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amc, I just checked the AZ SOS website. I think that filing is for *LLP*'s and not LLCs. The two are slightly different and a LLP is typically for professionals (e.g., a group of doctors or lawyers). I think that may be why you need to publish...but I don't think you have to for an LLC.

Still, that is a good point you brought up and something to be aware of.

Kevin

I agree that an LLP is not something we'd normally find a need for in vending.

The one exception where an LLP could/should be set-up for a vending biz (rare though it may be) is if someone was going to invest in your vending biz but would have no say in the day-to-day operations. IE: a 'silent-partner' of sorts.

I think an LLP is capable of setting up this type of arrangement AND protecting the parties involved in a manner similar to how an LLC protects regular business set-ups.

But, that's got to be waaaaaaay rare. If you find someone willing to give you money (not LOAN you money, but GIVE you money as an investment) as part-owner without trying to influence how you run your vending biz, consider yourself the LUCKIEST guy/gal on the planet.

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Nick, I'm not 100% sure of the laws regarding personal lawsuits in NV, but it is misleading to imply that there is a corp shield with an LLC. An LLC is a passthru entity, where a corp (C-Corp) is not. A corp is an entity to itself, so the concept of "piercing" to get to the owners makes sense.

Kevin,

For tax purposes, an LLC is a pass-through entity.  For liability purposes it is treated exactly the same as a C-corp.  An LLC is also an entity unto itself and the concept of "piercing the corporate veil" applies to both equally.

With an LLC, virtually all states (I want to say all, but not 100% sure) have laws that make it illegal to sue the owners of the LLC, unless some type of purposeful negligence has occurred, or the LLC is not being run as an LLC. You don't need to be in NV for that type of protection.

Compare one of the best to one of the worst states.  In California, over 50% of attempts to pierce the veil ( I know you don't seem to like that term, but that's what it is) are successful.  In Nevada, there have been only two successful attempts in over 50 years.

I can't see any reason for a vendor to form an LLC in a state other than the state where they are doing business.

I agree, unless he/she has milions in assets from other ventures.

For anyone wondering about me and the information I'm presenting...I worked for the largest resident agent in Nevada for about 6 months in 2008.  The job sucked, but this is the information I got from from training with their corporate strategists.

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Sherlock, an LLC can provide the type of setup you are talking about. One person can contribute 100% of the money, but have no "voting" power.

Nick, we can agree to disagree :) However, take a look at this website: http://www.rjmintz.com/appch6.html

I just did a Google search for "llc vs corporation lawsuit", and this was the first hit. Here is a snippet from the 3rd paragraph:

In contrast to corporate law, which allows shareholders and officers to be individually sued if the corporate formalities are not followed, the LLC law specifically bars a lawsuit against a member for the liabilities of the LLC. That is an important distinction which you should understand. The principle shareholders and officers of a corporation are routinely named as defendants in a lawsuit against the company-forcing them to incur attorney's fees to defend themselves and rendering the corporate shield meaningless from a practical standpoint.

As for the term, I have no problem with it in general. I just think being more specific (e.g., naming shareholders vs. naming members) is clearer. Talking about a corp veil implies an LLC is a corp - which it isn't.

I understand that some states have tougher laws regarding suing corps than others (NV vs. CA as you said), but an LLC provides perfect protection for each and every member here without the need to worry about forming a foreign business entity.

For tax purposes, unless you choose to have the LLC taxed as a corp, it is a passthru entity. Also, as you stated, it is an entity (hence the term "passthru entity" :) ). We can at least agree on that :)

All of that being said, I will agree that with both corps and LLCs, if you don't follow the rules, your personal asssets can be seized. My point is that it is "easier" to not follow the rules with a corp than LLC.

Kevin

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Kevin,

I'm happy to agree to disagree.  :)  I understand your point that saying "piercing the corporate veil" implies an LLC is a corp when it is not.  I won't say that anymore, however I think it's good that we are presenting both sides of this argument. 

One thing I do need to present a rebuttal to is the paragraph/link you posted which states that "LLC law specifically bars a lawsuit against a member for the liabilities of the LLC."  I can't speak for all states, but in some states this is not true.  In certain out-of-the-ordinary circumstances, the member(s) of an LLC can be named as defendants in a lawsuit against the LLC.  The way I'm reading what you are saying is that you believe liability protection from an LLC is absolute, and this is, I think, our only point of disagrement.

Exhibit 1:  http://www.firstam.com/content.cfm?id=2906

Exhibit 2, California Code 17101.  Note section A says a member is not liable soley because he/she is a member of the LLC, however section b states that a member is subject to liability under the common law governing alter ego liability

(definition of alter ego liability here...http://www.corporateboardminutes.com/glossary/alteregoliability.shtml and another good description here...http://www.quizlaw.com/business_law/what_is_alter_ego_liability.php).

Here is the CA code, found on this page http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=17001-18000&file=17100-17107

"17101.  (a) Except as otherwise provided in Section 17254 or in

subdivision (e), no member of a limited liability company shall be

personally liable under any judgment of a court, or in any other

manner, for any debt, obligation, or liability of the limited

liability company, whether that liability or obligation arises in

contract, tort, or otherwise, solely by reason of being a member of

the limited liability company.

