0:08
I appreciate everyone joining, and this is going to have to be part one, and I know it doesn't sound like a very exciting topic, but I find myself talking about this many times.
0:17
So I figured, I would just cover, not just the subject, but the way I discuss with each of you, but I want you to understand my thinking and how I come up with what I'm telling you. Because you guys called me and asked me for question. You asked me for an answer for something.
0:28
And I'm going to tell you how I'm coming up with an answer, not just what the answer is, OK. That's my my purpose here. So let me just start by showing you something interesting. I thought it may factor in a little bit to what we're going to talk about. It probably will.
0:41
But here is a rule. Rule 27, and this is you can look it up online. It's in the Federal Rules of Civil Procedure.
0:50
And Rule 27 pertains to depositions to perpetuate testimony. And if you read it, you'll see basically what it's about. But essentially, it works like this. I had to create another segment. I bought a couple of minutes long to edit out some background noise from the original recording.
1:05
So anyways, I'm what I'm talking about here is, I'm going to talk about how LLCs are adopt default terms, especially when you get them the operating agreements, When you get them from publishers that are online, such as Legal Zoom, or maybe some attorneys just use forms.
1:22
And if you don't get a specific purpose for an LLC, you'll just get a standard template or a form or something, and it doesn't really focused on risk management or financial risk.
1:33
As much as it's focused on creating, managing, and administering, all the taxes are tax liabilities that it's supposed to get you into. OK, so That's what you're gonna get off the shelf, so to speak.
1:45
But I want to also explain what I'm going to start out this video explaining about Rule 27, and then Rule 37.
1:53
This comes out of the federal rules of civil procedure, and I want to explain about how just briefly, how companies are marketed structures are marketed to people off shore structures trust. They have all these fancy names, OK?
2:10
And they're marketed to people on the premise that using these structures would prevent anyone from collecting assets and so forth again.
2:19
And I've always maintained that protecting assets or property rights has to do with managing the property rights a certain way. Not exporting the thing that holds the title in a foreign into a foreign jurisdiction. All that does is create more attention, OK? It draws more attention toward what you're doing.
2:38
So, this is why I want to explain about rural 27, so somebody has asked me recently about fancy named, Offshore Trust, and it looked really good. I mean, if you, the attorneys aren't lying. I looked at the website, I came up with a website. But basically, I looked at the website and everything was, you know, I'm not gonna argue with it, I mean, but what they're promoting is correct based on that particular jurisdiction for people in the states.
3:04
There, they're gonna get the result, but what they don't tell you is there's there's a couple of weaknesses or exposures in a situation like this. So, let's just say, generally, offshore trust for US citizens. So, anything that's offshore, First of all, for a US Citizen, creates disclosure obligations on Form 1471, And I'll leave it at that because you want to check that out, It's 5871, OK?
3:28
It creates hold a whole new, set out liabilities through the Financial Crimes Network, not the IRS, So that's worth looking into, but what I've found is that no matter how sophisticated your offshore structure can be, someone can take, make a claim against the company, or the government can make a claim against the company, are you? And use this rule here. Rule 27 to perpetuate testimony, what this means is, no matter how complicated or sophisticated you are and how much money you page for this offshore fancy name structure, somebody can simply follow a piece of paper in the US. District Court. And they can do it under this rule.
4:10
Or they can do it under other rules. OK, discovery rules generally that this rule is kind of special because Rule 27 has to do with actions to perpetuate testimony. And ironically, this is what the IRS uses to conduct audits.
4:23
They don't say that in this someone's noticed. But Rule 27, basically says that you can apply to the court for permission to connect discovery, because you're not able to state a cause of action.
4:34
Because you're not able to express a particular complaint against somebody yet, and you want the Court's permission to discover the facts that may allow you to later state a cause of action against somebody, which sounds unfair.
4:49
But if you meet the criteria, which are stated in here, OK, you can go to the court, and petitioned the judge to approve a Discover request and it would put the other party under the Court's jurisdiction, too.
5:05
Answer the questions, if they're properly given to you, served on you, OK, and if they're within the scope of and purview of the rule, OK? Which is kinda like real 27.
5:17
It's hard to get it.
5:18
But it could be like a fishing expedition, or you know, like a fishing fishing experiment, like that, like they say.
5:23
So, if someone were to do that, IRS does it all the time in audits that could dismantle all you've done.
