Episode Transcript
[00:00:07] Speaker A: Hey, everybody. This is Wendy Hill with another episode of Confessions from the home Office.
I've been working out of my house for almost 20 years, running my marketing firm in Greenville, South Carolina. Market momentum. And today we have a guest. This is Chelsea Reicharde. And a couple of weeks ago, I was talking about all the different things that you have to take on as a business owner that you don't really have to think about when you're an employee. And one of them was legal issues. And so Chelsea is one of the managing partners of a business law firm in Spartanburg, South Carolina. And I've worked with Chelsea and her law partner, Lauren, for several years, and they have done a fantastic job. Chelsea is a business litigator, and she also helps clients with non litigation matters. And I feel like she knows everything that a business owner needs to know and needs to prepare for with self employment and just with different interactions with customers, and if there's ever any issues with anything. So, Chelsea is a graduate of USC USC law. She teaches at Converse college in Spartanburg. She's a mom of two.
She knows the juggle, so she gives great, straightforward advice. And I'm so glad you're here.
[00:01:30] Speaker B: Ah, thank you. That was a great introduction.
[00:01:35] Speaker A: I was kind of on the fly, I think I've known a lot of you, some of that, but we have a couple of questions, but I'm sure we're going to go off topic a little bit.
I just. I feel like when I meet other small business owners, whether it's somebody who's just starting or they've been in it for a little while, realize they're not prepared at all. And so what do you feel like? Are the legal documents that you need to have on hand ready to go when you start your business?
[00:02:02] Speaker B: Well, the first thing is when you're starting, you know, you really do need to actually create and adopt a formal structure. And what I mean by that is you need to have an LLC or a corporation. There are different types of corporations, but I do not want to see someone that is operating as a sole proprietor or as a partnership.
How you know whether or not you have formally created a business is you're actually gonna have to go to somewhere like the secretary of state to file documents to create your business.
I just see so many people who are like, yeah, I've been operating for a certain amount of years, and now they want to incorporate, or they just kind of think, well, I'm still small, and that's just that you only incorporate when you've gotten to a certain level, no, you want to incorporate, you know, right up with that, right out the, right out the gate, because you're going to immediately get that protection of protecting your personal assets. And so that is first and foremost what I would do.
And then just taking a look at what type of business you're running, are you a service industry? Are you selling goods and do you need some contracts and get your insurance?
It really, that is standard regardless of the size of business that you're going to have or you have at the moment. So you need to do that for anything.
[00:03:26] Speaker A: So I'll have people say to me, well, can I just use, I don't think that's around any more legal zoom, but one of these online services. And so that always makes me a little nervous.
What do you tell people when they say that's what they've done or that's what they're planning to do?
[00:03:43] Speaker B: I mean, it's kind of a catch 22.
Legal zoom. Do they have lawyers? Of course they do. I mean, because they have to.
I will say there are people who have come to me who have used legalzoom or used some other type of entity, and I have caught mistakes that those other places have made. I would say there's just some additional steps that have to be taken to actually fully transition the business into the client's name and true ownership.
And so these types of things are reviewed by lawyers. But you, what you're not getting, from my experience, at least, that I see, what I don't think that you're getting, if you do use one of those types of places, is some real customization as to what you want and what you need.
Such as if you have an LLC, you want an operating agreement. And I can't say for sure somewhere like Googlezoom or not gives you an operating agreement, but I'd be willing to bet that if you do, it's not really narrowly tailored to what you're doing and what your needs are and what your future growth goals are, especially if you have more than one owner. That operating agreement can really make or break, you know, your relationship with your co owner. And if you have a corporation, that would be your bylaws. And so when I have clients who I'm starting an LLC floor or corporation for, we really drill down on what an ideal relationship looks like between those co owners and making sure that that is really set up at the beginning and that stage is set up, and it's very clear. So basically, you've got documents in place that says, you know, who has the authority to do what and when and how and how much, and if there's a dispute between the two of us, this is how it's handled. If one of us wants to leave, this is how it's handled.
