LLCs Part 3: Simple steps to follow for better protection.
This is the third in a series of six videos that will help you protect your personal assets.
Organizational documents done! Now what?
Yea, you’re over the first hurdle and organized properly.
The next step is to ensure you document your transactions correctly. You can’t prove your intentions unless they are documented. Remember, if you didn’t, an attacking attorney or the IRS will be able to tear down your wall of protection. Let's look at some simple steps to get this done!
What do I need to document?
Following is a list of some of the more significant items that should be documented if you want liability and asset protection:
Did you loan money to the company? You need a promissory note.
Did you give the company money as owners capital? A stock certificate or operating agreement is needed.
Do you work for the company? An employment agreement will help document your role and responsibilities and be a good argument when dealing with the IRS on salary and distribution issues.
Do you hire independent contractors? An independent contractor agreement will better define roles and expectations and protect the tax status in an employee vs. independent contractor audit.
Do you lease real estate to your company? A lease agreement is needed to document this - and then you need to follow it.
Do you have additional owners come or go? Proper transfer documents will confirm the change.
Did you put vehicles, equipment, furniture, supplies into the company? A bill of sale documents this.
Did you take money or assets out of the company for personal use? You may need minutes or a bill of sale.
Do have an agreement with your partner about death, disability and such? This should be done right away when you have 2 or more owners in a buy-sell agreement. It avoids so much pain.
Do you document your significant decisions in quarterly or annual minutes? We’ll be getting into what minutes are and why they are important in the fifth video in this series.
Do you maintain good financial accounting records? Tools like QuickBooks or Xero can go a long way in simplifying your life and giving you the ability to print out professional looking statement in an audit or litigation setting.
So, what do I do?
There are many ways to get this done. You can Google what you need, do some research, and try to tackle it yourself. Maybe use on online service. If you need help, you might have an advisor or attorney you work with that can get it done for you. For Colorado residents, we can get it done for you for a reasonable single fixed fee. You can contact us here.
Many times once you have a document that works for you, you can modify and reuse if over and over without incurring additional cost. Keep it simple.
It’s your financial future, it’s your call. Take a few minutes to learn the basics in the next few videos. There are a few more things that you’ll need. See you there!
Check out my other videos for more ideas and if you like this video, please subscribe.