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Transcription in this episode:
[00:00:01] spk_1: Welcome to the seller roundtable e commerce coaching and business strategies with and er [00:00:06] spk_0: not and amy [00:00:07] spk_1: Wiis, mm. Those are all great points mark. So, uh, one of the things that I would love to talk to you about because I've had multiple um lawyers and C. P. A. S. And things like that throughout the years and I swear I get different opinions from everyone. [00:00:27] spk_0: I'm sure you probably have. [00:00:28] spk_1: Yeah. And and so, you know, I mean law is, you know, everybody thinks laws is just such a cut and dry thinking the same thing with taxes. But it's it's it's just like anything just like selling on amazon. There's a lot of uh confinement but it's also a lot of art and interpretation and so much other things and depending on who you go to, they're going to give you different advice. So I would love to hear from you. Um in terms of, you know, when people go to form an LLC or corporation for their business uh, specifically since we're, you know, e. Com here, generally, you know, for an economy business, you know, should they do a C. Corp, should they do a, you know, should they do uh it all c and then be taxed as an S. Corp. I mean what formation type do you think um is ideal? And I know that it's not cut drive for every situation. So if you're gonna give me some maybe some examples on why you would use an s corp oversee corporate vice versa. I would really love to hear that. [00:01:30] spk_0: Okay, no problem. So the first is for almost any non resident person, you're not going to make an S. Corp because in order to make the s election you have to be a U. S. Resident permanent resident or U. S. Citizen. So if you want to be any sort of owner in this entity and you don't reside in the United States, lawfully forget it. You're not doing it? S corporate because you're not eligible. So that means you either form a corporation is treated as a what they call a C. Corp or you form an LLC and you make the election to be treated as a C. Corp assault proprietor or a partnership. There's two different ways you can choose to be or an S corp actually could be taxes that too. So the basic question is going to be assuming you can do each is a comparison of the tax rates between the two countries. Because If you form AC Corp Corporation, United States and its under regular rules its net profit is 21%. That's the tax. And the story Now you may say well that's 21%. But I take the money out, I'm going to pay more tax on it. Yes you are. Now if you live in a jurisdiction does 70% personal income tax Ooh this 21% looks really nice leaving them there for 345 years a bit that I don't need to survive on and use it later on. If you're in a 10% tax bracket that sort of stock you don't really want it. So the other besides just the tax rates between the two because you have to add what tax am I going to pay in the country? I'm in what tax am I going to pay in the US And yes you can get credits for stuff in the US against their home tax. But if your tax rates lower you're gonna lose out on this credit protector is higher. You can gain some. You have to compare those. Look at a U. S. Tax treaty because what people don't understand, it's not just the tax amount. Ultimately at the end it's what's called withholding tax. And the U. S. Has a rule that says if it's non us real property and you make a payment to a nonresident alien Unless you come under one of the rare exceptions, you must withhold 30% of what you're paying and that's not a tax do. That's just a hey, we're holding this to make sure you file your individual income tax return with the U. S. Government. And if you don't know that tax, you'll get it back next year. So That's 30%. There's a lot of tax treaties that will reduce or eliminate that. For example in Italy if you just choose to make AC Corporation, then it's a corporation. For both countries purposes Activity goes down. That withholding goes down to 5%. That could be huge, especially in cash flow. Oh God. So you have to have both a tax treaty and another recipe to make the decision to compare what's attacks in both countries. That's really what's going to decide 99 of what entity you're forming when you're an overseas person? Us person, slightly different story. U. S. Person like you if you wanted to do another business, it's going to depend on your other income, how much income you expected from this business? What's your threshold for making money? What you need to do with this money to live on or not? Live on whether you're gonna make and actually be treated as an s corporation for a regular corporation. The other thing that's problem with individuals and partnerships like a analyses a partnership is there's an extra tax in the United States, it's called Self employment tax. So if everybody else is aware, when you work for a company and they pay you a W. Two, you work as an employee, you have Social Security, Medicare