And so, you know, our design at our firm is we want to give you the legal infrastructure to prevent you from ever being in trouble. And I think that's honestly one of the biggest misnomers about lawyers, especially business lawyers, is that you need to be in trouble before you hire a lawyer. I literally just had a conversation last weekend with a family member of mine in a different town. And she was like, well. And she said, yeah, I just opened a business six months ago. And I was like, oh, my gosh, congratulations. And I said, well, if you ever need anything, call me, you know? And she goes, well, if I ever get in trouble, I will. And I was like, you don't need to be in trouble, you know? And I'm like, the whole point is, don't set yourself up now to never be in that position. Or even if you are finding yourself in needing some truly govis or counselor, whatever, you at least have set yourself up for the strongest case possible by having either operate agreements or contracts or whatever it is in place, and having what we call that legal infrastructure. Okay, that was a very long winded answer.
[00:06:36] Speaker A: No, I mean, it all makes sense, but what are the key legal considerations around having all these agreements? What is it really protecting you from?
[00:06:45] Speaker B: Well, I will say when someone comes to me and they're like, hey, I want to start my business. And they don't necessarily know what type of structure they want. We usually, the two key things that everyone's focused on is reducing their tax liability and then making sure that their personal liability is also significantly reduced and basically protecting their own personal assets such that their home can't be sold or their car can't be sold to satisfy a business debt or a judgment against the. It's something of that nature. And so you're going to get the greatest protection in those two ways by having either an LLC or a corporation.
So the way that, you know, we approach this is, I can tell you, okay, this is the kind of protection you're going to get with an LLC, and this is the kind of protection you get with the corporation now, based on your tax plan, which you should have in conversation with your CPA. And I work closely with many of my client cpas to come up with. Okay, which structure is going to give them the best of both worlds, basically, or at least try to get as close to their perfect world scenario of, you know, reducing their tax liability every year as much as they can and having the greatest personal liability protection. And so when we're talking about setting up your business structures, those are usually the two biggest considerations. Now, as far as, you know, when we talk about contracts and things of that nature, there are all kinds of contracts that come into play regardless of what type of business you have. I mean, a lot of businesses are using independent contractors, or some people call them 1099.
If you're a service industry, you're gonna. You need to have a contract. You know, even if you sell goods and you're invoicing or you're providing estimates and operating on Pos, then you really need some good terms and conditions either on your website or attached to your invoices. Because contract law is, you know, it can make or break, just like an operating agreement can make or break the relationship between you and your co owners. If you have a significant enough transaction or service that you are providing to someone and something goes wrong in that transaction, then a good contract can, quite frankly, make or break the entirety of the business. For example, I mean, I have had clients who needed to, you know, they were trying to go after a debt or someone that owed them money of 30, 35, maybe $40,000. And they came to me and they didn't have a written contract, and they did a handshake. And I get it. Like, we in this world, we still believe, if you will, that a handshake contract will uphold. And verbal contracts do stand under the law. The issue is proof. You know, proving what were the terms of contract when it said is completely verbal. But unfortunately, in the state of South Carolina, if you don't have attorney's fees in a written contract, then you're not getting them under a breach of contract lawsuit. And so when that client comes to me and they're like, hey, you know, someone owes me 35, $40,000. And I say, depending on how hard that person fights me in court, attorney's fees could very well reach that amount. And so then my clients like, wait a second. It's gonna cost me 40 to chase 40. And I say it could. I'm not gonna sit here and guarantee that it will be 40. It could be 20. We could settle and not only, you know, have 15 in charges or whatever, but I can't sit here and guarantee that it won't be 40. I can't guarantee it won't be 60. You know, it really. There's so many factors that play into how long litigation goes. And so depending on the size of your business, I mean, $40,000, it can really make or break a business. And if that's the situation that you're in and all, you know, the whole thing that would have changed, that was one contract with one term in it that allowed you to get attorney's fees, and that all would have been taken care of if you just, you know, spent some time at the beginning of creating your business and making sure that you have that in contract.
