You are listening to an episode of Ask the Experts on Talk 860 WWDB AM with host Steve O and weekly guest, LGBTQ legal expert Angela Giampolo.

Angela and Steve continue their talk about the legal pitfalls of starting your own business.

In this episode Angela discusses the 7 questions you should ask your lawyer before starting a business.

Why you need to look out for the Three Ds.

Why 50/50 partnerships are doomed to failure.

And more!

 

What do you go over with those who want to start a business?

Well, when they first come to me wanting to start a business or form a business, they usually have the business idea in mind. They know what they want to do. They’re not just coming to me and saying, like, I want to open up a business, but they’re saying, I want to open up a dry cleaner, or I want to one I just did is an LGBTQ travel company. So they typically come to me with an idea, and first and foremost, it’s really doing an assessment and talking to them about their business concept, especially if I’m not familiar with it, and all of the potential liability that could ensue from it. 

I always tell them, listen, I am a lawyer, you’re paying me to think about the worst-case scenario. We’ll get to the positive thinking here in a minute in terms of generating revenue and being successful and all of those things. But right at the outset, what are all the ways in which you could imagine being sued for doing whatever it is that you want to do?

So then based on those answers, we then start protecting you. For consultants, one of the first things is errors and omissions insurance. So many people think, oh if I just form an LLC or form a corporation, I’ll be protected, and then my assets are protected, my home is protected. All of the things. But that’s not necessarily the case. You need to be properly capitalized, have enough money in the bank for it to do whatever it is that you do and especially be properly insured. And then we look at your personal assets. Okay, let’s get an umbrella rider of a million dollars on your home to just protect you in case anything does pierce any corporate veil of any kind.

And I always joke that LLCs and corporations are great, but God invented insurance for a reason. And that is the ultimate protector for any business. Over-insure, over-insure, over-insure. But first and foremost I need to fully understand how your business operates, the ways in which you could get in trouble, and then protect accordingly. And usually around insurance and the LLC corporate entity is like the last piece, it’s a no-brainer. You need it if nothing else from a tax perspective. And then we can talk a little bit more about how people can get themselves in trouble with LLCs and corporations. But that’s the initial assessment. 

What are the three Ds? 

To go into business with someone else, you have to protect yourself against death, disability, and divorce. The big DS. Or else you’re playing with fire. It’s not just your own life. It could be your death, disability, or divorce. It could be my death, disability, or divorce. And as far as the key man insurance piece that helps with disability and death, it doesn’t help you in divorce

Why are 50/50 partners destined to fail?

Because humans are not meant to unanimously agree on everything. I hate 50-50. There are so many people that are in business with their spouse, domestic partner, committed partner, husband, wife, and without fail, they’re like, yes, 50-50. And I’m like, so you understand that if your marriage blows up, then the business is ultimately, again, screwed because it’s 50-50 in the business. And then if your personal relationship goes awry, you’re not going to be able to unanimously agree in the business. 

So there are ways, though, if you do want 50-50. I always tell my clients, I’m not going to talk you out of what you feel. I’ll tell you all the reasons why I disagree as a lawyer and as a business person because sometimes those are different hats. I understand the entrepreneurial spirit, but you’re paying me to be your lawyer, so I’m going to tell you all the reasons why this is a horrible idea, even though I understand where you’re coming from. However, we need a tiebreak built into the 50/50 operating agreement or the share. 

What business structure should you choose?

It’s a multifactorial decision process to make. So it depends on the type of business that they’re going to be doing and what is their business, basically. So if it’s a tech company that might go public or their goal is to exit or something like that, I would recommend a Delaware corporation. Right. There’s a tax-free status. There are very favorable aspects that exiting from a tax perspective that you can take advantage of. And it’s just a very friendly corporate structure. If you’re my LGBTQ travel company, an LLC, and even just at the outset, a sole prop, right? So just being a sole proprietor is considered the entity at the outset. You don’t necessarily need to choose between an LLC or a corporation. When people come to me and they’re like, what about a Nevada corporation or Wyoming. No, you don’t need all of that. It’s super rare that you actually need that kind of complicated, out-of-state, non-jurisdictional entity type thing. The majority of them are LLCs or corporations, and that corporation can be taxed as an S Corp.