withheld from your paycheck and your employer pays half of that. You pay half when you're self employed, meaning you have a partnership are treated as a partnership or self Proprietor. You pay all of that 15.2%. And that's in addition to income tax. And the only thing that reduces it are your business expenses or any after tax credits, such as the earned income tax credit, um, you might be able to get on an individual basis. So during that, because that's when you decided this s election or not is appropriate for us. It is complicated. It's not the best answer. But for non us presidents, you're not forming this corporation, you really have to take a look and say, what's the overall tax? AM I going to pay 70% tax or 50% tax is from a business protection side. They're all going to be, you can get the business protection with both an LLC and the corporation the same in terms of dealing with the outside customers, etcetera. Um it's internally and taxes. That's really the big picture there. [00:06:04] spk_1: Awesome. Thank you. That that's a that's a great, excellent explanation that it did not realize, um that, you know, an s corp is not a good option for somebody overseas. So that's great advice, especially for those listening that are not from the US or or have US citizenship. Um one of the things that you hear a lot of, and especially if you're a fan of like rich dad, poor Dad, and you've run through a lot of his books is the concept of piercing the veil, right? So that's, you know, if you can explain to people who have never heard of what that, you know what that phrase means. And also after explaining giving a little bit of background on it, maybe, you know, ways to protect yourself from somebody coming after you. We we talked about it a little bit earlier. [00:06:46] spk_0: We did and I meant that's what was mentioned when people said they felt protected. And Amy specifically mentioned that the reason she hired him was to make sure that, you know, she wasn't personally liable for everything. Because that's one of the whole point is to, if something goes wrong in the business, you know, you're not gonna be liable now if you happen to be the person doing the business and you do something like, okay, I'm gonna get drunk and drive for my business and crashed into a school bus. Yeah, I'm sorry. I mean, no matter what, your corporations probably not protecting you. Um, but the general rule for piercing the veil is, the general rule is if you act on behalf of an entity than any liability for something that turns out to be wrong for a court holds to have been wrong is taken care of by the company and it stays with the company. So you manufacture a product and you buy bad a bad raw material from somewhere that turns out to be, I don't know, poisonous as a product that people can put into their mouth and you get five people, you know, saying, hey, you know your product cause my baby to go to the hospital, you know, because you had a different batch of raw material you put into the product. Yeah, you're going to get a bunch of lawsuits over that And there's not gonna be $5,000 lawsuits. So what you want to say is worst case scenario, if something dreadful happens, I can walk away from this business. But my house, my car, my personal bank account, all my personal stuff is protected and I don't have to worry about that if the business goes whatever I invested, I lost it. So be it if need be, but I'm okay. That is what people expect from the corporate veil is when they like I said, they go right through it like a knife through hot butter and then they go after you personally and say, you know, you owe us and that's the biggest game. And that's what I said by people that just going on informing the LLC they Carmen ST web page for your state, that's a give you that protection. Um And yes, there are some things you can do it on a personal level to protect and assets, but that only works in some states when you have a place like texas, which is a community property state as a whole. Another story on how you can do that, you have certain limitations sometimes, so you don't want to get to that point. Absolutely, no. Every state has a little bit of difference with what they will allow. But generally the rule, there's two hardcore rules, no matter what state you're in that you need to do. If you violate either of these two rules, expect somebody to be able to pierce the corporate veil. Like there's no tomorrow rule number one do not co mingle business and non business funds. If you have started a separate entity, it has its own bank account. It pays for only business expenses. You only deposit business income. Now we understand small business. Sometimes you have to put money into a small business. Sometimes you can take money out from a small business. If things are good you can do that. That's not a problem. You just have to transfer the money to yourself of its online transfer business personal call it you know shareholder owner or whatever and let the C. P. A. Classified as appropriate to let them know. You're not surprised at the tax year or you make some improper distributions but you can take money out and you can put money in yourself. What you can't do is pay for your personal items through the business. 