  (B) A member of a limited liability company shall be subject to

liability under the common law governing alter ego liability, and

shall also be personally liable under a judgment of a court or for

any debt, obligation, or liability of the limited liability company,

whether that liability or obligation arises in contract, tort, or

otherwise, under the same or similar circumstances and to the same

extent as a shareholder of a corporation may be personally liable for

any debt, obligation, or liability of the corporation; except that

the failure to hold meetings of members or managers or the failure to

observe formalities pertaining to the calling or conduct of meetings

shall not be considered a factor tending to establish that a member

or the members have alter ego or personal liability for any debt,

obligation, or liability of the limited liability company where the

articles of organization or operating agreement do not expressly

require the holding of meetings of members or managers."

One more link, this is a very good essay on the subject:

http://www.ivanhoffman.com/incorporation.html

Anyway, what you said is the absolute best statement. "If you don't follow the rules, your personal assets can be seized."  And I also agree that it is much "easier" to break the rules (or harder to follow them)with a corp than it is with an LLC.

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Nick, I think we are in agreement finally :) I wasn't trying to imply that LLC protection is absolute - I apologize if it came off that way. I wouldn't even say "out of the ordinary" circumstances can cause LLC protection to fail. Simple things like not having a separate bank account can cause this.

To be honest, I'm glad to see you here. I get asked a lot of these questions so it is good to a) have someone to keep me honest and B) have someone else with that background to help.

Members often worry about being sued and many posts ask about ways to protect against that. Keeping in mind that the average vendor here has maybe 20-100 machines placed and less than $10K in assets, I try to keep things simple. LLC (in your own state) is the easiest IMHO.

You are, however, absolutely correct that if lawsuits are a serious concern for you, other states (e.g., NV) offer excellent protection - I just don't think anyone here really qualifies for that (except maybe a few of the very large members).

Anyway, let me officially say welcome and apologize if I came off antagonistic (which in re-reading it seems I might have). That was not my intent.

Kevin

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When I checked with a lawyer last year he had told me the cost and what was required and what the price included. he did state they had to publish it in the paper under the legal notice section.  I agree about who reads the paper anymore - only part I like is the comic section :)

But that was a year ago, so it may have changed since then.

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Kevin, thanks for the welcome and you didn't come off as being antagonistic to me at all.  I was worried that you might think that of me, but I have fun with a good, friendly debate.  I'm glad we're on the same page now.  :)

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  • 2 weeks later...

At what point should I do anything.  I am very new to vending (two months).  I have 4 Vendstar 3000s on location.  Should I acquire insurance, LLC.  Or am I a joke right now  ;D

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I have 19 machines and I'm entering my 4th month of bulk vending.  When I had done it long enough to know that I really wanted to make a go of it, then I started the legal business.  I have everything in place now except for liability insurance.  It is next on my list but funds just do not allow for it yet.  At least with the LLC you have some protection against your personal assets.

Hillbilly

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This thread is interesting, I am a business minor so I have studied all of this, but it is interesting to see the differences between the Canadian and U.S forms of business, obviously they are almost the same, but there are a few different points of interest.  If anyone is interested in the Canadian types (I doubt it considering I think I am the only one on here ha ha) let me know and i will post a summary.

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  • 4 weeks later...
  • 2 months later...

Based on Certified Financial planner Ray Lucia's advice, an LLC will not protect you in any way if you are performing your own work servicing your vending machine route.

Here is a transcript of the conversation Ray Lucia, Certified Financial Planner, had with a caller on his June 16 radio show, regarding LLCs.  I have heard him repeat this mantra many times regarding individuals operating LLCs.  I have attached an mp3 audio clip of the conversation in question.

http://archives.warpradio.com/btr/RayLucia/061612.mp3

The caller re: LLCs is at the 22:00 mark.

RAY: Sunshine...in Las Vegas Nevada, how you doin' Sunshine?

SUNSHINE: Hi Ray!

RAY: What's up?

SUNSHINE: I'm a business student, and my friends are coming to me for advice.  My friend's a photographer and wants to do it full time, and is asking me how she should form a business, like should it be a sole proprietorship or llc.  I directed her to you, but the language kind of overwhelms her, so...

RAY: Let's see, you can be the translator, and I'll explain it to you.  But you've got to answer a couple of questions.  This photographer friend of yours, is she operating solo, or does she have staff?

SUNSHINE: Solo, it's a hobby that she now wants to do full time, so she's just trying to protect herself and do it the right way.

RAY: Yeah, well, here's the problem: any kind of an entity is not going to protect her from her.  In other words, if she comes to take a picture of somebody, and the flash blinds someone...I don't know, I'm making stuff up here because I know nothing about photography...and she gets sued for the flash causing some damage to someone's retina...no corporation, LLC, or anything, is going to protect from that type of a lawsuit, because she is the one that caused the problem.  Now, if she hires you to drive clients to certain sites, to the beach or whatever, for some photo shoot, and on the way, you get in a wreck, well then, she could be potentially protected with a corporation, so the only reason for her to consider any kind of an entity would be tax reasons, not liability.  So now, that brings me to the next question, you said that this was a hobby.  How much money is she expected to make this year?

