Starting a Business
Starting a business can be overwhelming. On this episode of the podcast we have Guyanese American Attorney Romola Lucas. She works with “solopreneurs” and “artistpreneurs” doing everything from IP and business formation support, to business succession planning as well as estate planning.
Romola breaks down legal entities, the benefits and differences of the entities. And why commingling personal and business expense can leave you legally vulnerable.
Listen to part 2 of the interview with Romola on starting a business and protecting your brand.
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Hello friends, welcome to another episode of the Carry on Friends Podcast. This is episode 36, part one. Now before I get into explaining why the episode is part one and part two, let me just say happy Caribbean Americana Heritage month, happy Immigrant Month, and I’m so excited and I’m so honored and I’m just feeling like all levels of badge wearing and stripe wearing that I am an immigrant and I’m also from the Caribbean. For this month, we have on the blog a lot of exciting things. We have the Caribbean American Month video series. I partnered with Mikelah of Style & Vibes to feature five women and their experiences from a Caribbean American perspective on entrepreneurship and culture, and so that is on the blog. We’re publishing one video every week for this month to really like celebrate the month. We’re also, as you heard, this show is sponsored by the Ambition Collection T-shirts. We launched a T-shirt talking about ambition. There are three different T-shirts that are really celebrating and acknowledging the ambitious backbone make up of you, the listener. So if you’re ambitious, if you have bear ambition and you have ambitious friends and your ambition up like seven, really please support the T-shirts, really. They are stylish and I think it’s just – I’ve been getting some wonderful feedback on it so please support it. There’s a discount code and you’ll get 10% off your order. Also for this month, there are a couple of events that we’ll be doing and so look out for the social shares on that. I can’t speak to much of the events yet until the details have been finalized, but there’s just really, really, really a lot going on for this month, for Caribbean American Heritage Month and Immigrant Month, and I’m so excited.
The reason why this episode is broken up into parts one and two is because my guest today gave so much information, so much information that the show went on quite for a long time and I did not want the episode to go too far over the one hour mark, so I really had to cut it in half. The guest on the show today is Romola Lucas. She is an attorney and she is also the cofounder of Caribbean Film Academy. She gave so much information on our topic today which is the basics, starting a business and protecting your brand. And in part one, I will be focusing more on starting the business, and part two will talk more about protecting brand. And also, as a disclaimer, I was having some sound issues and so it’s not quite the sound quality that I usually have, but dem seh when yuh have lemon, mek lemonade. So I made lemonade and we went with what we had. Sound quality aside, there was just some really great information and I think you would like this episode. So I won’t keep you waiting any longer. Here is part one of my interview with Romola Lucas.
Kerry-Ann Reid-Brown:Hello everyone, welcome to another episode of Carry on Friends Podcast. I’m so excited that you are tuning in to this episode, and for this episode, we have Romola Lucas. I will hand it over to Romola for her to tell you a little bit more about her. So Romola welcome to the podcast.
Romola Lucas:Thank you Kerry-Ann for having me. So my name is Romola Lucas. I am an attorney here in New York City. I attended Howard University for law school which is one of the best decisions I made. I practice estate planning, I do some tax. I do lots of transactional work specifically related to contracts. I love practicing law.
Kerry-Ann Reid-Brown:Alright, awesome! So I know you’re on this episode in the capacity of talking about the basics of starting a business and protecting your brand, but I don’t want to forget the other side of you that people should also know and that is that you are the…
Romola Lucas:One of the founders of the Caribbean Film Academy which is a non-profit that was created to share and support the work of Caribbean filmmakers.
Kerry-Ann Reid-Brown:Awesome! So which makes it even more apropos for this conversation because not only – you’ve experienced both sides of the table for a lack of a better word when it comes to entrepreneurship and setting up your projects and doing things the right way from a legal perspective. Oh wait, I didn’t ask you, so which island are you representing? If no one has picked up on her accent yet.
Romola Lucas:Well no island, we are culturally and linguistically a part of the Caribbean, but we’re not an island, we are Guyana. So I’m from Guyana.