So when I said it’s a multifactorial decision, a lot of it relies on taxes as well. I do not make that decision alone with the client. I meet with them. I have that assessment as I talked about in terms of a liability perspective, and talk to them and then figure out the size of the entity, whether or not they’re going to be bringing on employees, what they’re going to be doing, all the different liabilities, this that the other. Then I ask them if they have a small business accountant that they work with. If they don’t, I introduce them to mine, and then they meet totally separate from me from a complete tax perspective.

Episode Transcript

[00:00:59.730] – Speaker 2

And good morning, Philadelphia. Welcome to another SD Expert Show, where we bring you Philadelphia’s top experts in the field of legal, health, financial, and home improvement. We start off every Tuesday morning at 10:00 with our big show attorney, Angela Giampolo. Good morning, Angela.

[00:01:23.540] – Speaker 3

The best show.

[00:01:25.930] – Speaker 2

The best show. God, we opened up in New York City last week and somebody had said that they were listening to the show in Philadelphia. They love your show, by the way. I will send you a copy of that. But we’re reaching people in New York City and now we have our own show now in New York City, Angela, we are going to be talking about, there are people looking to start their own businesses. I’m telling you, if you’ve never started a business before, you do not want to go into it alone. So we are going to be concentrating today on the seven questions to ask your attorney before starting a business. But before we get started, attorney Angel Giampolo, who works with people in the LGBTQ community, we’re actually talking about business law today, but she also works in areas of family law, estate planning law, and employment law. Angela, tell everybody about your firm, first of all.

[00:02:35.170] – Speaker 3

Yeah, so the firm is Giampolo Law Group and I formed it in 2008. So I age myself every Tuesday at 10:00 a.m. When I talk about that. But 2008 was the birth of Giampolo Law Group, and the idea was to form a practice geared solely towards the LGBTQ community for all of our legal needs. Not just the legal needs that have to do with the fact that we’re LGBTQ, queer, gay, but we slip fall, we own businesses, we buy real estate, and go bankrupt. And all of the things. So to have an attorney that feels safe and that basically caters and brings services to the community for all of their legal needs, so that was 2008.

[00:03:34.710] – Speaker 2

People don’t understand that when you first got into the area of law, you have done everything you can to help others and sometimes others that are less fortunate. And a lot of times you’ve gone up against Goliath. But you always win, though. And so today, when we’re talking about it’s, so important that you get an attorney. There are so many things you do not understand that you need to be educated on before you start a business. And that’s what we’re going to be talking about today, especially because I’ve seen so many people go throwing their hands up. I’m tired of making other people money. It’s time I start doing it myself. But Angela, what are some of the when you sit down with a client, what are some of the things that you go over with them that is so important when you’re first starting a business?

[00:04:44.890] – Speaker 3

Well, when they first come to me wanting to start a business or form a business, they usually have the business idea in mind. They know what they want to do. They’re not just coming to me and saying, like, I want to open up a business, but they’re saying, I want to open up a dry cleaner, or I want to one I just did is an LGBTQ travel company. So they typically come to me with an idea, and first and foremost, it’s really doing an assessment and talking to them about their business concept, especially if I’m not familiar with it, and all of the potential liability that could ensue from it. Right. So I always tell them, listen, a lawyer, you’re paying me to think about worst case scenario. We’ll get to the positive thinking here in a minute in terms of generating revenue and being successful and all of those things. But right at the outset, what are all the ways in which you could imagine being sued for doing whatever it is that you want to do? Right. Travel company COVID happens and all their trips get canceled, and you have 19 clients with canceled reservations, and they’re mad at you and everyone’s coming to you, and then the hotel is coming at you.

[00:06:10.070] – Speaker 3

So whatever it is that you do, what are the ways in which you could get in trouble? The clients could be mad at you and or lead to a lawsuit. Consultants, just someone relied on your advice because they paid you as a consultant, and then they did what they paid you to do, and then they did it, and then it didn’t work out. Right. So then based on those answers, we then start protecting you. So that consultant, one of the first things is errors and omissions insurance. So many people think, oh if I just form an LLC or form a corporation, I’ll be protected, and then my assets are protected, my home is protected. All of the things. But that’s not necessarily the case. You need to be properly capitalized, have enough money in the bank for it to do whatever it is that you do and especially be properly insured. And then we look at your personal assets. Okay, let’s get an umbrella rider of a million dollars on your home to just protect you in case anything does pierce any corporate veil of any kind. But we live in Philadelphia. And Ben Franklin created insurance.

