Episode 135: Legal Mistakes Entrepreneurs Make With Bobby Klinck

Bobby Klinck is a lawyer, but he’s not your typical lawyer. Sure, he went to Harvard Law School and worked prestigious law firms, but if you look at the big whiteboard in his office, you won’t see much about the law. It’s filled with tasks related to platform building, inbound marketing, and sales funnels. Bobby is a full-fledged online entrepreneur, whose area of expertise is the law. He helps other online entrepreneurs safeguard their online businesses. Biggest Takeaway You Don't Want To Miss No two businesses are alike. That's why it's important to have a lawyer and a CPA that you can trust and understand. Don't just follow advice blindly. You want someone that can explain to you WHY they're making certain recommendations for you. Show Highlights What's the difference between an S-Corp & an LLC? [2:45] What should we know legally-speaking about being an S-Corp vs. an LLC? [7:45] Can you give us the run-down on partnerships and the legalities behind them? [11:45] What does an LLP do? [13:00] From a legal standpoint, can we uphold our service contracts through click-here-to-agree contracts? [17:15] Where can our audience find Bobby online? [19:45] Special Offer Check out Bobby's free training site for online entrepreneurs, The Online Genius Academy:  www.youronlinegenius.com/academy. Links Jump & Scale Webinar: jumpconsulting.net/scale Share The Show Did you enjoy the show? We would love it if you subscribed today and left us a 5-star review! Click this link – Bella In Your Business Click on the ‘Subscribe’ button below the artwork Go to the ‘Ratings and Reviews’ section Click on ‘Write a Review’ Transcript: This is episode 135 of Bella in Your Business. This episode is brought to you by my free webinar Jump and Scale Your Business. It's my three-part training series all dedicated to finding and attracting the right kind of people that will scale your business. Did I mention it's free? Listen, you have to attend this if you want to grow your staff, you feel like you're being held hostage, you have high turnover, you feel burnt out, or you're just not seeing the results you want. Join me for this three-part free webinar series. Register now at jumpconsulting.net/scale. I'll see you there. Welcome to Bella in Your Business, where Bella will discuss anything and everything about your pet sitting business to help you land on target. So get ready — Bella’s got your chute. Let’s jump. Bella: Welcome to Bella in Your Business. My name is Bella Vasta and today I've got Bobby Klinck, who's a lawyer — but not your typical lawyer. I first heard Bobby on Amy Porterfield’s podcast Online Marketing Made Easy, and Bobby, you don’t know this, but I fell in love with you in the car listening to you because you did not sound like that typical lawyer. It was at that moment I shot a message to my virtual assistant and said, “You need to get this man on our show. The pet sitters and dog walkers of the world need to hear from him.” For those of you who don’t know Bobby, he went to Harvard Law School — I’m from Boston, so I love that — and worked at prestigious law firms. But if you look at the big whiteboard in his office, you won’t see much about law. It’s filled with tasks relating to platform building, inbound marketing, and sales funnels. Bobby is a full-fledged online entrepreneur whose area of expertise happens to be the law. He helps other online entrepreneurs safeguard themselves and their businesses. Usually, I wait till the end to say this, but go ahead and stalk him on his website, youronlinegenius.com. It’s fun, informative, and full of resources to get you familiar with the voice you’re about to hear. So without further ado, Bobby, welcome to the show. Bobby: Well, thank you for having me. I'm excited to be here. I'm glad you fell in love with me listening to me on Amy’s podcast. One of the things Amy has said about me is that I try to make this stuff fun and not intimidating because I know the legal stuff can be daunting and seem impenetrable. So I try to make it not that way. Bella: Yeah, and you're definitely in one of those industries where I think business owners just want to be an ostrich and stick their heads in the sand and pretend like it doesn’t exist. But it’s something that we all need to know enough about so that we can protect ourselves. That’s why I’m glad that you’re here today. One of the biggest questions I hear around your field is: what’s the difference between an LLC and an S-Corp from the legal standpoint? Can you break this down for us — how we decide which we should be and all that? Bobby: An S-Corp is not actually a different kind of legal entity. It’s something you do with the IRS — it has to do with how you’re taxed and how you’re treated as a business. Often you’re deciding whether you’re going to be a standard pass-through LLC or an LLC with what’s called an S-Corp election. The fundamental