Kerry-Ann Reid-Brown:So yes, Guyana is part of South America, and while it’s not an island, Guyana is part of that regional family that we call the Caribbean. So big up to my GT massive! So the first question that I have, and I know people have asked me, is when starting a business, what is the first thing people should think about, other than whether the business plan is solid when it comes to forming a business legally, what’s one of the first things people should consider?
Romola Lucas:Right, so I would say the first step would be to do your research in terms of understanding what the requirements are for any business in your state, in your city and in your local municipality for lack of a better way of saying it. So if you’re in New York and you’re going to start your business in Brooklyn, then you need to understand what New York State requires, what New York City requires and what Brooklyn requires, in order for your business to operate without, and being in compliance with all of the laws.
Kerry-Ann Reid-Brown:Okay great. I love that Romola said that because if you are not in the US, laws vary on different levels. There is a state level, a city level and even may be a county level, because New York is also kind of unique in how it’s set up. So in terms of the general legal entities or types of businesses that people can start, could you just give us a brief overview of the different categories or types of business entities?
Romola Lucas:So for the most part, we’re talking about business sizes from individuals all the way up to humongous corporations and we can go, the gamut from there. So individuals tend to form sole proprietorships which is just one person or maybe a couple, and you just start operating as a business, maybe you get a name and also known as – it’s called a DBA (Doing Business As Name), usually that you need to register in your city.So if you have a business in Brooklyn, you need to go down to City Hall – not Brooklyn City Hall, the New York City’s City Hall and apply for doing business as name so that you can be properly accounted for if you are running a sole proprietorship. That’s really the only thing that’s needed. Outside of that, there is a general partnership which is where two or more people come together and it functions similarly to a sole proprietorship except that the people generally are not related to each other. So they may be friends or just business partners and they form a general partnership. Again, very minimal registration requirements; it’s similar to the sole proprietorship where you get a Doing Business As Name, and you can operate your business along those lines.Then there is a limited partnership which is a general partnership with limited partners. Limited meaning that they don’t fully share in the profit and losses of the business, but losses are specifically limited to the amount of money that they’ve invested in the business. There’ll be general partners who are running the business and then there’ll be limited partners who may have invested, but they won’t be responsible for the full liability of the company if something happens, only to the extent of what they invested.
Kerry-Ann Reid-Brown:I see. I see. So let me just do a quick recap before we go on. So sole proprietorship is the easiest and even – so my husband and I technically could have a sole proprietorship. The most that’s required if I choose to do business outside of Kerry-Ann Reid-Brown and decide to do business as Carry on Friends, I would need to file a document to say that I’m doing business as Carry on Friends.
Romola Lucas:Yes, yes.
Kerry-Ann Reid-Brown:Okay and I would just file that with – not on a state level, but on a city level, the most local level. General partnership is one where I could go into business with another friend of mine and we are equal partners. Is that…?
Romola Lucas:Right, the default is that you are equal partners unless you have a partnership agreementwhich we’ll get into later.
Kerry-Ann Reid-Brown:Okay. This is on a state level now or is this still on…?
Romola Lucas:This is still on a local level.
Kerry-Ann Reid-Brown:Local level, alright cool. I’m glad you said that. And there is a limited partnership where I can have other people – the only difference with the general partnership is that the liability and maybe the interests in the company are different, or maybe a split 70/30, whatever split we decide on.Okay cool. These are all on the local level.
Romola Lucas:The limited partnership is a step up. This is a – because there is now a difference in the way money gets distributed or invested, this is now – typically you would have to register with the state if you are forming a limited partnership.
Kerry-Ann Reid-Brown:Awesome, awesome. Alright so let’s move on to the other entities.
Romola Lucas:So next up is the limited liability partnershipwhich again, is similar to the general partnership. The thing with these businesses which we haven’t mentioned is there is this element of personal liability and this is where it starts – this is what distinguishes – this is one of the things I should say that distinguishes the different types of business structures that you can come up with. Personal liability for negligence is an important concept. If you are a sole proprietor for example, you are personally liable for anything that you do that’s negligent that ends up in someone else being hurt. That could be like you have a store and a customer comes into your store, trips over the doorjamb and falls and gets injured, then you’re personally liable. What that means is that they can sue you, and if they do and they win, then they can go apps everything that you own personally, in your own name.