[00:10:39] Speaker A: Oh, no. I mean, I keep everything, and everybody laughs how many files I have and emails I have saved. But it's, it's helped over the years, you know, I mean, you want to take people with their word, but you just never know. Situations change.
[00:10:52] Speaker B: Yeah. And you, I hate to say it, but you do have to operate with just a certain level of paranoia, if you will.
[00:11:00] Speaker A: Small business owner, always slightly paranoid. Yeah, I get it.
[00:11:04] Speaker B: It's 24/7 it really is. And I have to tell my clients, like, you know, they'll say, well, I just had a phone conversation, and we agreed to x, Y, and Z. And I'm like, that's great. Now you need to send an email that says, just to follow up on our phone call. We all agree to x, Y, and Z. And I'm like, I get that's annoying. I get that's an extra step. And I get that you're probably getting on that person's number as well. But guess what? That email could come back and save your butt. You know, it's just documenting paper, trailing everything. And I get even, I have clients who are like, can you just pick up the phone and call me? Yeah, of course I can. And I'm gonna follow.
Or I prefer email, because then if I don't remember specific, well, I have now have an email, and I've got a paper trail. And, like, I mean, I'm like, you know, I just don't start things away and, you know, organize everything and all that kind of stuff. Stuff. So.
[00:11:57] Speaker A: Well, besides setting up agreements the right way and contracts to cover yourself, I think another thing I always hear about is, oops, I've been paying my house payment out of my business account or this or that. So can you talk to us a little bit about keeping things separate and why, and I've heard you say piercing the veil so many times, if you can explain that.
[00:12:18] Speaker B: Yeah. So, you know, the whole purpose of having an LLC or having a corporation is to make sure that your personal assets can never be attached to, or be liquidated to pay a business debt or to pay off a business liability or judgment or something. But just simply having an LLC or a corporation in and of itself is not enough. I mean, you've got to make sure you are then running that entity appropriately to make sure that you're going to keep that insulation. And the law calls it a veil. We call it a corporate veil that's basically between you and your person, almost like the veil that covers you as an individual owner. And so there are ways that an attorney can what we call pierce the bill, like you just said. And the way that we do that is we have to prove three things. We have to prove that you didn't keep up with certain corporate formalities, such as filing annual meeting minutes in your corporate book or making sure that the meetings between co owners and what you voted on, very important things, weren't documented. And then I have to prove that you are mixing funds, and that's what you were just referring to. And mixing funds means not. It does not mean that, hey, my business needs some money, and I've got $5,000 sitting in the bank, and I'm going to put that in my. I'm going to put that in my business. That's not a problem. That's not a problem. So long as that is appropriately booked as a loan from you into your business, that's not a problem. If I see that as an attorney, I'm not going to be like, oh, that's terrible. But what I don't want to see is the reverse of that. I don't want to see I need money, and my business has it, so my mortgage needs to be paid. So I'm going to write a check from my business bank account and pay off my mortgage. Or, hey, you know, I really want a new diamond today, and I'm going to go put it on my business credit card. No, those are personal transactions. They are not business expenses. The only thing that should ever appear on your business is check registry, credit card statements, bank statements, our business related expenses. Now, don't get me mistaken, though, even I have been in the position where I traveled out of town, forgot to tell my bank my credit card got declined. I was like, oh, my gosh. And the only other card I had on me was my firm's card. And so I ran that transaction and, but I immediately called, you know, my CPA or my office manager, and I was like, hey, you're going to see an expense for this on the card. Make sure that that is booked as a draw to me, and that is put against my capital account. And so it is appropriately booked as an actual draw to me for which I am responsible. And it's not a business expense. And so that happens. That's common. That's fine. But you have to make that additional step of actually making sure that it was booked appropriately. Otherwise it just looks like the dissipated personal expense.