5:32
Now, let's say, no one's trying to get your money from the offshore company.
5:37
Well, maybe they just want to discover the relationship you have, and the relationship is clearly documented, let's just say. But the real relationship is what the Court wants to conclude. The Court wants to look at it and say, Well, wait a minute. Your name doesn't appear on anything. But every time something happens, you're involved.
5:54
So therefore, the court's going to conclude that you have managerial control, and therefore, you're liable for whatever the Court wants you to do, at the very minimum, disclose records.
6:10
Now, if you don't disclose records, or if you don't do something that, this Rule 27 leads, you, into, we get into Rule 37. OK, and I'm just giving you a very brief thing here, was going on.
6:22
My, my purpose in explaining this is that all these fancy things that people sell for offshore structures and asset protection, they never talk about what could be done under the rules of civil procedure in the US district Court. And so, I would explain this T So, Rule 37.
6:39
No, if you're, if you're under this Rule, 37 B, and someone has joined, or a court order of produce records, or something, or answer questions, and you don't do it a certain way, or let's say you do it, and they claiming, didn't do it.
6:51
They can get your content.
6:55
It's not fair, but they can do it.
6:58
So, I just wanted to share that with you.
7:00
This is what I have in mind, OK, when I look at LLCs and standard terms and default terms, which is, This is the purpose of the video, so, I don't wanna go too far to that, But, anyways, so I can do discovery if I can't stay at a cause of action, there's certain criteria, but I could possibly do it.
7:18
Um, the IRS uses it all the time.
7:21
There's a rule 37, so this leads into the possibility that if you don't give up the information, notice how no one has to actually prove anything. I guess you all. Yes.
7:29
News gets you wonder discovery obligations, and if he doesn't like what you're saying, he could accuse you of not answering or being invasive and gets you into a rule 37 B, and possibly a contempt.
7:41
Thing where you end up in jail are paying a fine, just because of nothing.
7:45
OK, I've seen it happen, doesn't happen very much, But just keep that in mind, OK?
7:50
So, all these fancy structures, you just gotta realize, there's a lot more liability out there than what's being promoted, right.
7:56
It's not just some clever Structure that someone has in the caymans, OK, that's not going to protect you, just because it sounds cool.
8:05
All right.
8:08
Um, Yeah, so they mostly, they just wanted to talk about your, Your default, and we're gonna get into this in just a moment.
8:15
You're gonna see my background changed, because this is the editing portion, but we're going to talk about how LLC operating agreements start out with default standard terms. It only deal with taxes, and create tax liability, and based on certain presumptions and things like that. And I wanted to show you the different, the few different items in the ... agreement that I change to eliminate those types of exposures.
8:39
Of these provisions you're not going to ever encounter, but a lot of these are your standard default terms and operating agreements.
8:45
If you get an operating agreement from, let's say, legalzoom or your attorney, a lot of times they just change your name and know, maybe they might make a few modifications. But most of the time, it should be the ... agreements.
8:58
It's more about how you're going to pay taxes rather than managing risk.
9:02
And the whole idea behind setting up a company, for the most part, is using it as a vehicle by which you can manage risk.
9:09
So, that should be the first consideration, not how I'm going to express every little minute detail of how I'm going to be able to pay taxes, OK. But, anyways, this is the nature of the business. Would they do so, here's what, Here's what we have is a company called Nevada Vote Code, whatever.
9:26
And this is the Operating Agreement.
9:28
It looks like it's about 12 years old, and so, here, this is your typical, these are typical terms.
9:36
You're familiar with who formed it, by, whose name is here, who is the manager, member manager, what's the purpose of the company? Where's the Richard office? These sorts of things, right? You guys know about us.
9:49
Here are the members.
9:51
Meetings.
9:51
Always, I will just tell you that it is a good idea if you're having an LLC, whether it's a single member, like maybe you have a private membership association or an unincorporated Association or Trust that owns your LLC.
10:03
It's still a good idea to have an operating agreement, then have provisions in there about when meetings could take place, and also actually have a record that those meetings did take place. Even if that just means you went to your calendar and made a few notes as long as you can document the meetings. That way, if you ever needed to establish that you actually have a legitimate LLC.
10:22
And then it's not just your alter ego, you'll have records to show.
10:25
This is nothing different than ships would do, right, ships, keep what's called a ship's log and without a ship's log is actually a crime to not keep a ship's log. Now in the contract world it's not a crime but it could result in you losing money, OK or losing some standing in a court proceeding, right?
