Navigating Business Law with Ashley Feuerman
Have you ever wished for guidance in effectively growing your business and managing your finances? Or wonder what it takes to succeed as a female entrepreneur in finance, then this is the podcast for you. Welcome to Women of Wealth, where generational wisdom meets ambition. I'm Ali Romo, your millennial host. And I'm Hollywood's Greg, your gen x host.
Allie:Using our combined backgrounds in insurance and financial services, we will share what we've learned to give you the tools you need to grow your business.
Intro:Join us, and together, we will help you discover practical strategies for financial leverage, business growth, and securing your future.
Hawley:Hi, wealth warriors. Are you ready to redefine wealth and master your money mindset? Welcome to episode episode number 14 of Women of Wealth. I'm your Gen X host, Hollywood's Gray.
Allie:And I'm your millennial host, Ali Ramo. This episode, we're discussing the legal side of business. If you have questions that involve setting up a business and its financials, this episode is for you.
Hawley:Well, let's go ahead and meet our guest, Ashley. Ashley, I'm not gonna pronounce your last name, so you can do that for me. Tell us a little bit about yourself and how you got here.
Ashley Feuerman:Hi. Thanks for having me. My name is Ashley Feuerman. I am a small business law attorney in San Diego, California. I set up my firm just about a year and a half ago, and I work primarily with female founders on setting up the right structure so that their personal finances are protected while they grow their business eventually to sell.
Allie:Awesome. So how did you get into business law? Was that something that you were always interested, or did it kind of just go, go down a path?
Ashley Feuerman:Yes. So I actually went to law school to become a sports agent. I knew that I wanted to work kind of in an alternative path to law. My two passions at the time were the law and sports. So becoming an agent was kind of the beautiful combination of both.
Ashley Feuerman:And then in learning kind of what that takes, I realized it wasn't the right path for me. But all of the things that agents assist with are things that I wanted to help clients with outside of their professional contract. So a lot of that is entity formation, setting up generational wealth, asset protection, and real estate investment. So that's kind of where my practice found itself, doing everything for that demographic outside of the professional contract. And then I realized that the skill set translates outside of just a just, athletes.
Ashley Feuerman:And so that I could use it with pretty much any industry. So that's kind of how I got to where I am now.
Hawley:So are you doing any work with the new NIL or any of that? Any of those There programs that have come up with NC double a? Yeah.
Ashley Feuerman:The it's kind of the wild west at this point. There's so many people who are saying that they can do it, and that's part of my issue with an agent that there's kind of a moral discrepancy in in a lot of athlete transactions, with who they're represented by. So I have the skill set and the understanding of NIL. It's just, you know, figuring out which clients wanna do it legitimately and which just wanna take advantage of the situation that's been presented before the regulations are in place to kind of minimize where everyone was going with this.
Hawley:Yeah. It's kinda crazy. It definitely is the wild wild west. It's kinda like insurance was about 20 years ago before they, before we had the recession and, before all the laws changed about how many people could be serving agents I mean, servicing agents for, like, school district employees and whatnot. A lot of that changed back in 2007, 2008, 2009.
Hawley:Alright. Well, let's jump into it. So when you are determining, setting up an LLC or a corporation, what are the differences, and how do you make that determination?
Ashley Feuerman:So the most important factor to consider is how much liability protection you want. It also depends on what sort of licenses you hold. If you hold a professional license and offer a service, you are not allowed to be an LLC in the state of California. So that makes my job really easy. If you don't hold a professional license, then we talk about what sort of exposure you have, what sort of tax benefits you wanna take advantage of.
Ashley Feuerman:The other thing that I consider is if you're looking to take on investors, investors like to invest into corporations versus LLCs just because it provides them with more protection. So there's always the opportunity to start with an LLC and convert into a corporation at the time you're looking for investors. So there there are just numerous factors that we consider, and the nice thing is that everything can be changed.
