. And so we've kind of gone through some of the factors that an attorney and a CPA would want to consider in advising you on how to structure this new business. And then we talked about asset protection. We talked about liability shield, things you need to do to make sure your LLC is doing what it's supposed to do, is protecting you.

And so now I want to spend a little bit of time. This is another question. The question I got that spurred this thought was, you know, someone wrote in and said they have you know, they had a membership interest in an LLC, meaning they were an owner. These folks that asked me the question, they were a part owner and a membership interest. So let's say they had a 33 percent membership interest. So there were other people who also owned part of this LLC, one or two, three, who knows how many owners. But our folks had we'll say they had a one third interest at a 33 and a third percent. And they want to know what happens when they when they die.

Right. They're like, what happens to my membership interest when they die? And so that was a question that made me start thinking about, you know, just estate planning for the small business owner, because a lot of folks, you know, if you if you if you live a good life and you are a senior project engineer for a big corporation and you ended up buying rental property and things like that, you come to me, you say, Josh, Joe, let's do my estate plan. We're not talking about membership interests.

We're not talking about stocks in a closely held corporation. It's kind of a different conversation when you're a small business owner. And so the first thing I tell people, the first answer to that question is your LLC that you own a membership interest in. What does your operating agreement say? Let me see your operating agreement. And hopefully there is one. Right.

I mean, that's the that's the big thing. We run into a lot of LLCs that never formally sat down and did this planning. And that's exactly the scenario that that we contemplated earlier. You know, the situation where you take the approach of I don't really need this right now. I don't know how this is going to go. I don't want to spend the time or the energy doing this on the front end because this might not work out. And there's folks who do that, you know, their businesses really start blowing up.

They get completely caught up in the day to day and they never go back and revisit that. And like you said, Josh, you you get into the situation where people don't even they don't even have the simplest of agreements that dictate how these things need to work. So I cannot emphasize enough how important it is. Come come and talk to an attorney. Give us a call.

Give someone a call. Make sure that you have these things taken care of on the front end, because it's going to be essential on the back end. Yes. So in your operating agreement, you might you might have if you sign not if there was an operating agreement and you signed it, it could do all kinds of things, right? So it might have death, your death as a as an opportunity where your other members, the surviving members might be able to buy you out, buy your estate out, because that's your membership interest is something you own. And so it's going to go to the next generation. So if you have a will, you know, even if you don't have a will, the laws of the state are going to get that membership interest to your to your heirs, whether that's a surviving spouse, some kids, some grandkids. You know, it's going to go to your heirs and then your heirs are going to be owners of of this this LLC, right?

They're going to step into your shoes once you passed away. Some operating agreements have provisions where when you die, that triggers some kind of right of first refusal or some kind of option where the the other owners can can come in and for agreed upon price or maybe they have to get it appraised. But there's going to be some valuation process and they can step in and if they so choose, they'll they'll buy that membership interest or you might have had life insurance in place.

I know a lot of small businesses, the law firm, for example, we have a buyout agreement and it's funded with life insurance policies. That's some planning you do ahead of time. So if something happens to me, Joe can keep on moving along and there'll be some life insurance that goes to my heirs to compensate them for my interest. And so you you plan. Right. So you maybe you don't do maybe you don't go that far in the very beginning.

Right. But you you have a plan. Your business becomes successful. You have some other owners. You have to think about these things.

What happens when I'm gone? We see some people put their membership interest into trust. We've talked about trust before on the show as an estate planning tool, as an asset protection tool. But, you know, trust make it longer than you. Right. Josh Whitaker won't be here in 50 years, but the Josh Whitaker family trust could be here in 50 years.

And so that's a that's a tool you can use as well. But I'm telling you, the death of an owner, especially if there are other co-owners, you know, that's something you want to be ready for because, I mean, that happens. I think we've seen it during the pandemic. We've lost a lot of folks maybe a little earlier than we would normally be used to.

And it's disrupted businesses, LLCs, corporations. It happens literally 100 percent of the time. Everyone is going to die at some point.

So it is a it is an absolute certainty that, you know, hopefully we all are here for a very long time, but at some point it's going to happen. And so, you know, I talked about the front end of the process, making sure you consult with an attorney, get everything done that you can on the front end. But you raised a really good point, Josh, revisiting that as well. Your situation may change. Things are going to change. Your estate planning, your personal estate planning, it's going to affect your interest in this business. And all of these things, you know, all of these things that fluctuate and change, they're going to require you revisiting them from time to time.

