If you are a Crypto Investor or really any type of investor and you aren’t doing this ONE thing you risk losing it ALL. But I’m not going to tell you what it is until 10 minutes into this video to keep the watch time up on Youtube. Just kidding! But please do watch to the end – this could be the most important video you ever watch related to investing.
Okay, you have worked hard, you have done your research and back in the day invested your money in Bitcoin at 5 cents a coin and you bought 1 trillion XRP coins for a buck and a pack of gum and now you are doing pretty well – you got some money in the bank. Give me 10 minutes here – I’m just going to distract you from your Scrooge McDuck swimming pool of crypto-money for a little bit because I want you to protect yourself – Please don’t risk what you’ve worked so hard for – I’ve seen people literally lose it all and I don’t want that to happen to you. I am a lawyer and my law firm files lawsuits against people every week. But we aren’t stupid (generally speaking) we are looking for people with insurance or money – you might have heard the term “deep pockets” right? Okay, what I’m telling you is that if you have some money from your investments unfortunately everything has changed for you – you now have a target on your back. You will now have a target on you not just because of lawyers but because family, acquaintances, business partners are going to know that you are doing well. That’s just the unfortunate truth and I’ve seen how it happens. So Protect Yourself.
I am going to tell you exactly Why, How and Where to do so. In that order.
First, why? The main reason is to protect your money from lawsuits and collectors. And the way to be safe is to invest your crypto through a limited liability company and I am going to tell you exactly how to do it.
Why a limited liability company? First and foremost because it provides asset protection. I’ll give you a quick scenario. My client let his son borrow his BMW when son came home from college. The son went out, had a couple drinks, and hit a lady – injuring her pretty bad. The damages far
exceeded my client’s insurance limits and so the son AND the father (who was vicariously liable) were sued by the injured lady. Moral of the story? Don’t have boys – they are nothing but trouble – but also that you can do nothing wrong and still be sued for a large amount of money. And by maintaining your assets in a limited liability corporation or “LLC” you protect your assets from lawsuits. Under corporate law the company is a separate entity and only responsible for its own actions and if you are sued, if you form and use the LLC correctly, the assets in the LLC cannot be touched by Plaintiffs and other creditors. Why are you forming an LLC and not a Sole Propietorship or S-Corp or regular corporation. First,
an LLC has the simplest pass-through taxation – meaning that the corporation itself is not taxed so there’s no double-taxation issue like with a regular corporation. And in FACT an LLC can provide you some tax ADVANTAGES which means you could be able to keep more money if and when you withdraw money from accounts.
That being said, tax issues are very complicated, much beyond me to discuss in detail, and you need an accountant to tell you about that – preferably a creative accountant. Also, this is a good time to give you the disclaimer: don’t rely on anything I say as legal advice – in fact, if you are going to start an LLC please please go out and pay your local lawyer $500 to get it setup for you – it’s money well spent and… think of all the starving lawyers out there.
So, how do you do this? It is NOT hard, you can absolutely do it yourself, and I found a nice little chart online for you that I borrowed from Nolo (which happens to offer an LLC formation service by the way) Nolo call me if you want to sponsor me.
As you can see the first step is the funnest, you get to choose a name and the only requirement is that it’s not already taken and that it ends with “limited liability company.” Get creative – have fun. Next, in most states you have to appoint an agent who is delineated in case you the company gets sued. That will usually just be you. Next, you file the “articles” of organization which sounds daunting but it’s really just something that says
who the owners are, what the main business is (in your case it would just be “investment”” and that’s it. Step 4 says “Prepare an Operating Agreement” and this is not important if you are the only owner of the
company – which you most likely are. This is generally not necessary.
And then finally you call or email the IRS and tell them the name of the company and they will give you a Federal Tax id number, usually the next day.
You are almost there, the final step is to open a bank account in the Corporate name using the Federal
tax id number.
Congratulations, you are now incorporated and have a corporate account.
The next part of “how” to use an LLC is very important. The protection of an LLC only works if you actually treat the LLC as a separate entity. In law school we spend about a month in Corporations class learning about “Piercing the corporate veil” where we study how to sue individuals even though they are protected by a corporate structure and we try to figure out how to “Pierce” the corporation to get to the individuals inside it. So a couple things here – you cannot use money in the LLC bank account to for
your personal stuff – do not link it to your Amazon account. You can’t commingle funds – don’t move money willy-nilly between your business and personal accounts. And last, when you do remove money for personal use, you have to ledger it as a business disbursement to the Owner; you have to track all money taken out and what it’s for.
Which brings me to your trading. If you are going to do this correctly your main trading account should be in your corporate name. My E-trade account is not under my personal name but under a company name. Coinbase also allows for business accounts and I won’t lie to you, they are a little bit of a headache to set it up because they are going to want to confirm that your business actually exists and the information you provided is correct. For me, it took about 2 weeks – mainly waiting for them to get
back to me.
Funding the corporate account was actually the easiest part – if you are already in an exchange I believe you could just transfer from your personal to corporate account, I’m not sure about that. The better way is how I did it which is to write an old-fashioned check from your personal bank account to your corporate account and then link your Coinbase or whatever exchange account you use to your corporate bank account. Old-fashioned but easy to track and show that you were funding the business.
So we’ve covered the Why and How and that takes me to my last, but important issue – “where” should you incorporate. Most states want your business believe it or not (except California of course) and you
can actually incorporate in a state other than where you live and this is especially true if you aren’t selling goods across state lines – which you aren’t. So I want you to take a look at incorporating in one of two states if possible – Delaware and New Mexico. Why? For privacy. In most states, the companies you own are right out there for anyone to
find out and see. Let’s say for example here in Florida someone trips and fall on my property and the lawyer is looking at the case trying to decide if he’s going to sue me. All he has to do is an online search of my name on the
corporation website and this is what he sees within 2 minutes.
Right there are all 10 or 11 companies I am involved with – it’s public information. So the lawyer sees this and says “hmmm..this guy has some businesses he might have some money, he might be collectible, maybe it’s a lawsuit worth pursuing against him.” Or maybe there’s some other reason for you personally but in general it’s better if people can’t see your corporations and there are two states Delaware and New Mexico that keep that information private. Between Delaware and New Mexico I would suggest New Mexico. Delaware has a lot of case law and
very extensive corporate rules and laws and even a special corporate Court so a lot of big companies – more than 60% of the fortune 500 are incorporated there. But you don’t need that. You need simple,
cheap and easy and that is New Mexico. In New Mexico you can do all your incorporating documents online – it’s just a one day turnaround and it costs… get this – only about $100 to incorporate with no
Check out the website when you get a chance – it’s very straightforward.
Anyways, that is the where and this is Legal Briefs so I’ve GOT to go. Please spend the effort to incorporate – I’ve seen some bad things happen to good people. Trust me, it’s worth the effort. If you have any legal issue you’d like me to cover please let me know in the comments and have a great day.