And so that we want to be aware that we are nothing, you know, mixing the personal and the business funds, and you should not ever treat the business as your personal believing, ever. I get it. I mean, people come to me like, I'm sorry, but this is my business, so why is that not my money? It will become your money when you distribute it to yourself as money. Right in your pocket is your money, but so long as in the businesses account, it's the businesses money. You know, the phrase that I always use with my clients is, if you want the court to see the business as not you, then you need to treat the business as not you. But if you see that business as yours and yours only, well, then the court should too, and the lawyer should too.
You can kind of always keep that in mind and everything that you're doing. And when you operate the business, and you should be safe. You should be safe.
[00:15:57] Speaker A: Good. That was a really good answer. I think it probably will scare a couple people into cleaning up a bit.
You mentioned a couple minutes ago about contractors versus employees, and so I talk to other small business owners and they'll talk about, hey, I just have a contractor, and I just have contractors, but my contractors work for multiple people. I know other businesses where the contractor is really just working for them.
What's. I know there's kind of a gray area, and people are worried about the IR's and should there be a contractor or an employee? Is that something that you can talk about here?
[00:16:33] Speaker B: So I do think that that's kind of another, I guess, mistake, I'll call it, that. I've seen people make, hey, I just issue a 1099, and that means they're a 1099 or they're an independent contractor. And I have to tell them, listen, issuing a 1099 in and of itself, that is all you do. That's not enough to prove that this person truly is an independent contractor, such that they, you know, need their own workers comp insurance or they need to be paying their own taxes, things like this before. So the word that you always need to remember is control, control, control.
The way this issue tends to arise within the legal system is someone who you perceive as a 1099 or independent contractor gets hurt and wants to file a worker's comp claim, or the IR's is looking into it, or department of labor is looking at it, or the court system looking at it. And they all have their own tests that they apply to analyze whether or not someone is truly an employee or an independent contractor. But the common theme or the common denominator in all those tests is control. And what I mean by that is we want to, we take an in depth analysis of that relationship that you as a business have with that person, and we see how much control you are operating or exercising over that person. Are you giving them all the tools and equipment that they need to complete the job? Are you telling them when and where to show up and how long to stay? Are you assigning them to work? Are you dictating how much they're going to get paid?
Are you telling them how many days a week they got to work? Are you the only person that they work for?
Do you provide a truck? Do you provide a car? You know, all those sorts of things. The more control, as you kind of start to see, the more control in terms of that relationship that you are dictating, the more likely it looks like that they are, are actually an employee and not an independent contractor.
The construction world is a little bit different because a lot of independent contractors, or even anybody that is issued a 1099, the insurance companies still want to see their own workers comp. And so that usually is taken care of a little bit in and of itself. But, you know, if you think about, like, a builder who is going to subcontract out the roof that's going to be built on a home, I mean, he's going to have a contract with that person. And most likely that roofer has a lot of people that they work for. But if this is the, if that person that's installing a roof and this is the only builder that they always work for, and the builder is the one that's like, hey, I've got these five homes, and you're going to come do it, and I'm going to pay you this much, and, hey, come pick up my truck and do it. And I bought the shingles and they'll be delivered on. I mean, the more that that builder is supplying, the more it looks like, okay, maybe this person actually is employed such that if that person, you know, falls off a ladder or something gets hurt and they file a workers comp claim, the workers comp Commission is going to look in and do this analysis that I just did and ask all these questions and say, hmm, is this person actually an employee or are they actually truly an independent contractor? And should they have been covered? And if the workers comp Commission finds that this person was an employee and they haven't been covered, those fines and penalties and that coverage gets expensive. It gets very expensive. So what we do is in, you know, in a perfect world scenario, you've got a contract between you and that person. When I say you, I mean your business.