[00:07:24.050] – Speaker 3

And I always joke that LLCs and corporations are great, but God invented insurance for a reason. And that is the ultimate protector for any business. Over-insurer, over-insure, over-insurer. But first and foremost I need to fully understand how your business operates, the ways in which you could get in trouble, and then protect accordingly. And usually around insurance and the LLC corporate entity is like the last piece, it’s a no-brainer. You need it if nothing else from a tax perspective. And then we can talk a little bit more about how people can get themselves in trouble with LLCs and corporations. But that’s the initial assessment, 

[00:08:11.380] – Speaker 2

Angela, you actually are trying to do is start from the courtroom back.

[00:08:16.510] – Speaker 3

Exactly. Exactly. A lot of companies, small, small companies have me on a monthly retainer, a small amount, and I’ve come up with that number over the years by assessing when they get to court. So let’s say they didn’t have me on a monthly retainer, but then we’re in court battling an issue dividing that legal bill by 24 because usually, something like that happens every two years. Right. So you divide that big legal issue by 24 months and without fail it’s approximately the same anywhere from twelve thousand dollars to twenty thousand dollars for that first legal issue. And we could totally prevent that big $12,000 $20,000 legal issue. We could prevent that by having someone next to you side by side as you make business decisions. And so absolutely both in that initial assessment and even if I do nothing for them but form, then but then my larger companies that have been operating in business and also their finances, if they’ve already been operating in business for 1015 years they can go back with their bookkeeper look at their legal expense divide that by twelve and then reduce it gladly pay a small monthly retainer. I then become [email protected], and now they’re CC their corporate counsel and they’re not paying me at my hourly rate to review the emails that they think I should be on. And then once a month we meet, then we assess whatever went on that month.

[00:10:08.610] – Speaker 2

You’re always trying to save your clients money. I’m going to tell you I had a business and I tried to go into it myself thinking I was going to save some money by not hiring an attorney. And it turned out that my partner passed away, which meant I now have to be in business with his wife. And I did not know there are insurance policies that you can have for situations that come up like that.

[00:10:47.380] – Speaker 3

Yeah, key man, rude, gendered name, we call key person insurance now. Right. But it’s traditionally called key man insurance. Two things there, especially in Philadelphia, less so in New York now with the prices of real estate. But real estate development investment is booming in Philly. Everybody’s doing it, even as a side hustle. Even if they don’t talk about it, they have one thing going and maybe a flip and maybe they’re $50,000 investor in a flip, whatever. Most people have their hands in something real estate related in Philly right now without powers of attorney. During COVID so many people ended up in a COVID-induced coma or just laid up in the hospital. You were in the hospital for how many weeks? And if that’s your business partner, who’s the person? Let’s say you are the silent partner and you had no rights in the operating agreement. You’re the silent partner. You put your 50K in there and then the sweat equity guy, the hustle guy, the one doing everything is laid up in the hospital. You’re screwed. You can’t do anything per the operating agreement. You’re silent. You have no vote, you have no this, you have no that.

[00:12:05.590] – Speaker 3

But being in business from even just a limited durable power of attorney limited. So it’s not like you’re, my power of attorney to be able to put me in a home or do anything like that. But just if we bought real estate at 123 Elm Street that you are my limited durable power of attorney as it relates to the bank account dealing with 123 Elm Street and the real estate at One Two, Three Elm Street a two-pager limited durable power of attorney your business partner gets laid up or something happens. Now, that’s if they’re alive. To your point, I don’t know how many people end up with a wife or a husband as a business partner whom they didn’t plan on going into business with, who has no idea what they’re doing. But now it’s 50 50 and you have to treat them exactly like the human that you dealt with. And then thirdly divorce. Let’s say that a business partner of yours divorced his wife, and didn’t die, but he divorced his wife. And then she gets 70% of his marital assets, which include your business. So whenever you are in business with someone, if they’re legally married, the operating agreement should have a waiver, basically, a mini mini mini prenup as it relates to your business and or a full-on prenup or at this point a post-nuptial agreement.

[00:13:33.900] – Speaker 3

But to go into business with someone else, you have to protect yourself against death, disability, and divorce. The big DS. Or else you’re playing with fire. It’s not just your own life. It could be your death, disability, or divorce. It could be my death, disability, or divorce. And as far as the key man insurance piece that helps with disability and death, it doesn’t help you in divorce.

[00:14:01.070] – Speaker 2

Well, talking about fire, this is my own personal feeling. We just got a text. A listener, Marty, wants to know why 50-50 partners are meant for failure.