04 of us are going out to eat this weekend. Okay let me put it on the corporate card. Yeah. Oh we're actually going to go fly to Puerto rico for a vacation. Let me put on the corporate card. No, that's called commingling you're paying for personal stuff in the same nothing says you can't take the money out, pay yourself and then use your personal card. But no coming, not keeping any separate records, like not having that bank account saying, well it's the same banking. Can I do I do all my personal out of it. That's almost like death sentence. That's like lawyers. Any litigation lawyers going to salivate getting that type of case. That's number one funds are not commingled. Number two adequate capitalization meaning if somebody is going to sue the company as a separate entity, there has to be some sort of expectation that they can get something. You hear a lot of people saying I have no insurance, I have nothing because they can't get anything in my company. Well, that's number two when there was probably gonna go right past through it and go to you because if you're operating in business, you're expected to be able to cover something that's reasonable. What's reasonable depends on what you're doing. If you're manufacturing woolen admittance, that unit yourself, what's the worst case you're one is going to happen? Someone gets a little scratchy because they're allergic to wool and didn't read. Okay, what's that going to be worth? No, maybe a couple $1000 at best. You don't have to have a whole lot manufacturer nitroglycerin. You probably need a lot more because the risk is going to happen if something goes wrong. Boom. Actually, that's a bad example because there's something called strict liability and when you, when you work in those areas, you're sort of toast, no matter what, if something goes wrong. But if you have a part with lots of pieces that you have to manufacture many of those pieces break off and go into. That can be followed by a kid or his poisonous or causes a problem or the part breaks and therefore the whole machine itself doesn't work properly. Now, what happens if the machine has intricate sawing capability and when the party manufacturer ends up breaking the sarcophagus are due, cut through somebody or something, all those are those risks and you have to understand what's a reasonable risk for what you do, they have to be able to recover. Now, if you have tons of money in the corporate bank account, you have tons of equipment, that's probably good enough. The problem is they take it all, you now have absolutely nothing whatsoever. one of the things you can do to help prevent that is to buy liability insurance and make sure you follow everything they stay, tell them exactly what you do. So why did the insurance company, they don't try to cut it short? Make sure you tell them everything you do and when you change you let them know you answer the questions honestly because it's so easy for insurance companies, not the honor the policy if you violate the rules. One example being several contractors, they have to have a policy that says if you use a subcontractor, you have to make sure they have proper insurance. But if they don't, We've heard to a higher deductible so your $5,000, your 1000 or 5000 deductible. Now it's down to $25,000 because you didn't do what you were supposed to do. But if you do what you're supposed to do when you get this insurance for liability that's considered an asset that's got reasonable recovery, that will help reduce big Type. Those two are the most critical. You have those covered. It's going to be pretty hard to go through action does too what Amy mentioned earlier about having these minutes or these notes Federer. So that's treating it as a separate corporation. That's when you keep notes of what you do as a shareholder, because you're acting basically as a fiduciary. If you're handling your mom's money, you're not going to say I'm gonna make every single decision on my own and not say a thing and I'll just go to atlantic city every week. No, you're probably not. You're under a duty same thing to corporation. If you're going to make a big decision document, it is what we're going to do. If you have more than one partner or shareholder, make sure both of you have discussed it and you've done it because if you don't, then you get, you know, partner issues. But if you create a separate bank, you can create the entity, new number, letterhead separate and treated as separate and you have your operating agreement and your resolutions, it's not going to be in and of itself. But if you ever have to go to court, the judges like, okay, you've done this, you've done this and judge hears all the written stuff. We've done, showing that everything is in