So in addition to making sure you got that front end buttoned up, you know, it's always important also to revisit your situation and look at things new, look at things from a fresh perspective every now and again to make sure that no new scenarios have come up that you're going to get bitten by on the back end. And like you said, Josh, your ownership interest in this company and this entity, it's it's going to survive you. It's it's yours and it's going to transfer. So the real nightmare scenario that you can get into, you may have someone that you do business with that you get along with wonderfully.

And you guys work fantastically well together. That person, unfortunately, unexpectedly passes away. You have nothing in place that dictates what's going to happen to that interest. There's no buy sell agreement. There's no right of first refusal. There's nothing that dictates how that procedure needs to play out. And you could be dealing with a scenario where that person's spouse or that person's heir that you really don't see eye to eye with. They're going to take that that interest. They're going to have the same authority that individual may have had. And you could be looking at just a terrible, terrible nightmare scenario.

Yeah, we definitely see it more than we like. And me and Joe are attorneys. It doesn't cost that we don't have to pay attorney fees to our to ourselves, you know, if we want to sit down and kind of look at our plan. And it's still hard to do once a year or once every two years, you know, it's and your value, your asset values change.

You might have a new business that spins off a new LLC that your CPA may know about, but maybe your lawyer doesn't know about or vice versa. And so once you once you get to that point where you're your LLC successful, your corporation successful, your business is successful. And you really do have to make yourself sit down every I mean, every year is probably good advice. But I mean, every two years, I mean, what you can what when you can, because we see a lot of people pass away. They always say unexpectedly, but most people pass away. You know, most people pass away unexpectedly. And and if it's not if it's not all lined up, it's just it's just a problem for your for your heirs. Right.

I mean, and you don't want to do that to them on purpose. But yeah, even estate planning is very important. Always overlooked. Everybody's busy. Nobody wants to think about it. Myself included. Joseph included.

Morgan included. But you got to sit down and you got to do it, especially when you're self-employed, especially when you run your own business, because you don't want to leave chaos behind for everyone. I mean, you'll be gone. Arguably, you won't care anymore.

Right. When I'm gone, Joe, I hope you don't struggle. But if you do, I won't be around to fill that guilt, you know, but but you kind of want to try to clean up everything. And the more you're doing, the more you're involved in, the more rental property you have, the more businesses you're in, the bigger mess that can easily be left behind.

That's right, Josh. And you said it's you don't want to leave a mess for your heirs, but you also don't want to leave a mess for your for your business partners as well. So you can you can protect against that on the front end. And I think you made a good point, you know, sitting down annually to review your situation is is a great practice. And that's not to say you need to sit down and, you know, consult with an attorney every single year, but you need to do a personal inventory of what you've got going on. You need to understand your own situation and you need to be cognizant enough to say, you know, maybe it is time that I sit down and revisit what I've got going on with with an attorney. Maybe I get with with someone who is familiar with financial planning.

Maybe I consult with some professionals to to make sure that everything's on the up and up and I'm not going to be creating unforeseen problems for myself or my heirs or my business partners if I were to unexpectedly pass away. Well, gentlemen, it brings up a lot of great topics and certainly business owners out there have a lot of things, you know, to be proud of. You know, they're successful, but you also have to have your I's dotted and your T's crossed when it comes to your business. We've got a short segment coming up on the other side.

We'll kind of wrap this discussion up. But you're listening to the Outlaw Lawyers with Josh Whitaker and Joe Hamer, your hosts. Whitaker and Hamer law firm is where you can find them during the week. They are the managing partners. They're practicing attorneys here in North Carolina, 46 combined years experience in offices in Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia.

If you've got your own set of questions, you need some answers when it comes to the legal. Well, here's the number. 800-659-1186.

That's 800-659-1186. Just leave some contact information briefly what the call is about and an attorney with Whitaker and Hamer will be in touch. And you can also email the program questions at theoutlawlawyer.com and we'll use them on future shows. And check out the website theoutlawlawyer.com.

We're back after this. Back for our final segment on the Outlaw Lawyers. Josh Whitaker and Joe Hamer, your hosts. You can find them at Whitaker and Hamer law firm. They're the managing partners there and practicing attorneys here in the great state of North Carolina, 46 combined years experience in offices. Well, you turn your head, you're probably going to see one.

Raleigh, Garner, Clayton, Goldsboro, Fuquay, Verina and Gastonia. I'm Morgan Patrick, consumer advocate and referee between these two. But always a lot of fun. And we're talking about some serious stuff. And that is, you know, talking about business owners and if you're out there and things to just be aware of when it comes to the legal side of things. So, guys, I know you've got some final closing thoughts. Yeah, we had a few smaller questions that didn't that me and Joe probably don't have to pontificate on as much, but a couple of small questions that I do get a lot. And so one of the listener questions I had was, can I run my small business out of my house?