Hawley:Something new for California? Because, like No. I'm not sure if insurance agents and financial service or financial advisors fall into that rule. But if that's a new law, then that's something that a lot of people aren't aware of because for our for us, we're independent contractors typically. And if that's a new rule, then we need to make sure agents are in
Ashley Feuerman:compliance. It's it's not a new rule. It's been in the business and professions code for a long time. I know attorneys who started law firms with LLCs, and no one stopped them from doing that. But it is a law, and you mentioned independent contractors.
Ashley Feuerman:There's been a big push in California to eliminate independent contractors and kind of reclassify everyone as employees. So that's another thing that I look at with clients when we're starting their businesses is are these truly vendors, independent contractors, or should you be paying them and providing benefits as an employee?
Hawley:Sure.
Allie:So when you're looking at someone who's an independent contractor and you're making that distinction, what are some things that people should be aware of when they're an independent contractor versus being an employee?
Ashley Feuerman:Yeah. So the biggest thing that the state of California looks for is the amount of control. If you're going into someone else's office providing the same services that they provide in, under direct control of a supervisor, you're an employee. Things that can help differentiate you are you have your own entity that's a completely separate service than what this company you're supporting provides. For example, if you're a bookkeeper and you have your own bookkeeping company and you're supporting, let's say, a construction company, you have no one telling you what to do.
Ashley Feuerman:You're clearly an independent contractor providing outside services. But if you're in sales and you are only selling for 1 company and you are doing it, you know, on your own in your individual capacity and you're you're selling to locations where the company is telling you, I think in that situation, you would probably be considered an employee versus an independent contractor.
Allie:Awesome. And then as far as the I know I when I was looking at doing an LLC versus an s Corp, I did come across that licensed professional. Do you know if that's all license, like all professional licenses, or if it's specific licenses. Because when I was looking at it, it didn't seem like our license fell underneath that provision. I I went ahead and with the intention of being an s corp, eventually, I just decided to go the s corp route.
Allie:But that would be interesting for this, the agents who are as LLCs if that's something, that should be concerning.
Ashley Feuerman:Yeah. The business and professions code does lay out specific industries, and it's not even just classifying as an s corp. There is a specific subset of corporations called professional corporations. So, for example, I am a professional corporation that has made an s election, but I have to specifically state a professional corporation in the title of my business because I hold a professional license.
Allie:Okay. Yeah. And then, Holly, to answer that question, I don't believe our industry falls underneath that. I don't know. Do you know that off of the top of your head, Ashley?
Ashley Feuerman:Yeah. I don't think that it does. It's really more for doctors, lawyers, psychologists, psychiatrists, sort of advanced degrees, because I have you know, the the question came up with the mortgage broker. Right? They have a a license to do that.
Ashley Feuerman:Do they need to be a professional corporation?
Hawley:Right. Yeah. I mean, I've been an independent contractor when I was in the mortgage industry. That was years ago. However, I know that the laws have changed quite a bit over the years.
Hawley:So, you know, definitely, staying in compliance is one thing that is great and why you need to have a business attorney on your team, to make sure that you continue to stay in compliance. So we talked a little bit about how you set it up and how you determine that. Can you talk about a little bit of the differences? Like, what is the, like, what is the tax consequences for an LLC, over a s corp, over a c corp? As much as you can talk about, I know that tax might not necessarily be your
Ashley Feuerman:Yeah. Definitely a caveat. I'm not a tax attorney. If you have these questions, definitely consult with 1. So most of the founders that I work with are single member LLCs.
Ashley Feuerman:So they're classified by the IRS as disregarded entities. So the IRS says we understand that you have this business, but everything is gonna be taxed on your personal tax return. So they file one return with a schedule k one for their LLC income, and it's much simpler. In the state of California, there is a minimum $800 franchise fee that you pay on an annual basis for LLC or corporation. That scales based on net revenue.
Ashley Feuerman:But I would say 90% of businesses within California fall within that $800 maximum. If you go the s corporation route, you are filing a separate tax return for the business. LLCs are the most highly scrutinized form of entity by the IRS. So if you're looking to play in the gray, I would definitely recommend going through the corporate route versus the LLC route just because they're not as closely looked at. But the the tax is the same payment.
Ashley Feuerman:It's just what you can get away with with deductions.