Kerry-Ann Reid-Brown:Right. So in terms of the liability, the trip and fall is easy. Is it the same for another type of liability? So let’s say…
Romola Lucas:Yes. So let’s say you write a blog. You don’t have a physical structure if you write a blog, so there’s potential for you to use someone else’s intellectual property, there is a possibility of defamation where you write something about someone and they think that you’re defaming them. In either of those cases, again, if you are sued and the plaintiff wins, then they can go after all of the assets that you have that are titled in your own name.
Kerry-Ann Reid-Brown:Alright so folks, it’s serious business when you are trying to start a business and it’s really important that you get the right professional help whether it’s through an attorney like similar to Romola, or a tax professional because as Romola kind of alluded to, there’s financial implications and I guess accountants kind of have some general idea of how those implications are spread.
Romola Lucas:Yeah, that is true. Yes.
Kerry-Ann Reid-Brown:So we have the LLP and the LLP is also on a state level.
Romola Lucas:Yes and the partners in a limited liability partnership, the way that this can work, if one partner is negligent, then the other partners are not liable for that partner’s negligence. So in this case, this is what limited liability means.
Kerry-Ann Reid-Brown:Right okay. In essence, the other partners are kind of – and the company itself is kind of insulated from maybe one person’s negligence.
Romola Lucas:Exactly. This is typically the type of structure you would use for professional services.
Kerry-Ann Reid-Brown:I was just about to ask that.
Romola Lucas:So lawyers, accountants – any type of professional service provider. This is a good form of a business to engage in.
Kerry-Ann Reid-Brown:Okay great. The next would be LLC’s.
Romola Lucas:Well one more. There is also the limited liability limited partnership.
Kerry-Ann Reid-Brown:So there is the LLP that we just did and…
Kerry-Ann Reid-Brown:Oh boy.
Romola Lucas:This is also a state-level type structure and what happens here is that any general partners in the business are shielded from liability again, from any personal liability.
Kerry-Ann Reid-Brown:Very interesting. And then we have finally, like one of the popular ones, the LLC.
Romola Lucas:So again, this can be formed by any number of people, and usually people who are not – they can be related, it doesn’t matter. That is not relevant in the structure. Usually there is an LLC agreement that lays out the terms of them doing business together, and the limited liability company provides a shield from personal liability. So going back to our example, you’re writing a blog and you’re using Carry on Friends LLC as your business name and you get sued for defamation and the person wins, then the only thing they can collect against is what the business, Carry on Friends, owns. They cannot go after any of your assets that’s titled in Kerry-Ann.
Kerry-Ann Reid-Brown:That’s what I like. That’s important and I’ll go through the list and I considered an LLC, but I didn’t go with an LLC and I’ll talk about the way I didn’t go with an LLC because New York has a special case that makes LLCs not so – it’s great for what it provides, but there is additional cost situation with the publication requirements that doesn’t make it so appealing. And so for purpose of moving the interview on, let’s talk about corporations in terms of – there are two types of corporations. Yes?
Romola Lucas:Right. Yes, non-profits and for-profits. So for-profits are just called corporations. The business structure here is a little bit more complex. With a for-profit corporation, you have shareholders and you have board of directors and they run the business basically and they are accountable to shareholders. This requires a state-level type of registration. I mean there are corporations with individual – with only one person who is everything for the corporation. Those do exist, but they are typically the structure of choice for larger businesses. And then there are non-profit corporations which are structured similarly to for-profits, in that, there is a board of directors. The person that runs it is called the Executive Director and then there are officers that work along with the executive director to run the corporation. The main difference, and a lot of people get this wrong, they would say something like “no, I don’t want to form a non-profit because you can’t make any money off of it”, but really what non-profit means is that – it doesn’t mean that the company can’t make a profit. It can make a profit and lots of non-profit corporations function and they make a profit. It’s just that whatever money is made as profit has to be put back into the corporation and not be paid out to the directors or anyone else in the corporation. They get paid a salary for their work, and if they do their work well and they are very successful and they make money for the corporation, then it goes back into the corporation’s work, not into their pockets.