What do you think about that one, Joseph? You know, the answer is, generally speaking, it's going to be yes. You know, again, with some exceptions, because we always seem to have exceptions to the rule. And there are a lot of things that you need to think about just from a strategic perspective, if you're looking at that situation. You know, one of the things that we see a lot of times and we've actually, as you know, people who do a lot of real estate closings, I've actually seen this scenario actually kill some closings dead for people.

But you've got to look at the covenants. If you live in a neighborhood, if you've got restrictive covenants that govern your property, those covenants may state that you can't run a business out of your house or you can't run a certain type of business out of your house. And that may be a prohibiting factor to that, can I run this business out of my house question.

And that's a relevant factor that you need to consider. Yeah, I see that a lot, Joe. The covenants, the one I see happen a lot of time is somebody buys a house and then they park their tractor trailer on the street or they roll their three dump trucks up there. And, you know, the covenants won't let you have commercial vehicles or won't let you park. Maybe you can have a commercial vehicle, but you can't park on the street. That's the only place you can put your, you know, your tractor trailer.

And so we we see that kind of thing a lot. And of course, inviting the public into your house, some covenants are very specific about, you know, if you're a professional and you're just having a client meet you there, maybe you can get away with that. But you can't just in general be inviting the general public in to buy stuff or or do stuff. So, yeah, where you live, you know, if you're in a subdivision that has very strict covenants, you may not be doing much for the general public, you know, out of your out of your house. That might just be the way it is.

Yeah. And in addition to looking at your covenants, it's also very important to to look at the rules and regulations of your your local municipality. So whether it be the county or the city or the town that depending on what the zoning regulations are, depending on what their their rules are, they could actually have things that prohibit you from running the type of business that you are running. And that's also a relevant factor that that's something you need to consider if you're considering operating your business out of your home. And the other thing is thinking about your again, your liability.

Right. We've talked about an LLC and things like that. But if you're inviting the general public into your home, if they're if they're coming there for a business purpose and they get injured, your insurance, as it stands now, your homeowner's insurance may not offer much coverage if that's the case.

So you need to look at, you know, if there's a writer or something else you need to have in place to protect you from, again, the general public being invited onto your premises for for business purposes. And man, those umbrella policies. I never turned out an umbrella policy. I'm a sucker. If any of our insurance folks offers me an umbrella policy in relation to anything, I'm like, oh, yeah, I'll get that. I'll get that. You can't have enough coverage. But the other thing I would I would tell you is that, you know, most most professions require some sort of license from a government body.

Right. So if you're going to, you know, be a real estate agent, you need a license. You know, if you're going to if you're going to, of course, if you're gonna be a lawyer or doctor, you need a license.

But, you know, you might need all kinds of things. You know, you might you might even think about I know we opened an office. I can't remember which office it was when we opened it. We needed we needed a license just to have an office space open in the in the city.

You know, not like a state, not like a county, but it was like a city specific and we didn't have that anywhere we were at before. But you always need to check in because you might you might be doing something without a license. That kind of always opens you up to a lawsuit.

It does. And it can open you up to just, you know, penalties from, you know, the state or the county or the city. And it can just open up a can of worms that you don't oftentimes consider. But it's all a part of going into that, doing that due diligence on the front end. And if you do consult with an attorney, that should be something that they can help you with as well, that they're going to be more aware of.

And they can kind of make sure that you again, you cross the T's, you dot the I's and you don't accidentally incur liability for yourself unknowingly, which unfortunately, we see we see it happen too often. Well, gentlemen, another great show and I look forward to what's coming up next. Certainly we do have our holidays upon us. You guys stay safe, enjoy the family and we will talk next week.

You too, Morgan. This is the Outlaw Liars, Josh Whitaker and Joe Hamer. Make sure if you have any legal questions, you can call 800-659-1186 or you can email a question to the show. Questions at the OutlawLawyer.com.

We're back next week right here on the radio. Outlaw Lawyer is hosted by an attorney licensed to practice law in North Carolina. Some of the guests appearing on the show may be licensed North Carolina attorneys. Discussion of the show is meant to be general in nature and in no way should the discussion be interpreted as legal advice. Legal advice can only be rendered once an attorney licensed in the state in which you live had the opportunity to discuss the facts of your case with you. The attorneys appearing on the show are speaking in generalities about the law in North Carolina and how these laws affect the average North Carolinian. If you have any questions about the content of the show, contact us directly.