Hawley:Right. So with an LLC, if you're so if you're a single person, then you'd be taxed as a sole proprietor. Correct?
Ashley Feuerman:Yeah. Disregarded entity. Correct. Yeah. So okay.
Hawley:Well, that's good to know. Alright. Well, let's jump into, some questions about planning and setting yourself up to make sure that you are set up correctly in order for succession planning.
Ashley Feuerman:Okay. So the other, you know, big difference between LLCs versus s corporations is s corporations does not allow for entity shareholders. They have to be individuals. So if you're going to look for investors to help you scale your business and you're gonna offer equity in the business, you can do it either as a c corp or an LLC if the investors are an entity themselves. So that's usually one thing we consider in deciding entity structure.
Ashley Feuerman:The other big thing is, you know, LLCs tend to operate as sole proprietors as you mentioned, and there is not really education on the requirements for separating bank accounts, separating expenses. If you do commingle funds, you open yourself up to personal liability. And so an investor is gonna make sure that all of the corporate the corporate formalities have been followed, including separate bank accounts, annual minutes for corporations, payroll, you know, all the things that would keep the liability protection at the highest level.
Allie:Oh, when we're talking about, like, if if someone's got an s corporation and they're just starting out, and what are some things that they need to think about? You mentioned payroll. And, like, for myself, I know my husband and I are an s corp, but we're the only people within the corporation right now. And so when people are just starting out, like, what does payroll look like? Bookkeeping?
Allie:And then I know there are some requirements to submit, like, employee paperwork for federally. What does that look
Ashley Feuerman:like? Yeah. So and, again, I'm not a tax attorney, but I believe if you're an s corporation, you have to have w two employees even if it's yourself. Versus an LLC, you can make distributions instead of doing payroll. I always recommend if a client is starting, find a good accountant, find a good lawyer, and have those 2 people work closely together.
Ashley Feuerman:The my accountant does my, payroll so that it's all in the same and that the end of the year when I go to do my taxes here, it has all that information. And you can in addition to payroll, you can make yourself shareholder distributions if you go the escort route, should you need more capital.
Allie:And then talking about capital, and we're looking for investors, what are when someone's never had a business before and they're looking for investors, how do they go about that?
Hawley:It's a
Ashley Feuerman:great question. Always start with friends and family. No one's gonna support you more than people that knew you before your business. I always recommend people do debt raises as opposed to equity raises. When your company is in its infancy, you don't know the potential.
Ashley Feuerman:You could give away more for less. So if you go the debt route, a lot of people are much more interested in a guaranteed return. It's a lot safer for them where you say, if you give me $50,000, I'll give you 10% interest paid back in 36 months. They know at the end of those 36 months, they're getting a 10% return versus I give you 10% of my business. 6 months from now, that business could be worth nothing, and they've lost their entire investment.
Ashley Feuerman:Or on the other hand, the business flourishes and that 10% is not worth $50,000. It's worth $500,000. You're still a 100% equity owner of your business, and you've paid off your debt.
Allie:So you're recommend you're recommending the debt raises versus equity?
Ashley Feuerman:I am. Yes. I would always recommend that.
Allie:Okay. And so, basically, that's when the debt's paid off. Sorry. We're we're dumbing this down for me. So when the debt's paid off, basically, that they're completed with that investor.
Ashley Feuerman:Correct. So if the promissory note provides 10% interest on an annual basis for 36 months, that person makes at the 50,000, you know, an extra $15,000 on their initial $50,000 investment. The notes paid in full. You write void. It's gone.
Ashley Feuerman:What a lot of investors are doing when, they want equity is they'll use what's called a convertible note. So it's originally debt, and then once the a certain date hits, they can convert that debt into equity. So there's already an established equity percentage for their investment. So it helps people with the initial raise when they just want debt, but it also protects the investor in the event the company does do well. They can convert their debt into equity.
Hawley:And what are some other do you have any, any suggestions on some other maybe nontraditional? I know that there's a lot of grants available for business owners, especially female business owners. Do you have any that
Allie:are go to's for you?