Kerry-Ann Reid-Brown:I see. I’m glad that you said that because you’re right. There is a general consensus that a non-profit means you don’t make money, but it’s a really clear distinction that they are allowed salaries and outside of that, any profit that is made from activities within the non-profit, should just be reallocated into different operating expenditures for the non-profit themselves. For the corporation itself, and the only reason why I said this and I’ll use myself as an example, in corporations, there is the C Corp. and the S Corp., and what’s the difference between the C Corp. and the S Corp.?
Romola Lucas:It’s really a tax designation. When you have a C Corp., you have to file different schedule on your taxes as opposed to when you are an S Corp., but that’s really what the distinction is.
Kerry-Ann Reid-Brown: So now that we’ve covered all these entities, sole proprietorship, general partnership, limited partnership, limited liability partnership and then we have limited, limited, limited liability partnership and we have the corporation, non-profit and we have the for-profits which would be a C Corp. and an S Corp. So I know that was a mouthful but we’ll get it together. Generally, someone deciding which entity is best for them, how – well, in addition to making sure that you’re making this decision with a lawyer and an accountant, what’s the most basic distinction that these have? Is it the legal formation, or is it a tax, or is it the partners – what’s the main thing that people should consider when they are thinking of which entity to start their business?
Romola Lucas:It’s a combination of the type of business they would want to get into, where you see yourself in about 10 years and what your current financial resources are. So how that works is, so if you are getting into medical supplies business, it might just be you and one partner at this point in time, but you intend at some point when your revenues get to a certain point or maybe you have an income source, you need to protect yourself from liability in terms of someone getting injured. When you get to that point, you need to have a different type of business structure to protect yourself. You may also have in that period of time, acquired personal assets that you need to protect in case something goes wrong with your business. So ultimately, it’s an analysis. It’s like what your current assets are, what your business is going to be, what your plans are for that business, do you plan to ultimately go public with it, get shareholders, is that your vision for the business or do you want it to be something that you run and manage for the rest of your life, and then you pass it on to your children or a child or a relative or something like that. So once you understand that, then you know what your current financial resources are with respect to starting a business, then you can make a decision as to which one of these entities would be best for you. Understanding that maybe five years from now that will change and so you would have to go through some type of process to change that.
Kerry-Ann Reid-Brown:I’m glad you said that because my other question was, should you incorporate your side hustle? And you’re basically saying the only – you can incorporate your side hustle if you see your side hustle growing 5, 10 years from now into something bigger than it currently is and what your current financial resources are to incorporate this side hustle and grow the side hustle. So I’m glad you said that. What are some common mistakes you see people make when it comes to business formation?
Romola Lucas:I guess the most common is not fulfilling out of the registration requirements. One of the things you mentioned earlier and it’s something that a couple of people I know have experiences, a couple of clients and then just people I know, is for LLCs for example, there is a publication requirement and in New York, it’s kind of crazy. What you have to pay, like typically if you’re forming an LLC and you’re going to register in the business in Manhattan, then you are paying something like $1200 for the registration fee when it costs maybe $250-$300 to register the LLC. So the biggest cost is in the publication. In Brooklyn, it’s a little cheaper but not much, I think it’s about $800, but then again, it depends on which newspaper is in rotation when you’re ready to do…
Kerry-Ann Reid-Brown:When you’re ready to publish.
Kerry-Ann Reid-Brown:It is why I didn’t go with an LLC because I’m so annoyed with it. It’s like they choose which publication you should publish in, and it’s like I’m not going to do that. So I personally went with an S Corp. because I’m like no way José, I’m not doing this. Like no one cares if I start this business, they don’t. So I’m not getting into the whole thing about it. Anyway, filing deficiencies.