10:45
So we get into this section here. Now this is where we're going to start talking about.
10:48
There's just a few weaknesses or exposures, I would say, that people have in operating agreements. So what's the whole idea behind operating room In the first place?
10:57
I want to have a contract that describes my relationship to other people in an organization, and that organization may have a name.
11:05
And so that name may be expressed in a limited liability company, especially in the states. Why would I do that?
11:11
Because a limited liability company is recognized by the state in which it's registered, or domesticated to have certain provisions. one of which, that we're concerned with mostly would be charging order protection, and we'll get into that in just a minute.
11:24
So, I'm talking about LLCs and they're organized in the states and, yeah, this does apply in other countries. OK, it applies in Ireland, England, Canada, Australia, New Zealand.
11:36
Because I didn't mention somebody, it doesn't mean that's not included with India. Any modern country that's going to recognize an LLC.
11:42
Now, Canadians don't recognize an LLC, however, the banks do.
11:46
So, if you domesticating your LLC in the province, it'll be good as any other company. As good as any other company. All right?
11:54
So, here's where I find people at risk.
11:57
I'm gonna, I'm gonna scroll through here So these are called capital accounts. A capital account is a ledger.
12:03
Think of it as a spreadsheet. Think of it as a tax return. OK, 1014 is a Balance Sheet, At least that's my opinion of it.
12:10
Balance Sheet Income statement, that is what a capital account is. Each member typically will have a capital account.
12:17
Now, I'm not saying there's anything wrong with it, and in many cases, it is necessary. I'm just going to recommend a couple of ways to understand what's going on here and how to handle it handle the rest.
12:27
So let me scroll down to this section. I'm going to tell you this.
12:33
The whole purpose of having an operating agreement is to create a firewall in the legal system against a non party or an adverse party in preventing him or inhibiting him from getting access to the property held in the title of the company.
12:50
So if I'm a member of an LLC, and let's say another, my business partners, a member of an LLC, and I have a debt situation personal that has nothing to do with the company. And I have end up with a judgement lien because the creditor won the case against me OK.
13:05
That creditor may see that I don't have any money, maybe he sees I don't have much money, right. So it can't levy my property but he might be able to levy on property that I have the right to receive.
13:17
And so, the next option is to go and find out what other people I'm related to, like, how do I live in this world? How do I pay my bills? And he might discover that I have a business relationship somewhere.
13:28
If in that business relationship I have the right to receive property or money of some kind, that creditor can go to the court and get an order from the court allowing to take that money.
13:40
But only when I have the right to receive it.
13:42
And this is the nice thing about an LLC. I could have contributed a million dollars to an LLC.
13:48
And that million dollars, there were $3 million today, and I get over $100,000 to a creditor, and he can't touch it until I take the money out.
13:56
And that is why we use an LLC, and get a statutory protect protection called Charging Order Protection.
14:02
What that means is, charging order says you can get rid of attachments from the court, OK. It's an order from the court saying you you have permission to go take that stuff. Right. What's yours?
14:12
So the creditor can then get a charge for $100,000.
14:15
And then take, Go to, try to take $100,000 out of my $3 million interest in the LLC.
14:20
But he will not be able to do that legally because that $3 million it's not owed to me right now.
14:27
And I'm not entitled to it until there's a disbursement or distribution.
14:32
And so, in the operating agreement, and we're going to do this right now in the operating agreement, many times by default, you have a distribution schedule like like on the first and 15th of every month, you're gonna get X dollars or X percent or whatever distribution is going to be. And so a creditor in that situation, excuse me. A creditor would just be willing to just be able to sit there and wait to that distribution date and then, take all that money up to the $100,000. OK.
14:58
But if I don't have a distribution schedule, the Operating Agreement.
15:01
Now, this is one explaining Operating Agreement is a firewall that can also be the noose around your neck. You gotta be careful here.
15:08
So the firewall says that a creditor can't reach it because I don't have a stated distribution schedule or maybe I don't have a stated value or something like that, OK. I'm not expressed a right to receive anything so therefore the krater can't get anything. Now, here's the thing that discourages from happening.
15:25
And, the thing I just described to you, about them, taking money out of your LLC.
15:30
That almost never happens, because it's expensive to do that, and, here's the real reason.