Ashley Feuerman:So no one that I've worked with thus far has gone the grant route. I do know a ton of them are available. The SBA is a great resource. And I know there are veterans programs available for women that wanna start businesses. It's definitely something that I personally wanna look more into so that I can provide this to my clients, but it's not something I have a wealth of information on at this time.
Allie:And when you're when someone is going to their family, for investing, it that's usually kind of the debt raises side of they're just gonna get a specific interest. And, normally, what are the terms people should be thinking about? I mean, I know it probably varies on how large the investment is. Yes. But what should they be thinking about when they are asking their friends and family for investing?
Ashley Feuerman:So most importantly, obviously, I think you need to have an attorney draft the paperwork for you because there's a lot of people that will pull notes off the Internet that, you know, really hinder their ability to pay it back and give the investor rights that would they wouldn't necessarily have if an attorney is providing the paperwork. The interest rate is heavily dependent upon the current interest provided by the federal government. So if I'm an investor or friends and family, and I've got an extra $100,000 lying around, I can put it in the bank and earn 7% interest, or I can give it to a family member who's starting a business and be promised 10%. Same thing goes for the business owner. I can take out debt at 7%, but I'm dealing with a bank who's probably got got lender's fees and a ton of other things that are added on top that come off the money I'm taking out.
Ashley Feuerman:Or I can offer a little bit more to an investor, and it's a win win for both parties. So as interest rates fluctuate, I'm seeing what's being offered fluctuate as well. The other thing that plays an impact is if there's anything that can secure the debt. Like, if I'm a business and I own the space that I work out of, I can offer a lower interest rate, but secure the debt with the building so that in the event I'm unable to pay it back, they can get their money back through the asset of the building.
Allie:You bring up a good point that I've had a question about. As far as when you sell a business, but you don't own the property of the business.
Ashley Feuerman:How
Allie:what goes into the actual selling of the the business then? Is it just the, like, the the day to day operations that you're selling and the income that's generated from it since you don't own the property? When we're thinking about like families who own a business, but they don't own the property, what should what should they be thinking about, for the future consequences of not owning that property?
Ashley Feuerman:So there are 2 ways that you can sell well, I guess 3 ways to sell a business. One would be an asset sale where you sell just the nontangible assets. The next is, buying the business as a whole, where you would purchase the business name, all of the IP, everything that comes with that. Or you could do a larger sale that includes a real property purchase. They're papered separately.
Ashley Feuerman:The real property purchase is not usually tied into the asset purchase. But if if the brand itself doesn't have value, you can just go straight asset sale, keep the brand yourself. It's more enticing for a buyer because they're not buying as much. They're basically buying a client list. And then, you know, there are also ways that you can carve out accounts receivable from the asset purchase so that the family can continue to collect on the work that their family member did, and the other company just takes everything from the date of closing.
Ashley Feuerman:There's a there's actually quite a few ways to structure those sales even without real property being involved.
Hawley:So if you are, currently let's say you're currently an LLC, but you can you grow fast and you want to change to an s corp or a c corp. What is the process in doing that? Because that might be something that, you know, someone might at least this is how I started out. First, I started out as an independent contractor. I just paid paid self employment tax because I didn't know any better.
Hawley:Then I became an LLC because I thought that was the right thing to do. And then I became an s corp. But what if I you know, when is the is there, like, a mark of how many employees you have or how much, you know, revenue you have when you should change from an s corp to a c corp, and what would be the
Ashley Feuerman:advantage of that? I don't think employees or revenue has any sort of implication on that. I think it's how much exposure you have. So I could be, you know, me as a single member or attorney, I have an immense amount of exposure. So I obviously wanna go the corporate route because I wanna protect myself as best as possible.
Ashley Feuerman:If you're doing marketing with a team of 500, but you have no exposure because you're not doing anything that would really risk liability, you could stay in LLC for the entire time. But, again, if you do wanna take on investors and those investors require a higher level of protection, then you could make the jump to a corporation. There's also the subset of LLCs who can elect to be taxed as s corporations. That usually needs to be done within the first 45 days of formation, but there is an option for a late election. So if your company grows, you don't need the additional liability protection, but you need some of the tax advantages of an s corporation, you can stay in LLC and just continue to be taxed as an s corporation.