You have a contract in between the two of you that lays out all these sorts of things.
But again, even a contract in itself is not enough.
You have to make sure that, you know, you're giving them a lot of flexibility. And there are plenty of clients that I have to have this conversation with when they're like, hey, you know, I've got these 299s or whatever. And I said, okay, let me, let's just talk about that conversation. Let's just talk about the relationship and you know, give me some more information about it. And I say, you know, you, I know that you want to be able to dictate this and that and you've got a policy and procedures manual that you want them to follow and, but they don't, they don't have to. I mean, if they're an independent contractor and you call them up and be like, you gotta be there at eight. And they're like, no, thank you. I don't, I don't need that job that day because I got something else. Well, you really don't have any recourse against them. And sometimes, I mean, there are plenty of times when I have that conversation with my clients, I'm like, wait a second. What?
I want to be able to tell them those things. And I was like, well then you should probably, you know, consider actually making them an employee. And plenty of times they have converted and that means that they've got to go by that work, insurance, all that sort of thing.
[00:20:57] Speaker A: Wow. Well, I think that's a lot for people to think about because, you know, you're just to issue a 1099 and say, forget it, but imagine what could.
[00:21:06] Speaker B: Happen after a court case.
[00:21:10] Speaker A: Well, the last thing I want to talk about today is FinCen. So I need to do something with this. So I want to hear your answer some more about this. Can you explain what FinCEn is? And a lot of people probably already know about it. Some newer business owners may not and what they need to do by the end of the year?
[00:21:27] Speaker B: So a federal law was passed in 2023, that is requiring every business owner in the entire country. There is a list of exceptions, but they're very narrowly tailored. Every business owner in the entire country has to report who their owners are to FinCeN, and FinCEN is the Financial Crimes Enforcement Network, the federal government agency. And if you created your business prior to 2024, then you have until the end of this year to file that report. It is called a beneficial owner's information report, or a BoI.
[00:22:01] Speaker A: Okay.
[00:22:02] Speaker B: And the law was passed in response to a lot of shell companies being created in order to get and funnel a lot of COVID relief money.
That was happening, you know, quite extensively. And so they're really, really trying to crack down a lot of these shell companies. And the way that they do that is by having you report who the owners of your business are.
A lot of people. And I've got clients, too, who are like, I don't really want, you know, the fact that I own a business or that I own this particular business to be public information.
Trust that anything that you report on your VOI is not public. It's not like we're in the secretary of state. I can go pull articles of incorporation. I can't go pull someone's DOI report.
And I'm. I researched this quite some time ago, but there are extreme, only extreme, extreme circumstances in which someone can access that report. And it's very, very, very limited.
If you don't file the report by December 31 of this year, it is $500 a day, capped at $10,000. And so that is an incredible fine. And that's how important it is. It is. I just helped someone yesterday go through the report and prepare theirs.
It's a little bit confusing, but it also is a little bit straightforward.
But it's online. It's like an online fillable form, takes pretty much five minutes.
You have to do it for every single business that you own. So if you're in a situation where you've got a business that's owned by an LLC, that's owned by a holding company, every single one of those is going to have to complete one. It's not just your ground level business. And so if you're one of those that has kind of a network of businesses, make sure you set aside the time to do it. But it's significant change in the law, and if you create a new business from here forward, then you've got to do it. I think it's within 90 days of creating that business report. So, yeah, it's a pretty significant need about it is utterly shocking to me, though, how little information is out there about this. I mean, the client that I met with yesterday was, like, I found out about this from, like, social media. And I said, I'm a business lawyer, and I found out about this via social media. I sent it to my law partner. I saw, like, a video on Instagram, and I sent it to my law partner, Lauren here, and I said, this isn't real. This can't be real. I would not. I would have gotten an email. I mean, you know, how many, you know, legal e blasts and things I subscribe to and, you know, legal updates that we get? And there's absolutely not a thing about this. I mean, what is so shocking? It's shocking. I'll get off that soapbox.