the corporate name having that. They're, they just make up the difference to say, hey, you're treating this seriously like you should and you weren't. So it's important to have those corporate trappings, as we call it in place, but they're not nearly as important as the first two. Those two things I gave you very to do those, I will almost guarantee you that are going to go through the United States. I don't care what state you're red, they're going to go through that corporate veil. [00:15:26] spk_1: Yeah. So that, that was great. I'm glad that you ended in the, in the documentation thing because, um, with some of the people that we're working with right now and I've heard this from so many other people, no matter what it is, You know, it's like if you're, you know, you're having a dispute with your neighbor and their dogs taking a dump on your front yard. If you document what time and you know what I mean? Like the documentation is so important because if you don't have that documentation, then it's a, he said, she said kind of thing and usually correct me if I'm wrong here. But a lot of times, that's the plaintiff. Is that a better, uh, better standing? Because they're the one who is bringing the complaint. If you can't prove them otherwise. Um, you know that that's a no, no. So [00:16:07] spk_0: generally rules, if you want, if you want to bring something, the burden of proof is on you to prove it as a rule. So if you're going to say this person did or didn't do something a you, the burden of proof is on you who's bringing it to do it. So you're actually, if it's hard, the problem is if you don't have much of the evidence doesn't have much and you're living up to a judge, it's like a coin flip. It's like, okay, you know what? We didn't document this, Who is the judge going to believe as you believe? You doesn't believe the other person as a matter of fact. So the judge in these cases operates as a fact finder and if he finds is a fact, the other person is more believable than you not. A lot of appeal to that. Like there is on the law. The judge ruled wrong with judge me the fact finding determination, you know, absent something egregious. Like the guy admitted later, I committed perjury and I didn't say this. It's hard to overrule that. So anytime you, so first of all going to a judge's risky, no matter what, any time you go to a lawsuit. But the more you document, the more happy lawyers are willing to set up when you have more stuff. So if you're going to minimize costs, minimize the risk, document everything. And one of the biggest things in corporations is let's say you have, You're the managing partner, you run most of day to day operations. You have three partners who have like 3% each and you failed to do the proper resolutions when you decide to take out an S. B. A loan for an idea alone or you decide to put some money in because it needs to be going, you do it on your own. Now what now? You've taken action even though you may have had the right and voting to do so because it's over, you've now violated some of the batches, the corporate rules on what you can and can't do. And now if something goes up, it's a breach of duty, you don't have documentation. Well, it clearly says X. And you didn't do X. That's hard to defend against that one when they don't even have to prove it because it says you shall not and you didn't. Are you sure you did? Which they don't have to prove it. They just have to show that was done now. It's on you [00:18:16] spk_1: interesting. So um in terms of uh you know, I'm kind of switching gears here now, but um you know, if if you're working with somebody overseas, they come into amazon, they build a fairly sizable amazon business in the US. Um and they say, hey, I want to sell the business. Um you know, how could you help somebody in that position? And what are the some of the considerations to think about if if somebody who's not a U. S. Citizen is trying to sell a US based company um you know specifically for Aecom, [00:18:49] spk_0: okay, actually it's really not a whole lot of differences that you would with anybody else than selling a business are relatively minor. The differences because basically they're going to say, all right, how much am I getting for this? And what are the terms? People don't realize you can negotiate terms all day long on what you get or how you get. The biggest thing with that, People forget is people often buy a business on small amounts of like I will pay you a percentage of recurring, you know, or revenue. Well, you need to secure that. What happens if you don't get that revenue? What happens if you don't get that money? You need to secure any time. You don't get full cash down and you're either carrying a note back or you're getting paid under percentage or residual or something. You need to make sure that secure where I can help is say, okay, let's make sure that that is secure. Here's the things you have to consider when you're selling the business. Here's the possible terms to