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Sole Proprietorship vs LLC vs Corporation | DBA or LLC? - YouTube
Channel: All Up In Yo' Business with Attorney Aiden Durham
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hi everyone I'm attorney Aiden Kramer
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with the law office of Aiden H Kramer in
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Colorado and you are watching all up in
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your business and I kind of look like a
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mime
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maybe this long-sleeve black shirt
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wasn't the best idea oh well too late
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now as you probably know from watching
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my last few episodes I'm taking a couple
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of episodes to answer some of the
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questions that you guys send me today's
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question came from Daniel Daniel asked
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me what type of entity structure would
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optimize performance and maximize money
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in my pocket that is a great question
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because as a business owner myself I
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know that it is sometimes tough to
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decide how you should structure your
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business to make it as easy as possible
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but also to make it as profitable as
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possible so I'm going to go over the
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three most popular types of entity
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structures and talk about some of the
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pros and cons of each and which ones
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typically work for most small startups
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and of course as per use
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I'm going to recruit my fantastic
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graphics department to put together some
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great educational graphics to explain
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these things to you so here we have the
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three most common types of structures
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for a small business we have a sole
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proprietorship a limited liability
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company or an LLC and AC corporation I
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want to just put it out there that these
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are just three of the most common ones
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there are a lot more options there are
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general partnerships limited
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partnerships limited liability
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partnerships cooperative nonprofit
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corporations I'm not going to talk about
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those because they are pretty much
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endless and not very popular so I'm
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going to focus just on these three sole
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proprietor if you're operating as a sole
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proprietor this means that you haven't
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really formed any legal structure of a
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business entity if you're just an
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individual going out and starting a
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business starting to provide services to
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people you're operating as a sole
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proprietor now you may be operating
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under a trade name if you're Aidan and
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you've started Aidan's lawn mowing
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service then my trade name is Aidan's
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lawn mowing service in that instance I
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should file a statement of trade name
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with the Secretary of State to register
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the fact that I'm operating under that
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trade thing but just because I've got a
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trade name doesn't mean I'm an LLC or
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any kind of an entity I'm still just a
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sole proprietor with a sole proprietor
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tax wise all of the income
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the business is taxed as personal income
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to the business owner and one of the
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biggest drawbacks of a sole
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proprietorship is that there's no
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liability protection whatsoever for the
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business owner so if the business gets
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sued it is in essence the individual
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business owner being sued and all of the
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business owners assets are subject to
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liability for any of the liabilities of
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the business the biggest Pro of a sole
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proprietorship is that it's easy to
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start you just start a business and
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you're a sole proprietor so a sole
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proprietor might be good for businesses
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that are not very high risk with
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liability if the industry is very
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unlikely that you will be sued and a
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sole proprietorship might be appropriate
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for you but I generally don't recommend
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sole proprietorships just because of
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that no liability protection and the
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fact that LLC's generally speaking are
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pretty easier form so let's move on to
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the limited liability company the LLC is
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definitely the most popular entity
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formation and that is because it is
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inexpensive and relatively simple to
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start and to run an LLC all you have to
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do in most cases is file articles of
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organization with the Secretary of State
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or whatever other agency operates
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business organizations in your state
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you'll need to draft an operating
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agreement for your LLC which is the
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internal document that talks about the
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management and the operation of your LLC
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again as with a sole proprietorship all
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the income to the business is taxed as
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if it were personal income to the
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business owner and then finally the
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biggest difference and the most
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important one I think between an LLC and
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a sole proprietorship is that the LLC
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gives you that liability protection so
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if there is a lawsuit or if the LLC is
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subject to some liability you as the
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business owner will be personally
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protected and your personal assets
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should most likely be safe from those
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liabilities and then finally we have the
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C corporation the C corporation is a
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little bit more complicated and
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expensive to get set up but there are
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some instances where it would be useful
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to have a C corporation now there are
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three groups
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of players basically in a c-corporation
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there are the shareholders the
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shareholders are basically the owners
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they owned shares of the corporation
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there is the board of directors and the
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Board of Directors are the ones who
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basically make decisions about the
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operation of the corporation and then we
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have the officers and the officers are
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generally the ones who are actually
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participating in the business and
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managing the business and all of the
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activities of the business in a small
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business you can form as a corporation
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and the shareholder the board of
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directors that officers they can all be
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one person or one person can hold
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multiple positions so it is still
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possible to have a C corporation as a
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small business or as a solo business
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owner to create a C corporation you will
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have to file Articles of Incorporation
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with the Secretary of State you will
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need to write bylaws which are pretty
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much the same as an operating agreement
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just with regard to a corporation the
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bylaws say how the corporation is going
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to be run and managed and operated if
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there are going to be multiple
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shareholders you're probably going to
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want a shareholder agreement one of the
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biggest drawbacks of a corporation is
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that corporations are subject to double
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taxation so when money comes into the
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business it is taxed at the corporate
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rate for the corporation and then when
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money is distributed to the shareholders
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it's taxed again at the shareholders
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rate and then finally just like an LLC
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the corporation provides that liability
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protection to the shareholders and the
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board of directors and the officers in
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most instances so if there is a lawsuit
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over the corporation or if the
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corporation has debts or other
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liabilities the shareholders and the
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officers and the board of directors are
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most likely going to be protected
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personally from those liabilities I'm
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going to touch briefly on an S
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corporation as you can see at the bottom
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you can elect that worked out well you
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can elect to have your business be taxed
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as an S corporation an S corporation is
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not a entity itself it's merely a tax
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election that your business entity can
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make
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so you can still be an LLC and be taxed
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as an S corporation and by doing that
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you can potentially save quite a bit of
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money on your tax liability I'm not
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going to go into too much detail about S
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corporations if you have more questions
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about it you can look back to a few
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episodes ago where I discuss what the
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heck is in S corporation I would also
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encourage you to look back to the
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previous episode where I talked about
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the top ten things that every LLC needs
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if you're interested in starting an LLC
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so generally speaking for a vast
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majority of small businesses and
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startups that LLC is going to be the
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best most appropriate choice it's easy
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and usually pretty inexpensive to get
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started it's usually depending on the
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state that you're in pretty easy to run
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and maintain the LLC most states at
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Colorado at least doesn't have too many
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requirements about what an LLC needs to
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do on an annual or semiannual basis and
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then you're still going to get that
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liability protection that you wouldn't
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otherwise have with a sole
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proprietorship and as far as maximizing
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profits goes if your business is to the
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point where it might be wise to elect to
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be taxed as an S corp then you can do
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that and save a lot of money on your
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taxes so Daniel I hope that answered
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your question or at least helps to
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answer your question if anyone has any
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more questions about business structures
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of the different business entities go
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ahead and comment them below if you're
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in Colorado and would like to speak with
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me personally about what the best
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business structure or entity would be
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for your small business feel free to
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contact me my phone number and email are
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below otherwise thank you all so much
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for watching I'm Aiden Kramer and I'll
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see you next time
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