[00:24:45] Speaker A: Maybe those bonds are gonna help chip away at the national debt.
I mean, I started thinking up to $10,000 per business. That's crazy. Oh, my gosh. Okay, well, I'll put that on my list to work on next week, then.
Good deal. Well, is there anything else that you want to share? Anything you feel like? We didn't talk about that. You think people need to know?
[00:25:10] Speaker B: I think, you know, I work with so many small business owners, and I am a small business owner myself, and so I tell people this, especially my clients, all the time. You know, my job is to advise you on a perfect world scenario of what I want to see, and. But I also deal in reality. And I understand that, you know, certain things that I'm asking you to do, certain contracts or whatever, that it creates a little bit more burden on you, whether it be paperwork or something else, you know, additional checks. And I understand that sometimes it's not entirely feasible for you to follow the exact advice that I've given you. So I get that, you know, and we do our best to try to find that balance of for you. But as a person that's running my own business and practicing law, it's a hard balance. And I don't know that you ever truly find the balance of spending time actually doing what it is that your business is versus actually running the business.
Speaking of perfect, worst scenario, I would love that. My calendar looks like Monday and Tuesday, you're only doing your marketing, and then Wednesday, Friday, you're going to court and meeting clients. Never.
I get it. And there is, you know, I was literally just talking to a very long term friend of mine yesterday who's thinking about going and opening her own business, and she's like, do you like it? And I say, I love it. I mean, it is for me. It's not for everybody. It's for me as a mom, a very young kid. Like, I love the flexibility of having my own schedule, dictating my own cases. You know what I take, what I don't take, taking time when I need it. I don't have someone looking over my shoulder. But I'm responsible for making sure there's enough money in the bank account to feed the staff I have and make sure that they've got food on their table. And, you know, sometimes it is a Sunday afternoon kind of job or what have you, and it's always something on your mind, and you do have to find that balance. It's not that. If I were an associate somewhere, I could just come in and focus on my cases and my cases only and make sure I got my billables in and that's done. So it is a balance. But to me, it's a beautiful balance. It's worth it. And so I'm always excited for new businesses that come in. Right before I sat down with you, we signed the corporate book for some guys who were starting a new business, and they're just so happy, and they were taking pictures, and they were eager. And I remember when I was there, I was like a new baby, you know, you're like, oh, it's so exciting, you know, because it's a new venture in their life. A lot of times, this is something that people have thought about for a very long time. And so I absolutely love working with businesses.
I come from a family of entrepreneurs, and so we are kind of just sharing this, I don't know, this lifestyle, I guess, if you will. But it's a good balance to find.
But given that I'm on the legal side of it, I want to help you protect that baby and protect what it is that you're working so hard to build, because a lot of people are trying to build that generational wealth and legacy. Making sure that you get that done is always a priority for us.
[00:28:23] Speaker A: Well, that's great. That's great. That was all such good information. How can people get in touch with you if they're in South Carolina and they need a business attorney?
[00:28:30] Speaker B: Yeah. So our name is actually a business law firm. That's the name of the firm. We're in Spartanburg, South Carolina. We have a website, avizlawizlaw.com, and our number is 864-69-9801 my name is Chelsea. My law partner's name is Lauren. And we are here, really to just help all kinds of business owners of any and all size, whether it's starting or you got a 2030 year old business that you're trying to move into, succession planning or grow or what have you. We love working with all of them.
[00:29:01] Speaker A: That's great. Well, thank you so much for taking time. I know it's Friday and everybody wants to get wrapped up and get going, but I appreciate it so much. You've done so much over the years and know so much so well. Thank you. Have a good weekend.
[00:29:16] Speaker B: You, too. Bye.
[00:29:17] Speaker A: That's.