negotiate. It's not a legal thing. But have you thought about doing this? No, I hadn't thought about that. Okay, let's see what we can get for the business. And if you come to me early enough, I can refer you to somebody else that says, hey baby, you know, you cannot increase your revenue anymore, We can do more in the business so that instead of getting two times revenue, maybe you'll get three times revenue or four times revenue. So the biggest thing one is if you know you're going to sell your business start preparing early. If you want to sell your business a couple years beforehand, say here's what I want to sell, come to me and say let's take a look at this and see what we need to do and set up the time frame. If you have to sell. You are under so much worse than conditions in what you accept and if you're ready to sell. So first thing I'm gonna say has come to me earlier than you think you are to make sure in a good position second, well what are you going to do about funding if you're not getting paid upfront, you pay cash up all up front, really. Not much of a concern as much at that point. You're like, okay, now, the other thing is of course, when you buy a business is to is to buy asset, purchase or sale, purchase our stocks or unit purchase as to purchase they buy all your assets, you let them use the name, You shut down here into they form their entity, there we go stock purchase, they actually purchase your stock outright. They buy your whole company, stock everything in it. And there's people like, why would you ever do that? You're an online amazon business. You probably won't. But there are certain businesses where there are contracts or licenses involved where you can't really do it under the state law unless you purchase the ownership of the entity itself. So there are reasons to do so. And if it's Nasa purchase, here's one of the biggest thing is you have to file your U. S. Tax return at the end, so you have to know how much you're going to gain on this. And one of the things people forget is the IRS has a rule, says anybody worldwide that sells a business in the United States or for us citizens selling a business worldwide, you must report How you break up the money. So if I buy business from you and the $400,000, We have to break it up. All right, 10,000,000 of furniture, 10,000,000 of inventory. 50,000 to Goodwill. 10,000 to a non compete. Now, most of that doesn't have a big tax effect. Certainly a couple of those items can have a huge tax effect, but not knowing what you're agreeing to. When you have to allocate the IRS says you will submit an allocation form. So if you don't do it, they're going to come back at you and both of you submit a form independently. Those numbers are different. That's what iris is going to come back and say, let's take a look at your numbers. You want to agree. You have to agree ahead of time and if you don't know what you're doing there, you risk large amounts of path. Okay? No do so. Just by the warning of that to work with the CPA and let you know what you're missing. That's the other thing that we can do is a sale. The other. The only other thing is potentially the for business understand that They may withhold 30 of the proceeds. So if you need this money for your mom's hospital, you know, don't necessarily expect the full amount is not subject to withholding. You're going to get back next year. Both. That's really the biggest thing from Plus of course your attacks are going to pay in the U. S. But generally as a rule, the capital gains tax right now is relatively cheap. It is usually less than most other places. Not always the case. So that's really it. I mean not much difference for foreign non us companies other than those tax considerations. [00:23:15] spk_1: Some of those are great tips. So all right. We like to ask at the end of your mark is um you said that you're into uh like reading and listening, watching tv things like that. What are anything that you're currently listening to wash watching reading that has made a big impact in your life in terms of you know, business personal you know any any anything that's really catching your attention right now. [00:23:37] spk_0: Okay well most of the time when I read because I have to do all this reading for work when I read I want to read stuff that's you know, feeds my brain, you know, I don't want to think when I go to read, I'm reading translated chinese novels, I'm reading westerns, I'm reading sci fi, I'm reading fun stuff that I don't have to think about just feed me but I have noticed that as a member of the and I there have been some great people that have talked to me and I that aren't part of me and I but I've done some amazing things and you know several of the books dr Meisner found me, and he has written have been several other people that he's co authored with the book Who's in your room is something that's really, really something important. And the basic premise is you have a you have a room, you are the doorkeeper, you