Romola Lucas:Yeah, so that’s a common problem. Another common problem is not understanding what the corporate formalities are. So when you form a corporation or you form an LLC, there are certain things that you have to do to keep up the premise that you are a business and you are a serious business. So for example with corporations, you’re supposed to have board of directors, you’re supposed to have monthly meetings, minutes of those meetings are supposed to be recorded, any decisions that are being made are supposed to be recorded and those records have to be kept on a regular basis. There are also corporate taxes that have to be paid that are separate from income taxes that the business has to pay. So New York State has you every two years paying a corporate tax, sometimes called a franchise tax. This is just based on the amount of your revenues. And then there are income taxes that you have to pay so you also have to know that. In New York City for example, there is an MTA tax. There are lots of little things that you actually need to do in order to be fully in compliance with your business.
Kerry-Ann Reid-Brown:I’m jotting something down because you list certain things and I’m like I didn’t do that. Let me write that down.
Romola Lucas:The laws are constantly being changed, revised, updated. Forming a business should not be something that a person should not be able to do on their own, but the reality is that there is so much they could do on their own and then they need to get a professional involved just to make sure that they’ve covered all of their bases.
Kerry-Ann Reid-Brown:Alright, that’s good. I really thank you because there’s a few things I need to fix like ASAP.
Romola Lucas:I’ll tell you what the problem is, what happens. So if for any reason you have a corporation and you are not holding monthly meetings and you’re not keeping track of this information, you don’t have a separate bank account for the business and you’re co-mingling your personal money with the business money. So let’s say you do get sued. Now the person who is suing you is not only suing your corporation, but they are suing you, the person. So your argument is going to be well now, you did business with my corporation and this corporation provides me a shield from liability with respect to you. The court will now say okay, was this a real corporation and what are they going to look at to determine if it’s a real corporation. They are going to look at your books and records. They’re going to check to see if you function as a business and you kept up with all of the corporate formalities. If you have not, then they’re going to do what is called piercing the veil. So they’ll bypass your corporation and say okay, this was like your bank account, you didn’t treat this like a business, you didn’t handle the corporation’s affairs like it was a separate entity and so we’re not going to regard it as a separate entity. We’re going to regard it as a sole proprietorship and allow this person to satisfy their judgment against you on your personal assets as well.
Kerry-Ann Reid-Brown:Oh boy. People listen up, listen up and find your nearest lawyer or accountant, professional. Get your business situation in order. That really settles the question of co-mingling. It’s something that everyone, almost everyone who is out there content creating, doing their side hustles. It’s the easiest thing to do, because I said in another podcast, you’re a small business, you’re trying to do the right thing, your blog may not be generating revenues of money, yet the bank is going to charge you a really large sum, just to open a bank account and if you don’t meet a monthly requirement of like maybe 15,000 or how much thousand a month, you’re going to be paying like at least $30 in bank fees a month which adds up. Everywhere you take it, you can’t win.
Romola Lucas:It’s hard. So I mean – I think part of that is that you do have to find a bank that is there to encourage small business and will charge maybe $10 a month regardless of your balance. A lot of them do, like if you can’t maintain the minimum balance, then they will just charge you $10 a month and then you just can’t get free checking. And then you have the alternatives like PayPal and stuff like that where you can keep money there, you can have people pay you there. You have to pay the fees which is similar to paying like the bank service charge to transfer that money into your bank account.
Kerry-Ann Reid-Brown:That works with me, but to be honest, I’m using the PayPal structure because I’m like – and I really, really wanted to do the bank, even my own personal bank, I’m just like you can’t give me a break, I have this amount of accounts here, you can’t give me a break? “No, we could give you a break for the first three months, but after that it kicks in.”
Romola Lucas:The banks are good at managing money.
Kerry-Ann Reid-Brown:Trust me. As we say in the Caribbean, “dem a bade off a di fees”.Alright friends, this is where I’ll be ending part one of episode 36. Part two will be covering and protecting your brand and that will be available on June 21st. So make sure that you download it, you check it on the blog. And as always, until next time, walk good