15:35
An attorney tries to do that if the creditors attorney tried to do this and it's going to be an attorney doing this and he gets it, he gets that charging learn from the judge, and he cannot collect.
15:45
I'm at $100,000. Even a dollar or $5.
15:49
To the extent he cannot collect, his client will owe taxes on the amount of the judgement, the rent charging order.
15:57
It is uncollected by December 31st.
16:01
So you can see why it costs a lot of money to get there. It's very precarious because you don't know what's in an Operating Agreement.
16:08
And if you don't collect, your client's gonna be on the hook for taxes. And guess how long you're gonna keep your job representing that company?
16:15
Just cost your client a bunch of money.
16:17
All right, in addition to paying you.
16:18
So, we have what's called Capital Accounts Capital, I guess, let's call it money, OK? Money, accounts. Capital means money.
16:26
All right, A capital account is like a spreadsheet, and it lists all the contributions of each member and also list.
16:34
money that might be owed to a member.
16:37
Sometimes it might have a schedule you gotta be careful about this. But a capital account is a great way to keep track of how much money a member put into the company.
16:44
You want to do that, especially, if you have a real business, and you have partners, Again, if it's just yourself, and you're investing in kryptos, or one asset or wanting to hold title to real estate, and noticed that matters.
16:53
But, if you're dealing with cash flow, there's other parties that are beyond your marital community, then you may want to consider really, actually, having a capital account.
17:02
For most of my clients, they're not going to have a capital account, and I'm going to Or actually, we can discover a capital account, if there's only one interested party, OK, one interested party needs has been a wife, individual.
17:15
No one person, um, people that don't have a competing interests, so people from the same family, typically, they are not going to have different capital accounts. They need to. It's not even a real business.
17:23
But actually, if you had a partner where you're selling a product, then, yeah. Or if your partner and you are investing in something, sure, then maybe you really want to make a formal separation on a balance sheet of each member's interests. And those would be known as capital accounts.
17:37
What I'm going to suggest to you is that because the operating agreement is your firewall, the capital account could be an exposure as to what may encourage a creditor Take some money or try to So how a creditor?
17:52
No, what your Operating Agreement says. Well, if you did, but like everybody else does, like, your attorney tells you and when you open your bank account for the LLC, your bank says, can we have a copy of the Operating Agreement and you, without any objection, that I'll give it to them.
18:06
I'm just going to suggest to you that that's stupid, stupid and it's really stupid to do that.
18:11
You never want to give out your Operating Agreement anybody.
18:15
The only time someone gets it is under a court order.
18:19
Which in my 30 years of doing this, haven't seen one.
18:22
Because it gets expensive, they don't want to do. It.
18:24
Craters are pretty lazy mostly unless they're angry, OK?
18:28
Sometimes you get this guy that, you know.
18:30
I say guy leaves that are loosely But A person who's emotionally involved and he's not going to let you get away with us, you know? And so he's going to spend a lot of money to try to find network and get stuff.
18:40
Capital accounts. Good idea. Great to be organized. It's great to have a balance sheet. I generally encourage clients to have a single capital account, which I didn't call it that, I just tell them, they'll get a balance sheet.
18:51
You don't hear me say caplin counts. All right.
18:54
But that's what I'm talking about, its balance sheet, for one number.
18:59
So, When would someone get your operating agreement, when you give it to them, which you should never do?
19:06
If you give it to the bank, the bank will willingly happily give it to who added or asked for it, because you gave it up to them.
19:15
And, you waived your right, they have no liability to you, unless you have a specific document retention policy or agreement with the bank.
19:24
Regarding a data breach and things like that, OK, that's a different matter. And typically, the banks are not gonna agree that anyways.
19:30
So never give a third party something that you don't want other people on other strangers to have access to.
19:37
Only under court order. Would you give this up?
19:40
So, yeah, capital accounts show who gave what money when.
19:44
Then we have a distribution schedule, OK, This will be expressed in many different way. This is another point of exposure.
19:50
Notice how this section here, article for you, they call it section three, article three.
19:55
Now, again, the article for this is a very short, some article for their usually aged, right? This is very short.
20:01
Now what's interesting is it says the managers.
20:05
Now, most of the LLCs I set up Our member managed, I like those because when you, when you have an LLC that's managed by non members, you have a third party manager and that acts just like your bank. This is a weakness of Discovery.
