Why You Dont Need AN LLC to Start Your Business

that was so family it's your favorite

uncle cousin Tyrone Gregory back at it

again here with another video and this

time I am going to be doing my very best

to convince you of the fact that you do

not need an LLC to start your business

or any other kind of business structure

for that matter this is something that I

feel is truly important something that I

think every aspiring entrepreneur

anybody who's looking to start a

business should know this is something

that I wish somebody would have told me

when I was very when I was just getting

started out so let's go ahead and get to

today's video why you don't need an LLC

there are plenty reasons to form an LLC

however those reasons are extremely

specific and strategic you don't form an

LLC just because the your your friend

told you so or you heard an

advertisement on a radio you went to a

seminar even if you watch the video and

somebody said that if you're starting a

business you did LLC that is the

incomplete incorrect wrong way and wrong

reason for wanting to start an LLC trust

me as somebody who has been preparing

taxes for small businesses over a decade

now I can honestly say with certainty

that over 80 percent of the people who

have LLC's don't need one and what's

even worse is the reasoning behind why

people want LLC's I've heard some

ridiculous reasons why people want LLC's

as a matter of fact the inspiration for

this video happened because doing past

tax season a gentleman came and sat down

at my desk and argued with me for 15 to

20 minutes as to why he wanted an LLC

and I did my best to convince him that

he didn't

as a matter of fact the conversation

with a little something like this

hey boss smells go out or not gonna help

you what's up bro I need to form an LLC

okay this is there a particular reason

why you want to form an LLC yeah cuz I'm

about to start driving for uber okay

that's it you're just gonna drive for

uber you're not gonna do anything else

you're not about to buy a fleet do

something up there maybe invest in

something start other businesses I mean

is that really the only reason you wanna

start an LLC just because you're talking

for a little bit yeah man is what they

told me I can save a lot of money your

father incorporated us started LLC well

if that's the only reason you wanna

start a LLC man let me honestly tell you

know you don't yes I do no you don't man

yes I do no you don't and that

conversation lasted longer than they

need it to for yeah and that's exactly

how that conversation went so let's go

ahead with our in further delays let me

do my best again to try to explain to

you why you do not need an LLC starting

with this question here I am going to do

my best to break down what exactly is an

LLC so let's go ahead and start with the

basic understanding of what it is and

LLC is a state-level entity meaning that

it is formed and recognized only at the

state not at the federal level as a

matter of fact when it comes to the

government initially the federal

government treats you like you know

you're a piece of lint on their shirt I

just kind of flick your weight everybody

don't pay attention to you there you

know get out of here we don't recognize

you don't know what you are and if you

want to be recognized by the federal

government the IRS you are going to have

to fill out some additional paperwork

the only exception to that

meaning that you won't be required to

fill out additional paperwork in order

to be recognized is if you and another

individual they are the ones who are

forming this this LLC together making it

a multi-member LLC you will then be

automatically recognized as a

partnership meaning that the IRS is

going to treat you as a partnership

you're gonna have them file a

partnership tax return meaning that the

earnings and income is going to be

reported on a 1065 each individual gets

a k1 and you go on from there that is

the only exception to the rule of being

recognized by an IRS you becoming a

multi-member LLC outside of that

everything else is the same so as you

can see just by forming an LLC it's not

going to give you corporation status

which is the first reason why you don't

need an LLC all right so moving on next

let's break down the name l.l.c which

stands for limited liability company and

for purposes of breaking down the night

I'm actually going to do it in reverse

order going to start with the C and work

our way up so looking at the letter C we

can see that C stand how about there we

can see that C that's C stands for

company not corporation okay we can see

that's a very distinctive difference LLC

is a limited liability company not a

corporation however this just reiterates

what I said in the beginning LLC's are

state-level entities not initially

recognized by the federal government

okay does that really make a difference

on anything no not really I just started

with something you know something for

for you to know what here okay so anyway

moving on next one the two ales the

limited and the liability I'm grouping

these together right now because those


words together limited and liability or

would cause people to drool over this

particular business structure the words

limited in liability to most equal asset

protection and truthfully speaking it is

if done right but then when it comes to

asset protection it leads me to ask the

question what exactly is an asset well

according to Google and asset is

property owned by a person or a company

regarded as having value and available

to me debts commitments or legacies now

let me go ahead and break that down

because when it comes to forming LLC's

that is the biggest reason why people

want to form LLC they always say they