SUNSHINE: Last year, she probably made a couple thousand dollars...maybe 5 to 10 thousand.

RAY: If it's going to be 5, 10, 15 thousand, the answer is she should not do any kind of an entity at this point.  Because there's no liability protection, and she's not making enough money to where it would be worth while to spend the money to do a corporation, say a subchapter S corp, and take dividends and all that stuff, it's just not going to be profitable for her.  So the best advice you could give her is to do nothing at this point.  Wait till she starts making more money, or starts hiring employees.

----------

Here's another transcript of a followup email question on June 18, 2010, and verbal exchange between Producer John Dean and Certified Financial Planner Ray Lucia regarding landlords and LLCs:

http://archives.warpradio.com/btr/RayLucia/061814.mp3

The caller re: LLCs is at the 22:45 mark.

JOHN: Edward in Pittsburgh, regarding yesterday's advice to the photographer with an LLC, this was a couple of days ago, actually.  You advised the photographer not to bother with an LLC, because she herself is doing all the work, which in turn puts her personal wealth at risk.  Is this the same for a landlord?  Because you do advise landlords to form an LLC.  Could you explain that?

RAY: Yeah, I can, that's a very good point!  Well, it is the same for a landlord with respect to any of the repairs the landlord might be taking on themselves.  So if it's the landlord's repair that causes the lawsuit, then yes, it's exactly the same.  The landlord's personal assets would in fact be at risk.  But if it's out of the landlord's control, in other words, you put the property in an LLC, and somebody slips on a banana peel, as long as the landlord didn't put the banana on the sidewalk, then yes, their personal assets would in fact be protected, so that's the difference, I would definitely put real estate property in an LLC, but a self-employed business, John Dean, radio producer: LLC.  If I get electrocuted because something from the microphone zaps my mouth, and I could no longer talk, which would make a lot of people happy, including my wife, I could sue you and break through or penetrate that LLC.

JOHN: Right, that's a limited liability company by the way, for people wondering.  It does not protect you from yourself.  And that's an important point, because I think a lot of these are pitched to people saying that you can get away with anything.

RAY:  Well there's also some other pieces to it.  With respect to the landlord situation.  You have to make sure that the LLC has a contract, the lease agreement, for example, should not be in the name of the individual, it should be in the name of the LLC.

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Thanks for the info Bender.  I am sure this will create more interesting discussion!

I was told the same thing by a CPA ten years ago that you can protect yourself from your own personal actions with any type of entity setup.  And most of us personally service our own routes.  So I gues liability insurance is still a must for our personal actions!  This topic just drives me crazy sometimes.  Always wondering if I am really protected or not and it keeps going around in circles as to what is really "right"?  Almost like pondering the big bang theory sometimes!

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I was told the same thing by a CPA ten years ago that you can protect yourself from your own personal actions with any type of entity setup. 

Oops.  I misspoke (or misspelled)!  I meant to say "that you can't protect yourself", not "can protect".

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Bender, I still stand by my original statements :)

I believe the issue here is with what is known as a charging order.

Here is a snippet from a PDF talking about liability protection for a SMLLC (single member LLC):

Based on Albright, sometimes I hear planners blurt out, “Single Member LLCs provide

no asset protection!” This is wrong. The lack of charging order protection is a far cry

from concluding that SMLLCs are “worthless” as asset protection vehicles. SMLLCs

may still provide substantial protection for owners against the liabilities of the entity

itself, which are so-called “internal liabilities”.

Here is the link to the full doc: http://www.denhalaw.com/advisor_resources/AssetProtectionOfSingleMemberLLC.pdf

Here is another link: http://www.limitedliabilitycompanycenter.com/what_is_a_single_member_llc.html

If you Google for "smllc protection" you'll find a lot of links - by CPAs and financial planners, etc. - who state quite clearly that SMLLCs do in fact offer asset protection.

Here is a Wikipedia article about charging orders and SMLLCs - http://en.wikipedia.org/wiki/Charging_order#Single-member_LLCs

Kevin

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  • 5 weeks later...
  • 1 month later...

IIRC, publishing in the papers usually has to do with Fictitious Business Name filings. If your company name is YourName Vending, then people are clued in to the fact that you are the one doing the business. But if your company name is Vend-o-rama, then you are usually required by law to inform the world that you are the one running Vend-o-rama. In the Stone Age (pre-Internet), the way everybody did that was to put a notice in the paper, so that's what the law reflects. It's just a formality.

I picked up a book called "The Small Business Start-Up Kit for California" that answers these kinds of questions in detail, and it includes a CD with the docs you need. Check Amazon for the series to see if there's one for your state. It's put out by Nolo Press.

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if this is a concern for anyone they need to talk to a LAWYER, not a CPA or a CFP or radio show host but spend a few bucks and get legal advice always better to find out sooner than later, laws ,ay be different from situation to situation and state to state.

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  • 2 years later...

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