can let anybody, you went into the room wherever you let in, will never leave from a business standpoint, which I was first written. Who do you want in your room? From a living standpoint, your friends who do you want in your room? That's one of the most, you know, very powerful, very limited things that I have heard, and seeing that book, who's in your room? Really not a big book, it's not very long. Um it is great. Another book probably not necessarily for individuals, but if you work for a company or work with a company, there's a book called scrum doing twice the work in half the time. And I don't know how much the author really knew about rugby when he wrote it because he's the rugby term. But the book's amazing about what to do and basically avoiding the inaction of trying to get something started, not doing it. It's a um, that's a phenomenal book. Those are. And then one more thing, The last one I went, took it. Um, I just got some information. I'm going to do some more on this. Um, I don't remember the author's name because I blank on uh huh Mike Mike profit 1st. [00:25:39] spk_1: I like the cabinets. Yeah, we've had him on the shit on, on the podcast. [00:25:43] spk_0: Have you? Yeah, awesome. [00:25:45] spk_1: Yeah. He's one of our favorite [00:25:46] spk_0: concept behind it is an awesome concept. I'm sort of sad to say. I just found out about it last week, you know? Yeah, so yeah, [00:25:56] spk_1: he's got a bunch of good ones, Yeah, profit first is great. And then he has a clockwork uh toilet paper entrepreneur. I mean he's got a bunch and yeah, he's one of the best authors because number one of you listen to the audio version, he's hilarious. He's a really funny guy. Um, and number two, uh, you know, a lot of these kinds of books where, you know, people are trying to teach people processes and you know, accounting, you know, it goes over people's heads and there's not really any actionable, um, you know, anything actual that comes along with the book, whereas mike has a ton of resources print out, you know, things where you can actually take what he's teaching and put them into practice. Um and really, you know, for somebody who's not, you know, it doesn't have an NBA can actually go through and and kind of learn it and understand it. Um So yeah, that that's, I'm glad that you uh you agree in uh the premise for Amy and I were a huge fan boy and girl with, with Mike Mckellen's, he's he's he's a stud, and and uh you know, great, I'm a bigger thing. Yeah, [00:26:56] spk_0: just make it easy to access, as opposed to thinking like, how do I do all this downloaded and put in place or so? Right, [00:27:03] spk_1: yep, yep, absolutely. All right, Mark, thank you so much for being with us. Um if you're listening on the podcast, we really appreciate when you guys rate review subscribe. We we keep going every single month. I keep uh looking at our stats and uh you know, you guys are really listening and enjoying, we're going all over the world, so I really, really appreciate that guys. Thank you so much for listening and we really appreciate it if you haven't done so yet. Please join us live every Tuesday at one PM pacific uh pacific time. So a round table dot com forward slash live. You can jump in here with the meeting, We're gonna end the recording and live. So we do what we call extra innings where you know, we sit and kind of do a quick little 5 to 15 minute talk where you can ask our guest questions, you're gonna ask us questions and it doesn't get recorded or pushed out. So it's just a little intimate setting. So please join us live if you haven't done so yet and we'll see you next time on the seller roundtable. Thank you guys so much for being with us. Hey, [00:27:56] spk_0: one more thing we got to tell them how to reach Mark. Mark, what's your contact information so folks can reach out to you? Absolutely. So the best way to reach me is usually by email, which is m miles at Mark miles law dot com, but linked in is where you can probably get to me most. So if you just type in the law offices of MArc with a C miles, I will come up. There's not a whole lot of us. Mark with a C. That's a lawyer. Not a lot of those even on linkedin. So Lincoln and email is the best way to actually I do have a website. Dark Miles Law dot com. Alright. And March with the sea and we'll put it in the show notes as well. [00:28:40] spk_1: All right. Thanks everyone. Thank you. Thanks for remembering that. Amy, Bad Andy did you see those commercials that used to be the dominoes commercials called Bad Andy? If you haven't seen him, go look them up on Youtube, that will date me. But anyways, thank you so much for being with us. We'll see you next time. Thanks for tuning in, join us every Tuesday at one PM pacific standard time for live Q and a and bonus content after the recording at cellar round table dot com, sponsored by the ultimate software tool for amazon sales and growth seller S c o dot [00:29:14] spk_2: com and [00:29:15] spk_1: amazing at home dot com.