difference is that when you’re an LLC without the S-Corp, everything that happens in your business just gets reported on your personal tax return. You pay your income tax, but also self-employment taxes — things like FICA, Social Security, Medicare — on 100% of the profits in the business, whether you take them or not. An S-Corp, on the other hand, creates a slightly different situation. Your corporation or LLC will have to file a tax return — not pay taxes, but file one — and you have to pay yourself through normal payroll, like an employee. The business has to file with the IRS and, if you have a state taxing authority, with the state. You pay yourself what’s called a reasonable salary and pay full taxes on that. But any profit above that, you pay income tax only — not the Social Security and Medicare taxes. There are pros and cons. It’s a balancing act. You really ought to talk to a CPA to make the final decision. Generally, if you’re in a service industry — like pet sitting or dog walking — and you’re all by yourself, there’s probably not much advantage to being an S-Corp. Because of that “reasonable salary” requirement, if 100% of your profit is from your own effort, your reasonable salary is probably close to your profit. Bella: So if any of our listeners are on that cusp of switching from solopreneur to entrepreneur — when they’re about to bring on staff and no longer responsible for 100% of the revenue — that’s the time to start talking about an S-Corp? Bobby: That’s right. At that point, part of the money you make isn’t from your direct efforts, so your salary isn’t 100% of the revenue. You can pay yourself like a manager and then have profits coming in from your employees’ work. That’s where you can save — about 13% in Social Security and Medicare taxes. Once you hire an employee, you’ll already be running payroll, so adding yourself isn’t much harder. Bella: That’s amazing. Do you see how simplistic this is? We talk about this in our Facebook groups and run amok. My best advice is to go to your CPA, have them do it both ways, and see what saves you money. Bobby: Make sure you understand what your CPA is saying. I’ve seen people form an S-Corp just because someone told them to, without understanding why — and then not even pay themselves properly. Make sure you understand the reasoning behind it. Bella: You have to know enough to not be dangerous for yourself. Bobby: Exactly. Bella: Switching to your area of expertise — is there anything we should know on the legal side between having an LLC and an S-Corp? Bobby: Not really. If you’re in business and serious about it — not a hobby — you should form some kind of entity, usually an LLC. What it does is create an additional person in the eyes of the law — there’s you and there’s the LLC. That means the LLC signs contracts. For example, my law firm LLC signs leases — not me personally. If the firm goes belly-up, they can sue the LLC, not me. That’s the protection you get. But an LLC isn’t a silver bullet. You’ll always be personally liable for your own actions. So if you’re a pet sitter and you destroy someone’s house, they can sue you personally. Where the LLC helps is with employees — if they mess up, they can only sue the company, not you personally. That protects your home, car, and personal assets. Partnerships, on the other hand, don’t protect you. You’re on the hook for everything your partner does. Bella: So the LLC creates another entity to help build that barrier. But if you’re personally doing the act, you can still be personally liable. Bobby: Exactly. Bella: Another important topic that comes up a lot — partnerships. Sometimes between friends or couples. What kind of legalities do we need to preserve the relationship and protect ourselves long-term? Bobby: There’s a saying I love: “The only ship that won’t float is a partnership.” Partnerships outside of law or medicine have a bad track record. They can destroy relationships. From a legal perspective, unless you form what’s called a Limited Liability Partnership (LLP), don’t form a partnership. Form an LLC with multiple members. It gives you liability protection. An LLP is similar to an LLC — it limits liability. A standard partnership makes you personally liable for everything, including what your partner does. So, form an LLC. Then have a rock-solid written agreement in place from the start. Address what happens if someone dies, becomes disabled, doesn’t perform, or develops problems. You work that out at the beginning — calmly, before disputes happen. If you’re 50-50, have a buy-sell agreement. It sets up how to handle deadlock. The traditional method is the “Russian roulette” model — one person names a price, and the other decides whether to buy or sell at that price. It forces fairness. Hopefully, it never comes to that, but it’s important to plan for it. Bella: I love that — knowing what to do in the end. You’re not going to take this business to your grave.