20:18
So, if you have a third party manager, and GE has, or it has, The, organization has access to the company records, you lose privacy, OK. And someone can easily get whatever data you don't want them to have.
20:30
So, let's look at distributions, manage the manager, have the authority to determine the amount and timing of distributions. This is so important.
20:41
If you do not have a set schedule of distributions, you are very well protected, and this is what I leave my clients with when I'm setting up everything. For the most part, I'm not going to have a scheduled distributions, and I'm gonna advise my client according I'm going to say, do not do this, do not have a set schedule now, Some cases, there's an exception.
20:57
The reason why I say that is because maybe 3 or 4 years from now, something happens that I never thought of it. You never thought of that, you know, get stuff in the mail. And you're like, man, I gotta call gentlemen, let's see where he is, and maybe I'm dead. Maybe I'm on Mars. Maybe I'm on vacation. You can't get me on the phone, right? Then. What do you do?
21:13
Well, I guess I have to give up the document, because there's a court order that says, I have to give it a document exactly the way I had written it.
21:20
Guess what? It's just fine.
21:21
It's just fine. Unless you put something else in there. It's kind of wacky, But I have written E so that in the event that you actually do disclose, it has already covered. I already assume that you're gonna disclose them by mistake. Just don't do it willingly OK, Try it out to you.
21:35
So, the distribution schedule, don't have that capital accounts. Maybe, I'm gonna introduce some terms too.
21:42
Even though we're starting today, we're introducing Terms Capital, right?
21:46
Let me just pause here for a second and entertain some questions.
21:52
Yeah.
21:57
No one question I had that you asked about.
22:01
You have a Balance sheet for each Member, uh, is that a separate account?
22:09
Or just a balance sheet of what's owed to that person.
22:13
It's an account the word for it can't count. No. Not a bank account.
22:17
An account is allegedly, OK, OK. So, a capital account is a ledger of money. So, a ledger can be a piece of paper with a line down the middle where you're pretty number debits and credits.
22:26
It can also be a spreadsheet.
22:28
It can also be a Turbo Tax Report, OK, OK.
22:34
So when they say bank account, OK, so that's a ledger that a bank has custodianship over.
22:40
It tells how much money the bank owes you, right? A capital account may may show how much money you don't have. It might, might show how much money you owe the LLC.
22:49
It just shows who owes, what when.
22:52
Typically, you said you should keep, if you have one member, you should have that, at least for a member.
22:57
Well, you should have accounting, no matter what you should have.
23:00
Accounting, so you know what's going on with your money, especially if you have a lot of money.
23:03
If you just hold on title to real estate, and that's it, then don't worry about it.
23:07
Um, I don't know why you'd have an accounting record, Sure. If you have partners for real business, you probably should have a capital account for each of them, And I'm going to suggest to think so.
23:18
My next thing I'm gonna mention here, about capital accounts, you have any questions?
23:21
Anything else that answer? Yeah, OK.
23:24
So, there's, so what happens is, let's say there's a dispute, let's say, that, the members, there's a practical matter here about keeping kapil accounts, and establishing who has what rights and obligations.
23:36
Because if the members have a dispute, and they have to go take it to a judge, or somebody or mediator.
23:43
The judge is limited to only looking at the four corners of the operating agreement, as it is in writing, He cannot look beyond the operating agreement, unless the operating agreement says he can't.
23:55
So you'll see, I'm gonna page down real quick here, not to make your head spin, but let's just race down at the end.
24:02
And, you know, I'm sure you've seen this in other contracts Where?
24:14
Here it is, the entire agreement, OK.
24:19
Whatever we said before, yesterday, and today, and in the future, where we talk about over lunch, you know, whatever, whatever, I promise you. None of that stuff matters.
24:28
The only thing that matters about the Operating Agreement is, what you've seen in words in the Operating Agreement, as it's dated, If we sign this operating agreement, and tomorrow, I promise you the moon.
24:41
I don't know either.
24:44
It's whatever's in this Operating Agreement now. Here's what I'd recommend.
24:48
I would like to keep as difficult as it is to reach into and get the operating agreement, even for the IRS. It's not that easy.
24:57
The court is much more difficult.
24:59
I would still think that keeping my capital account outside the operating agreement is a better practice. So this comes down to how you want to organize your your business.
25:08
So what I would recommend is make your capital account for each member.