want to protect their assets and then it

it kind of I don't want to sell meat or

anything but I'm like you know we really

got to go through it and understand what

an asset is do you really have any

assets to protect meaning that if you're

renting you don't own the building right

you're you're renting if you you don't

own it it's not your asset if you are

still paying your Cardinal or you're

leasing the vehicle you don't own that

you don't own the vehicle if you think

I'm playing don't pay the card no don't

pay the lease agreement see what happens

remember an asset is something that you

own all right free and clear you have

the title you're you it's is yours you

have the pink slip renting and and still

paying Cardinals that is not an asset

even if you were in a house and you're

paying a mortgage you don't own that

home until the mortgage is paid off

again if you think I'm playing don't pay

their mortgage and see what happens you

need to own it free and clear in order

for it to be considered your asset so

think about that when you're trying to

say hey I need asset protection

do you really have any assets yes we may

own jewelry and things like that but if

it's not worth you know thousands of

dollars then are you really trying to

protect this so if you're thinking of

starting an LLC just for purposes of

asset protection really doing inventory

and see what assets do you have think

about can you convert that item that

you're thinking about can you convert it

immediately into cash to pay a debt a

commitment or legacy if the answer is no

well then you really don't have no

assets to protect and therefore you do

not need an LLC okay moving on the

liability that word which leads to the

question what can we be liable for and

truthfully speaking as a business on

individual there are a lot of things

that we can be liable for in the course

of our business but the most of the

things that we can be liable fall under

three particular categories and they are

criminal liability contractual liability

and tort liability and let me go ahead

and explain those to you criminal

liability is when you or your company

has broken the law whether you've done

it on purpose or by accident the law was

broken and punishable actions can and

will be taken okay that is criminal

liability contractual liability means

that you entered into a binding contract

and you and/or your company did not hold

up your side of the agreement causing

the other party to be wronged or damaged

financially or whatever some sort of way

by you not holding up

you're in the other party got a negative

impact so that is contractual liability

and tort liability this is the one that

we are the most afraid of this is the

one that for purposes of forming an LLC

that we try to avoid tort liability this

one is when the liability comes about

when everyday folks like the ones

pictured here are using our products and

services and somehow someway end up

being wronged or some some sort of

damage that happened to them and this is

mostly brought about by negligence

either get on purpose or by accident

which is why we fear it the most because

we do our best to make sure that every

box is checked and every T is crossed

and every I is dotted but somehow some

way is Murphy law dictates whatever

could go wrong will and so tort

liability covers that tort is different

than criminal because criminal is war

against the government they've set the

laws we have broken them tort is against

the individual is more of a civil type

matter than it is a criminal type matter

so that's the one that we fear the most

tort so those are the liabilities that

is the L in LLC then the middle under

liability now let's look at the last

word limited here you know limited means

that there is a confined amount of

spaces not a real large range it's not

extremely open is it's limited it's a

confined amount of space but also

limited means that there is room within

that confined amount of space for things

to happen which also means that even

though it is limited you can still be

held responsible for the liability those

three liabilities that we just spoke

about so just because it's live

it does not mean that you are going to

be absorbed of anything there is not

anything that is going to be a hundred

percent protected yes it is limited but

it is not a hundred percent protection

you can still be held personally

reliable or personally responsible for

any of those liabilities that we just

talked about and if the LLC isn't

properly structured that anybody can do

what we call piercing the corporate veil

so as you can see forming an LLC will

not give you a hundred percent

protection which is reason number two

why you don't need one

moving on here we're going to talk about

everybody's favorite LLC's and taxes and

for purpose of LLC's and taxes I'm

actually going to be talking about a

particular type of LLC one that I like

to call a slick slick slick smart you

know what let me just show you could my

pronunciations ease off today here I'm

talking about the SM LLC that's why I

was trying to bring all those words

together make one single sound slick I

don't know but SM LLC which stands for

single member LLC this particular LLC is

formed by one individual and one only

because remember the minute you bring on

somebody else you are immediately

considered a partnership and you will be

taxed as such so single-member LLC is

what we are talking about here today in

this particular scenario and when it

comes to taxes please note that a

single-member LLC is the same exact as a

sole proprietor meaning that there is no

significant difference a single-member

LLC is held by the same laws the same

theories the same application as a sole

proprietor as a matter of fact