Hawley:Okay. So it doesn't it doesn't sound like, between the s corp and the c corp that it it really matters all that much. It's really more about the exposure than about how you're gonna sell your business. Correct.
Allie:And when we're talking about exposure, just for people listening, when we're looking at, like, risk, if something were to happen and someone comes after you, can you kinda paint a picture of what that looks like, for an LLC versus a corporation, if Sure. Were to come after you?
Ashley Feuerman:Yeah. So the kind of hot button topic here is what's called piercing the corporate veil. Anytime an entity is sued, the plaintiff is going to request bank statements, corporate maintenance documents, insurance policies. They're gonna make every effort to show that the entity and the individual are operating in cahoots so that they can come after your personal assets. It's called piercing the corporate veil because the protections of the corporation no longer exist.
Ashley Feuerman:So that is why it's so incredibly important to keep everything separate. Ideally, everything has been kept separate. The corporation has assets versus the LLC has assets. Those assets would be subject to a judgment. One of my favorite facts is in the state of California, only 2% of all filed cases actually end up at trial.
Ashley Feuerman:So 98% of the time, you're settling, And that settlement can either take into account only the assets your entity owns or the assets that you own personally if you haven't followed those corporate formalities. So that can play a big factor in how much exposure you have.
Allie:I have another question. So if someone let's say some people are married, but one of the spouses has nothing to do with the LLC, and someone pierces the corporate veil. Is that what you said? Is that the term? I imagine like a bubble around your corporation and someone just pokes a needle at it.
Allie:Exactly. And it explodes. So will and let's say this spouse has a different business. Is is that spouse now exposed to whatever this spouse has been exposed to?
Ashley Feuerman:So I can only speak to the state of California where we have community property law. Each spouse has a reciprocal 50% community property interest in the other's business. So if that other business maintains corporate formalities, there's no commingling of funds, that person's business would be exempt. But if there is one household bank account where each are pulling distributions for their reciprocal LLCs, There's no separate bookkeeping. A 100% those assets would become subject to a judgment.
Allie:So big takeaway here is keep all business things separate.
Hawley:Yes. Definitely. There's also ways
Ashley Feuerman:to use estate planning to create separate property interests. So if I decide to create a business during a time that I'm married, I can set up a separate property trust and have my spouse sign over their 50% community property interest in that business. So from the outset, everything remains separate property.
Hawley:You can also do that for on a business side too. Right? I was in a partnership that had me and 2 other ladies. We're all married, so we have our husbands all sign off of it. Yes.
Hawley:We lived Yep. Well, 2 out of the 3 lived in California. So, we were able to make sure that if, you know, something happened to one of us that the other husband wasn't gonna come in and try to take part of the business.
Ashley Feuerman:Right. And that's part of the beauty of having an attorney draft an operating agreement versus going through a company like LegalZoom. Through LegalZoom, you're gonna get a template operating agreement. If you go through an attorney that understands the business and the complexities of the ownership structure, they can put things like that in an agreement from the beginning when everyone is getting along, which is the best time to negotiate, versus when things start falling apart when trying to restructure something when no one is getting along. It the only person that benefits is the attorney making money.
Allie:Awesome. Well, is there anything else that we didn't ask you that we should be asking?
Ashley Feuerman:Well, obviously, I'm going to continue to advocate for the need of having an attorney if
Hawley:you
Ashley Feuerman:own a business. But, no, I think you guys have covered really everything. And a big part of what I do is working with financial advisors and insurance brokers. Now every professional you have on your team needs to work with each other to best protect the business owner.
Allie:Yeah. I think it's really important to have that communication. It's it's not the whoever we're working with. So having good communication, whoever we're working with. So having good communication, and having professionals that are willing to talk to your other professionals, because I know sometimes they don't wanna even talk to, the people on your team.
Allie:And so then the biz the client becomes the middleman and things get lost and they don't speak the same language all the time. So I love that to to have a team behind your back. Holly, did you have a question?