25:14
A proprietary record or let's, I guess the, the way that people understand this. is a copyright make it copyrighted. I'm not saying registered with the Copyright Office.
25:23
What I'm saying is label it as proprietary data of the company, and if you have a custodian of that, make sure you have the proper records labeling and documentation methods that the custodian follows. When I say custodian, I mean, you might have a law firm that keeps records for the company, which, by the way, is a kind of a good idea.
25:43
Because, if you use a law firm, you have an individual attorney who gives you attorney client privilege. This is another thing we don't talk about too much, but, so my clients, we talk about this because it's necessary in their situation.
25:53
But what you'd like to do is keep your capital accounts, the details. Remember, they're ongoing. There might be quarterly, there may be monthly, depends on how you want to write everything.
26:02
If you keep those outside the operating agreement, what you'd want to do if there was ever a dispute.
26:09
You would want to add into where it says, right here, 12.1, entire agreement.
26:14
You would want to write into an exception, like at the end of the sentence, right?
26:17
So after this sentence, I would write a clause that says.
26:22
The exception to this term is that capital accounts will not be included in the operating agreement, shall be maintained in the other following manner.
26:33
It should only be used to determine the rights and obligations of the parties if there's ever a dispute.
26:38
So, that kind of brings in your capital account into the operating agreement.
26:43
But if someone It doesn't make it part of the operating agreement in the sense that you could still comply with the court order and still not comply with the court order.
26:50
If they're smart enough, they might read it very thoroughly and say, hey, wait a minute. We want the capital account, and that is probably never going to happen. It's probably good practice to do that way now, even if they go to that level.
27:02
Because you label the capital. Account.
27:04
A spreadsheet, and you put it in, let's say, a password protected file, and you keep it in a secure location, and you labeled proprietary data of the company, they are probably not going to be able to get it, because the discovery would be blocked by a privilege known as business records. OK?
27:21
Trade secrets and business records, there's an exemption to discovery, OK, If you label your records correctly, and I have a video on this, actually, a whole video that talks about this.
27:31
Now, there's another thing.
27:32
So, with this concept, where I'm going to incorporate a capital account into a provision that says, what you see is what you get?
27:42
That way, I gotta kinda get the best of both worlds.
27:44
The other exposure I find is while I can include something outside the agreement into the agreement, Um, I can be exposed to her liability, This goes back to capital accounts. But, if you'll read, I mean, if you guys have, well, if you, if you have an operating room for me, you're not going to see this, But, if you look at a standard operating agreement, I'm gonna scroll back up and see if I can find it.
28:04
Typically, what's going to happen is you're going to see, they're going to define it, here, You see, let me go to 3.2 and see. I'm gonna look at how they're defining capital accounts.
28:20
Yeah. They always say this.
28:22
They're telling you what a capital account is, and they're saying that it's made according to the Treasury regulation.
28:29
And if you go look up at the Treasury regulation, it's a paragraph that says, what I just told you, A capital account is basically a record of debts and obligations, debts and liabilities, and, you know, rights and the rights and obligations.
28:41
Why would you say tax regulation and your operating agreement? Because when you do that, you bring in the regulation into your operating agreement. Of course, you're gonna pay taxes, it doesn't mean that you're not gonna pay taxes, but why would you go on site this regulation? I just see this all the time, and I always remove it. There's no reason for that. This is a private matter and might be, we need more privacy. So I'm just saying, I would look at it that way.
29:05
These regs don't need to be cited, because when you cite it, you're inserting and you're adding it as part of the ... Agreement.
29:12
Yeah, let's say the IRS. Let's say the IRS gets this in an audit, OK?
29:17
By the way, I've never seen that.
29:19
Uh, they're gonna say it.
29:20
You see, why haven't you follow this regulation, right? But if it's not in there, then you're the boss, right?
29:26
If you put the regulation in there, the regulations, the boss, you're, the boss, because this has to do with private property, you can make your capital accounts however you want. It's none of their business. But when you cite the reg, now is their business. That's my point.
29:39
All right, now, So here's the, here's the underlying theme of what I look for. I'm looking through this whole thing.
29:45
Like, if you come to me with already, a company set up, I'm going to look for any term in here that gives a member, the right to receive a distribution, maybe at a certain time.
30:00
So, let's say, look for distribution here.
30:02
So, the authority to determine the amount, OK?