[00:14:20.210] – Speaker 3

Because humans are not meant to unanimously agree on everything. 50. I hate 50-50. And so many of my life partners like people that are in business with their spouse, domestic partner, committed partner, husband wife, without fail, they’re like, yes, 50-50. And I’m like, so you understand that if your marriage blows up, then the business is ultimately, again, screwed because it’s 50-50 in the business. And then if your personal relationship goes awry, you’re not going to be able to unanimously agree in the business. Right. And so there are ways, though, that if you do want 50-50 power, okay, because I always tell my clients, I’m not going to talk you out of what you feel. I’ll tell you all the reasons why I disagree as a lawyer and as a business person because sometimes those are different hats. Sometimes as an entrepreneur, I’m willing to take risks that I know could get me into trouble, but it’s a risk I’m willing to take. Right. From crypto to whatever. So I understand the entrepreneurial spirit, but then you’re paying me to be your lawyer, so I’m going to tell you all the reasons why this is a horrible idea, even though I understand where you’re coming from.

[00:15:35.370] – Speaker 3

So many, especially if my life partners, husband, wives, wives, wives, whatever want to do 50-50. And I say, okay, that’s fine. However, we need a tiebreak built into the operating agreement or the share. Right. And so we can either decide right now between Angela and Steve since Steve invested all of the money, then Steve gets the first tiebreak. So Angela and Steve cannot agree on something. Steve gets the first tiebreak because it was his $100,000 that allowed us to go into business. And I’m the sweater. Okay. Then after that first tiebreak, then it’s Angela’s turn, then back to Steve, then back to Angela. I have in some we flip a coin.

[00:16:20.330] – Speaker 2

Oh, my gosh.

[00:16:21.510] – Speaker 3

We can’t decide. And so then it’s Angela gets the tiebreak because we flip a coin in that moment. And then there’s one that I don’t necessarily like because it opens your trusted advisors to potential liability, but you guys choose a board of advisors. So you pick one person, and I pick one person. We pick an objective person. They’re our board of advisors. We can’t agree on something. We kick it to them. They make the decision, but ultimately, one of us would sue that. Whoever they don’t agree with could sue them. And people have come up with different ways of tie break, pulling the short straw, whatever. But basically, if it’s 50-50, I’m not letting you out of my office without an operating agreement or a shareholders agreement that in some way has a Tie break built-in.

[00:17:19.810] – Speaker 2

Hey, we’re going to go to break. The show goes by so fast. Angela, give everybody not only your phone number but your social media addresses, too.

[00:17:30.990] – Speaker 3

Sure. So the phone number is 215-645-2415. And social media on Twitter. You’ll find me @phillyGaylawyer Instagram @yourgayLawyer, and my website is www.lawyer.LGBT.

[00:17:47.910] – Speaker 2

When we come back, we’re going to talk about what business structure should you choose. We’re here with Attorney Angela Giampolo. We’re talking about starting a business today, and we will be right back.

[00:19:25.490] – Speaker 2

And we are back. This is the ask the expert show. I am Steve O, your host. We are on with you every Tuesday from nine to 10:00. Our 930 show today will be attorney Michael Cardamone talking about accidents within a business. And we always start off on our 10:00 show with attorney Angel Giampolo. We’re talking about starting a business today, and I got to tell you, when you meet with a lawyer for the first time, I am telling you, you got to have your questions written down so you don’t leave and go, oh, I forgot to ask. What’s so great about having Angela as your attorney? She is going to give you business ideas that you never even thought about. And insurance is very important. So I want to start off with what business structure should they choose Angela?

[00:20:33.450] – Speaker 3

It’s a multifactorial decision process to make. So it depends on the type of business that they’re going to be doing and what is their business, basically. So if it’s a tech company that might go public or their goal is to exit or something like that, I would recommend a Delaware corporation. Right. There’s a tax-free status. There’s very favorable aspects that exiting from a tax perspective that you can take advantage of. And it’s just a very friendly corporate structure. If you’re my LGBTQ travel company, an LLC, and even just at the outset, a sole prop, right? So just being a sole proprietor is considered the entity at the outset. You don’t necessarily need to choose between an LLC or a corporation. When people come to me and they’re like, what about a Nevada corporation or Wyoming this or blah, blah, and I’m like, Just relax. No, you don’t need all of that. Even out of the Delaware corporations, in 15 years, I think I formed four, right? It’s super rare that you actually need that kind of complicated, out-of-state, non-jurisdictional entity type thing. The majority of them are LLCs or corporations, and that corporation can be taxed as an S Corp.