Hawley:No. I think we're ready for the speed round, lightning round. Are you ready for the lightning round? This is a series of questions that we'll ask. And then at the end, if you can just start it, thinking about one takeaway that you want to make sure that our listeners heard, during this, Ashley, that would be great.
Hawley:So the first question in the lightning round is cash or credit?
Ashley Feuerman:Cash is king always. Awesome.
Allie:Real estate or stocks?
Ashley Feuerman:Real estate.
Hawley:If you won a $1,000,000 today, what was the what is the first thing you would do with the money?
Ashley Feuerman:Most importantly, pay off my student loans because those will be haunting me for the rest of my life. And then I would invest in commercial real estate.
Allie:Awesome. What is a fun impulse buy you've recently had?
Ashley Feuerman:A dog. It's so much more money than I anticipated she would be.
Hawley:Did you just go to the pound and or to the, you know, rescue center now that I think they're called, and find out when you fell in love with? Or did you
Ashley Feuerman:No. I wish that I had a great story like that, but my dad was walking and saw a man with 3 puppies and said, my doctor wants a dog. Can I buy 1? And that's how I got a dog.
Hawley:They are definitely more expensive. And and they also if you live by yourself or even if you're married and your family goes on trips, it's like having a dog becomes another liability because you have to think about who's gonna watch them, who's gonna pick up their milk for you. You know, those kind of things. And so
Ashley Feuerman:so far, it's been my parents helping me when I travel, and then they invited me to go on a trip with them. And I was like, who's gonna watch the dog? We're all going together. So
Hawley:yeah. What changes now is there's plenty of places where you can, have them watch him and, our dog loves going to the to the sitter. Our yeah. He goes to we have a hospital that also does boarding, and so he has, like, a junior suite anytime he goes. So it's very upscale and very interesting for him.
Hawley:Alright. So what is one money saving tip you swear by?
Ashley Feuerman:So I'm sure I could think hard and figure out who told me this. But when I was 15 years old, I started putting 5% of my income every month into a savings account. And it's just been there since I'm 15, and I use it when I'm traveling or I've got, you know, unexpected expenses. It's just kind of forced, and it's an interest earning account. So 5% just goes right into that for a rainy day.
Ashley Feuerman:Very good.
Allie:Awesome. And what's your biggest financial fear?
Ashley Feuerman:Malpractice loss. But, thankfully, there is insurance for that. But, yeah, I think as an attorney, that's all of our biggest fears is that someone's not gonna like the advice that we give and they come after our license.
Hawley:Yeah. And what is your biggest financial goal for the next year?
Ashley Feuerman:So I personally am in a growth pattern for my firm. So within the next year, I wanna bring on another associate to help with some of the workload that I've got, and just figuring out, you know, cost benefit of that. Yeah. That's it. Very good.
Ashley Feuerman:Awesome. Well, thank you.
Hawley:For being a part of our podcast. We really appreciate your expertise and your time and for coming Sure. Sharing with our listeners all your good information.
Ashley Feuerman:Yes. Yeah. Thanks for having
Allie:me. Where can people find you?
Ashley Feuerman:Yeah. My website is feuermanlaw.comfeuermanlaw.com. Or my favorite, just pick up the phone and call me, 858-947-7822. If you've got any questions at all, I'm happy to talk to anyone to help you get set up in your business.
Allie:Very good. Yeah.
Hawley:We did say that we were gonna give our listeners one takeaway that you wanna make sure that they heard.
Ashley Feuerman:So what was that one takeaway you wanna make sure that our listeners heard? Even if you don't think your business is big enough, create the entity and protect yourself. It's $800 a year, but it's a lot less expensive than what happens if you get sued.
Allie:I love it. I love it. Thank you so much, Ashley. I know my sister is growing her business right now, and you've been a lot of help to her. So I appreciate you on that front, and thank you so much for being part of our podcast.
Hawley:Thank you.
Ashley Feuerman:Of course. Enjoy your day.
Allie:Thank you for joining us on this week's episode.
Hawley:We'd love to hear from you, so
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