30:07
I like this term, for some reason it's miraculous, like, how did you like that? Because, it says, shall have mm, we haven't figured it out yet. We don't know what the term is, but later on, we're gonna figure out how to divide this money.
30:23
So, they can't, this is not ..., this makes you judgement group, and it goes back to what I always say. I'm just going to change property rights.
30:31
This is an expression of a property, right. Your property right as a member is you don't have any rights to take any money. Now, thankfully, that way, your creditor doesn't have any right to take the money. at the moment. You do.
30:45
And hopefully, you're in a good situation with your member, or partner, or whatever, and you guys work it out, and typically, that's the way it goes.
30:52
And if not, I'm going to show you something else, too, that you can, you can use, too, back up into what a term I'll show you.
30:59
So, anyways, so, this is, at some point in the future, the manager can figure out how much and when, any distributions should be made, Like, it's a sign of property rights, or maybe it's a payment, a paycheck, cash on whatever, OK, and it shall be made in proportion to the respective percent interest, OK, so this does give it a little control, so, such distribution shall be limited to, it says, made a proportion, their respective percent interests, now, sometimes they call this member units, percent interest is basically the same thing. And where are we going to get that information from?
31:37
Capital account. That's right. They all work together.
31:42
So, just keep that in mind, OK?
31:46
So, these work together.
31:49
So, what you want to do is make sure that you do not have the right to receive the money on a particular schedule, at least that much.
31:56
And that's going to Even if you have to give this up to someone, it's going to protect you going forward.
32:02
All right, You want to set a percentage interests next to each member. You'd have to have that. You required, OK, the percent interests would be expressed in the capital account.
32:11
It also is expressed in the schedule, is like, We go to the end of this document, and the operating agreement, you'll see.
32:16
And, this is normal.
32:18
Uh, so, you would have to list if you're 50 50, you'd have the list.
32:25
Um, yeah, you can do that. But, again, this Schedule eight here is not a capital account.
32:30
It shows how much like maybe you contributed $100, but it may not show what your interest is worth today.
32:36
It just shows what you contributed three years ago, for example.
32:39
So you could be OK doing that. It also shows your percent.
32:43
So that percent may still be the same, but, again, if you don't have a distribution right, well, then you're fine, It doesn't matter, they can see where you're sitting on $10 million until you have the right to receive it. They don't have the right to get it.
32:55
But, you're right there, is that thing in it.
32:57
So, um, let's look at another one real quick.
33:04
Anyways, I looked through to make sure there's no given defaulted rights to receive any meaningful benefit.
33:13
Here's another example. So, this is, I got this, I guess this is by here.
33:20
Maybe it's someone selling an LLC operating agreement.
33:23
Um!
33:27
It's talking about allocations.
33:29
Capital accounts.
33:31
When you get money, when you can't take money out, so here's what, here's what this. I'm going to summarize this part without, going through this. So basically, when you contribute money to an LLC, typically, you're not going to have the right to earn interest on it.
33:42
And I would suggest that you don't want to earn interest on it. You want your money to work for the company, because that's what you did for it.
33:48
Also, you don't have the right to assign your interests To anyone else without the consent of everyone else. Or percent of enough of the other members.
33:56
And I'll give an example.
33:58
Why would I not have that right, or, why would the collective members of the LLC not want to have one of the members contribute one thousand dollars and then not assign it to his brother, or maybe assign it to his grandma?
34:11
Well, because if he has the right to do that, well, then maybe he has the right to assign, is writes in the company to a loan shark.
34:18
Would you want to have a member of the LLC bring in a loan shark? Now to your organization now? He has some sort of right over your organization.
34:28
Right? So that's why we have these these provisions in here. So you cannot hypothecate or assign your rights to someone else. You can't earn interest and you can't demand the money back. And that's so key. Make sure that once you contributed capital, you don't have the right to call it back.
34:44
Right. If you retain that right, then a creditor can take that right.
34:46
And, again, it's very unusual for that to happen but it's just a way to protect yourself.
34:54
Yeah. And so, here's, you know, allocations and things like that, that's likely related.
34:59
Good, Too much.
35:01
So, let me share with you some things, OK, so someone who has asked me the other day to look at lawyers, there was a law firm website, and they were explaining about offshore preparations and they had a bulletproof legal structure that no one could, it appears.
35:16
And, know, like the same old pitch, right? And so, all of those things that they said were so amazing, and so, great. I was explaining to this person who has asked me.