[00:22:18.550] – Speaker 3

So when I said it’s a multi-factorial decision, a lot of it relies on taxes as well. I do not make that decision alone with the client. I meet with them. I have that assessment as I talked about in terms of a liability perspective, and talk to them and then figure out the size of the entity, whether or not they’re going to be bringing on employees, what they’re going to be doing, all the different liabilities, this that the other. Then I ask them if they have a small business accountant that they work with. If they don’t, I introduce them to mine, and then they meet totally separate from me from a complete tax perspective. Like, I don’t know what this person’s tax history has been for the three years prior to them walking into my office, right? Maybe they’re W2 CFO making $400,000 and have deferred comp and all of these things. Okay, so let’s use this entity to lose as much revenue as possible in the first couple of years to reduce their taxes, right? So there are so many things that we can do. For instance, I just formed a property management company for a CFO of a company.

[00:23:33.430] – Speaker 3

He’s not really getting into the real estate development or real estate investment business. But if he forms an LLC, he has one rental, forms an LLC, and makes it a property management company. He overnight became a business owner. Overnight. He now owns a property management company. His rent is now being paid to that property management company. So here’s a guy who makes $550,000 a year as a CFO, and had zero tax deductions. I made him a business owner.

[00:24:05.560] – Speaker 2

Oh, my gosh.

[00:24:06.910] – Speaker 3

Now he’s a business. Overnight, he’s deducting his cell phone, his Internet, 5% of his home, and everything else that goes along with a business. So for him, it was an LLC. It was easy. But I also say it’s a multifactorial decision between both. What you’re doing, the amount of liability, where you’re doing it. Is it online? Is it in person? Are you brick-mortar? Are you e-commerce? Will you be global if you’re e-commerce? Will you be taking money from someone in Pakistan online, or is it just within the United States? And then when all of that is set aside between me and the client, then they have to have a completely separate conversation with an accountant. Then me and that accountant usually talk, compare notes, and then between the two of us, decide on an entity structure that makes the most sense.

[00:25:02.690] – Speaker 2

Well, we just got really an odd question. Angela, one of our listeners, he didn’t say how much makes a very comfortable living, and he owes it to the university that he went to. What he wants to know is, can he still pay off his loans with what the president is doing now with school loans? So I guess what he’s saying is he thinks he should still pay off his student loans even though the president is going to be giving them out.

[00:25:45.310] – Speaker 3

So you said he makes a comfortable living. We don’t know how much.

[00:25:49.360] – Speaker 2

We don’t know how much.

[00:25:50.550] – Speaker 3

Right. So he may exceed the threshold and not qualify for the loan forgiveness. Even if he does qualify, again, depending on what his financial status was when he was in school, it may or may not be a Pell grant, it may not be a federally funded loan. So those who have private loans versus federally funded loans, some will get 20,000 forgiven, and some will only get 10,000 forgiven. So minimally, he may be eligible for 10,000 forgiven on his student loans. But if he makes above, I don’t know if it was 124 or whatever it was, which, if it’s comfortable, he probably does. So I don’t know why my gut is telling me he doesn’t qualify but take a look. Say, do I qualify for loan forgiveness? Biden 2022. Find the rules on salary, and that will tell him very quickly whether or not he qualifies.

[00:26:54.860] – Speaker 2

Do you think he’s going to be able to do this through an executive order? I don’t know if that’s going to get passed or not.

[00:27:07.080] – Speaker 3

Right. I’m all for it. I don’t have any student loans anymore. My goal was to pay off my student loans at 40, and I did it, and I am student loan free, and it feels amazing. So $10,000 is, for a lot of people, a drop in the bucket when it comes to the amount of student loans that they own. But still to see if you owe $229,000 in student loans, to see it go from $229,000 to $219,000 and you didn’t do anything. I mean, it can only help us as a country, despite the fact that we’re printing money we don’t have and inflation is going to continue. But we never dealt with a pandemic in the modern world, and we’re trying to figure it out. My advice, despite the fact that I’m a lawyer, so clearly I went through the traditional education system, but my advice would be to, before you take on hundreds of thousands of student loans, see if you can do what you want to do without availing yourself to the traditional education system.

[00:28:19.170] – Speaker 2

Well, we got to get out of here. Give everybody your phone number.

[00:28:25.970] – Speaker 3

Phone number is 215-645-2415. And my website is www.lawyer.LGBT. And yeah, give me a call.