both the single-member LLC and the sole

proprietor will both be filed all of

their income and deductions are going to

be reported on a Schedule C no actual

difference and you know what that means

both the single-member LLC and the sole

proprietor because they are the same

it's still going to be subject to

self-employment taxes so as you can see

forming an LLC will not get you any kind

of special tax treatment which is

another reason why you don't need one

and real quickly on a side note I also

want to tell you this when it comes to

LLC's you cannot pay yourself a wage and

deduct it when you make money from the

company as a single member LLC same as a

sole proprietor it's called a

distribution and that does not reduce

the amount of money you will pay tax on

doing so will not reduce your

self-employment taxes okay as far as the

Internal Revenue Service is concerned

the amount of profit is sole proprietor

earns is the same exact as the business

earnings so whether those funds are held

in a business account or on a personal

account they are treated the same now I

know that there are videos out there

there to say hey this is how you pay

yourself in an LLC write yourself a

check write it off on your taxes blah

blah blah no and I'm not saying I don't

like to call people liars I don't want

to do anything like that

I'm just assuming that maybe that they

haven't got to the section of the law

that explains that so let me just show

you this here here is the IRS

Publication 334 this is chapter 8 page

34 and you can see

it says you cannot deduct your own

salary or any personal withdraws you

make from your business as a sole

proprietor you are not an employee of

the business remember

LLC's or single member LLC's are the

same exactly the eyes of the IRS they

are bound by the same laws and

regulations therefore if you cannot do

it as a sole proprietor you cannot do it

as a single member LLC so again as you

can see and I guess I'm going to be say

so as you can see a lot forming an LLC

really does nothing for you as far as

taxes goals again and I'm not deducting

anything if there's nothing for you and

that is yet another reason why you don't

need one moving on it does look good on

paper I know I get it

you got your company letterhead on that

letterhead you see this your company

name comma LLC and it looks good it

looks prestigious it adds like you know

makes you pump your tests up a little

bit of walk with your head high because

whoa it looks good I have an LLC that

makes me in CEO whatever I'm the owner

of this legitimate business and you know

I get it

it looks good looks good there looks

good on your email signature it looks

good on your business card when you

present it that's it you know there's

this myth that surrounds forming an LLC

or any type of business structure for

that matter this midstate that as soon

as you form this LLC and every day

becomes a legit you'll have immediate

access to things like additional capital

you'll be able to go to the car light of

your choice talk to the fleet manager


with a brand new luxury car or a fleet

of them for that matter there's the myth

that says that investors are going to

come running to you with money in their

hand just wanting to give it to you

immediately ready to invest because you

have this business structure and the

worst one of all that I personally

believe is the worst one of all is that

if you have poor personal credit well

that's okay because you'll have

immediate access to business credit that

is ridiculous those are what I like to

call false truths meaning that it is

true all of those things can happen

however they exaggerate it that so much

that it's a lot because it's not gonna

happen immediately to get those things

to happen it is going to take capital to

get access to capital you are going to

have a put in a lot of time a lot of

work there's a lot of strategy that goes

into building that especially with the

business credit you know a lot of things

when you're first building your business

credit depends on your personal credit

anyway so yes again it can't happen I'm

not saying that it cannot but listen to

me it is going to take time it is going

to take a strategy and you are still

going to have to do some things

personally for those things to happen so

as you can see forming an LLC does

nothing for you as far as fame and

riches goes which is another reason why

you don't need one let's go on to the

next additional cost

this one is straightforward LLC's aren't

free nor are they cheap as a matter of

fact most states require that you pay

what's called an annual franchise tax

fee or minimum tax

Zess for the privilege of having an LLC

formed in their state take the go to

state of California that I live in for

example just to have an LLC at the end

of your company name is going to cost

you a minimum of $800 per year as of the

date of this video $800 per year and

that's whether you make a profit or not

zest for having the privilege of having

LLC any name and also consider another

additional cost additional prep tax

preparation fees can be included when

you're having an LLC and I know I know

you're thinking well cousin you just

said that an LLC is the same of the sole

proprietor is gonna be able to same

forma Schedule C so while there are

different charts excellent questions

excellent thinking and you're absolutely

right but remember LLC's are state level

entities okay they are not initially

recognized at the federal which is why

the same but at the state level they are

recognized and so therefore there will

be additional forms for your state taxes

like California time you have an LLC yes

you're going to do a Schedule C on the

federal but there is going to be an

additional state form added to the