35:25
I said, Well, you know, you can, if you're using that structure, and you have property rights, and someone wants to really go after it. And maybe they think you have money in the Caymans, right?
35:37
Because now you have an offshore company and maybe this law firm is signing for you, Maybe it's even got nominees and your name's not on anything, but what can happen is, drew, discovery of banking records. You don't really have control over that.
35:53
The nature of your interest or relationship to the company can be reverse engineered, and an application can be made to the judge, and I'm talking about, maybe it's a state court judge.
36:05
Maybe it's a federal court judge.
36:06
The judge can use the power of content and say, Do you look your name is not on anything and appears.
36:12
You don't have any legal rights on the record, but we suspect based upon the evidence collected thus far, that you have some managerial control over the organization. And so I'm going to order you, repatriate the funds.
36:26
Or be held in contempt of court.
36:29
So, now, all that money you spent and time and planning do not have them the legal structure be able to be levied.
36:37
Some judges saying, Hey, we know what she did.
36:40
Bring it back though the plaintiff can levy, otherwise you can find yourself in jail.
36:47
So just be aware that there are a lot of this estate planning and asset protection in Australia that people want to sell you and trust organization that a lot of those are really effective.
36:55
Just be wary of how the rules of civil procedure could be used, and these are never mentioned in the planning.
37:02
All they talk about is laws in this jurisdiction, and that they never talk about post judgement discovery and the rules of civil procedure.
37:10
OK, so, if you want to check that out and I've got a little link here, I just pick one at random. This is for Georgia, OK, just tells you a little bit about what post judgement discovery is, OK.
37:21
It's pretty powerful.
37:22
So, if you have a very motivated eger predator, you can be you know in trouble.
37:29
So, here's what I recommend, typically, is: make your organization, for the most part, in a way, so that you never need to incur the costs of litigation.
37:39
Because if you're already dealing with the rules of civil procedure, and you're having to deal with all that, you're probably dealing with an attorney, or you probably have an attorney, you're already on the wrong path, because the whole purpose of the company is to avoid costs of litigation.
37:53
I want to set these up to where you have the ability, the knowledge, to abandon a company that's being attacked.
38:00
Even if it's not being attacked and you are, and they're trying to attack that company.
38:04
If you were to abandon that company and set up something new, or maybe wait a week or a month instead of something new weight to the, no, the attack passes, OK.
38:12
Instead of a whole new company, you'll be able to do that. That's what you want to do. You don't want to try to fight this company.
38:17
Even if you have a good brand, like, let's say you have a franchise, and it's a good brand, What I would like to do is take the biggest risk, that's the most likely it gets you in a court and export it to another company tied up in another company. So that way, if there's ever something that goes on a court and maybe you need to independent, well, then it's not bringing your brand down, right? It's not going to bring your brand and the court, but also because it's separate company in normal function, you can abandon that much more easily than you can a large organization that's handling all kinds of receivables equipment, leases, employees, and all this stuff, right?
38:48
You can export risk, so that you can avoid the cost of litigation.
38:53
So, I don't know, maybe I'll just stop now, if you have any questions.
38:57
That's a lot of info there.
39:01
Yeah.
39:03
Yeah, so, I mean, we can do more, and have more Q and A on this.
39:07
In fact, I think I'm gonna make this part one, I know there's gonna be a lot more questions, but I think that summarizes a lot of the conversations I've been having over the years, and just recently, it's coming up.
39:17
The operating agreement is a firewall. You should have it.
39:21
It shouldn't show anyone the operating agreement.
39:24
It should only be produced under court order, and lots of times, this gives you a chance to wear when there's an application for discovery on your operating agreement. The whole purpose of that is to pierce the corporate veil, as they say.
39:38
And don't always do it, They're always going to find a way to do it. But a lot of times, what I'll do is, I'll revise the operating agreement just before I disclose it to the court.
39:48
And we have every right to do that.
39:50
And they don't know that we did that, so so there's another option there.
39:53
But just always keep it in a way where you can control who has what rights and with the idea that if someone were to try to, you know, reach in there, they wouldn't at that time have rights, and by the way, whenever they try to get a levy or something, those expire. So a rid of attachment or regarding those expire, typically within 30 days or 90 days.
40:16
All right, well sounds good, thanks for watching.
40:26
Oh, yeah, I'll just.