California return and because of that

there's going to be additional fees on

your tax preparation so definitely keep

that in mind so as you can see forming

an LLC does nothing for you as far as

saving money goes which is another

reason why you don't need one well we

want well weird okay so at this point I

know you're probably saying to yourself

you know you've given us plenty good

reasons why we don't need an LLC so when

are some reasons or when will be some

good ideas to actually form an LLC and

that is a good question and trust me

there are plenty reasons like I said in

the very beginning to form an LLC so I'm

going to go through and give you some of

my top reasons for forming an LLC and

please keep in mind that this is not an


exhaustive like I cannot say they were

this is not a definitive list so to

speak I can pronounce that word a lot

better this is not a definitive list so

let's just go ahead and grunt through a

couple of scenarios where you would

actually want to use an LLC type

business in the beginning and here they

are dealing directly with the living as

opposed to the dead I guess unless you

you know specialize in zombie apocalypse

but what I mean by this is when you

provide a product or service that can

have a physical negative outcome meaning

that it can cause injury illness or

worse to anything living humans animals

plants insects etc so if you are in one

of these type of professions you would

want to consider forming an LLC and

these are professions like caterers

think about it caterers deal with people

in foods or what if there's an outbreak

what if somebody has an allergic

reaction what if somebody chokes on

something of your food definitely can

cause some serious illness or some

serious injuries there so you definitely

want to be protected property managers

as a matter of fact LLC's are excellent

business structures for those looking to

get into real estate who want to do

property management because what if

somebody gets injured on one of your

properties you know what if something

happens if nothing that you've done on

purpose think about that tort liability

it was just negligence you thought you

crossed all your eyes not at all your

teeth at something still happen on that

property so when in that industry

definitely want to make sure that you

have an LLC then there's also

individuals who are in beauty and hair I

personally have a client she has an

excellent hair care product which

stimulate growth and she showed me the

before and after pictures for her and

worked miraculously on her children she

I did a real good job there but what if

somebody else tries it and it has the

opposite effect so I definitely

encourage her to go ahead and start with

an LLC definitely to protect that and

even when you're dealing with with

beauty and then cosmetics people may

have an outbreak a rash or something

like that so if you're in that industry

definitely consider forming an LLC and

then childcare you know when it comes to

two small children it takes only a

second for something to happen and if

you have a child care and and Tommy's

over there crying and throwing a hissy

fit and you turn over there around the

go see what's going on with Tommy and

then next thing you know Billy they

picked something up and swallowed it and

now he's choking I mean things happen in

an instant so child care industry

definitely makes sure that you consider

forming an LLC next when you want to

form it is when you actually have assets

remember we broke down assets but when

you get to the point in your life that

you actually have true assets and you

are still running your business then yes

is time to make that strategic move from

sole proprietor to LLC and make sure you

get recognized by the IRS and either S

Corp C Corp or one of them other legal

structure that they accept there when

you actually have assets

next is when you want to diversify LLC's

are perfect for people like me who have

multiple businesses all operating at the

same time by using a strategic hierarchy

you can have each venture be placed in

its own LLC and keep everything

completely separate so for example if

you have you know the the main structure

LLC and you have corporation a

corporation B corporation C and some

happen with corporation a where

corporation B and C will not be affected

because they each have their own

structures you have diversified

everything okay next is when you

have lots of money there does come a

time especially for tax purposes where

it just makes sense to form an LLC and

become recognized by the federal

government as it will save you money now

you will have to do the research on this

because every business is different

every ever every venture is different

and you have to know what that number is

for you you have to know when you hit

that number will it make sense to go

from sole proprietor to LLC that is

something that only you can know and

trust me you can ask any one of those

self-employed tax academy students

they'll tell you Reeve restarts that

number very well but even still it's

different for every person so do the

research understand what your numbers

are and look at your taxes see how much

you paying if you convert to this LLC

how much would you save and all the

saving is going to alway the cost that's

what you want to make sure you look at

but there does come a time when you're

making that lots of dough then boom good

to go

alrighty family there you have it the

reasons why you do not need an LLC I

surely hope this video was helpful if

you know anybody who was thinking about

considering getting an LLC make sure

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appreciate you love you and I will see

you in the next video