Welcome to the new Spotlight Series, presented by Wyrick Robbins, where we spotlight a member of Raleigh Founded while digging into a specific topic relevant to founders. Today’s topic is Setting Up an LLC, which can be pretty confusing and painful. But it doesn’t have to be, and today we’re giving you the tips on literally how to start your business. We’re joined by Matt Stevens of EyeForty Design; Dan Tracey, corporate attorney at Wyrick Robbins; Jason Gillikin, CEO of Earfluence; and Jess Porta, Executive Director of Raleigh Founded.
Jason Gillikin: Welcome to Founded Connect, a place where the Raleigh Founded resource providers connect with the members of the Raleigh Founded community. Today’s our first episode in our new spotlight series presented by Wyrick Robbins, where we spotlight a member of Raleigh Founded while digging into a specific topic relevant to founders.
I’m your host, Jason Gillikin, and joining me today is Dan Tracy corporate attorney Wyrick Robins, Jess Porta, Executive Director at Raleigh Founded, and Matt Stevens, CEO of EyeForty design. Welcome everybody to Founded Connect.
Dan Tracey: Thank you for having me.
Jess Porta: Thanks.
Matt Stevens: Thanks. Glad to be here.
Jason Gillikin: Oh my gosh. I am so excited to dig into this particular topic today, which is something that can be such a pain when you’re starting a business, I’ve gone through it.
I think we’ve all gone through it and that is setting up an LLC.
So, before we get to that, Dan, I want to start with you. You at Wyrick Robbins wanted to, you want it to be involved with the spotlight series. Can you talk about your relationship with Raleigh Founded, and Wyrick Robins?
Dan Tracey: Yeah. Thanks, Jason. So, Wyrick’s been a long-time partner of Raleigh founded really, since it was formed over 10 years ago. And so, we view ourselves as a supporter of the entrepreneurial community in Raleigh and North Carolina. It’s a natural fit for us to be involved with Raleigh Founded, with the companies that are working with and at Raleigh Founded.
And this series is an opportunity to talk about those entrepreneurs, the problems they’re facing and their stories, which are always more interesting than the legal aspects of forming an LLC or other legal aspects of the business. So, we’re here to spotlight them.
Jason Gillikin: That’s awesome. And yeah, so speaking of entertaining stories and spotlighting a founder, we’ve got one, as I mentioned today, Matt Stevens with EyeForty design, Matt. First question for you is, well, basically I want to hear about your founding story of design, but can you talk about where it all started? Like, why did you think about, I might want to start my business and then we can get into developing an LLC from there.
Matt Stevens: So, I have been involved in design for a long time. I have a family of entrepreneurs. I’ll start with my grandmother who was like the matriarch. She owned her own beauty business and, just was constantly surrounded by that growing up and, worked for like the majority of my career was working on like public non-profit organizations.
Worked for college, worked for the airport. I worked for like for RTI international, and in those organizations, like I was doing graphic design work, sort of a Jack of all trade’s designer doing video photography, you name it like I was working on it and, in working in those organizations I got to the point where I started questioning, like, is this really a good fit for me? Is this what I want? I knew that I had that entrepreneurial spirit about me, like with my family. So, during the pandemic, like a challenging time for everyone, and I decided like, you know, why not?
Why not now? So, I formed my business officially in November of 2020, and then I was still working for the organization I was part of. And then in February I went full with that business.
Jess Porta: I always have a lot of respect for people that say they formed a business in 2020.
Jason Gillikin: Yeah, absolutely. So, you had an idea to go full-time then, or did you think, okay, I just kind of want to take some side projects here.
Matt Stevens: I had freelanced for a while, like even while I worked for other organizations, so some side projects here and there, and I decided I wanted to be more than that. And like, I wanted to structure a business where it wasn’t just me.
Like, I was very intentional from the get go about like setting up as a business with a founder and that type of thing where I could like bring on various subcontractors and other artists and creatives to work with. So that’s, that was intentional from the start to set it up like that.
Jason Gillikin: Yeah. Okay, so that’s interesting because you said you freelanced beforehand and this is before starting a company.
And this is something that I want to talk to Dan about is when should you start your LLC? Or when should you get your LLC? When should she be officially a company? Is it, when you’re doing the side hustle is when you think you’re starting a company, you knew you were about to, and that’s when you set up your LLC, but you were taking money before that?
Is that a problem? I don’t know. These are all things that I’m curious about. Dan, can you talk to that? Like when do you recommend that somebody start doing their LLC?
Dan Tracey: It’s a great question, and a question that everybody from seasoned entrepreneurs to, you know, for people starting a business for the first time have to, come to some conclusion on what’s the kind of the tipping point of forming the business that you actually need an entity.
And there’s no, you know, there’s no right answer to that question. So, what you were doing is you’re operating as a sole proprietorship, Matt. It was, it’s really no different than you operating as yourself, right? You or I or anybody, when you start a business and you start operating as a business, start doing things for money.
You are a sole proprietorship. And, at some point there are, things that happen to that business that lead you to want to form an entity. And so, one could be you’re doing something risky and there’s the potential for whoever you’re serving to sue you, or to have a dispute with you, and you want to be clear that your business is different than your personal assets: your house, your car, your, your bank account.
Not all businesses are risky though, or are equally risky, and so some entrepreneurs can get away operating as a sole proprietorship for longer. They’re also non legal reasons though, too, which I think are equally important. It can add a level of formality to the business. If you’re just starting out and you want people to take you seriously when you have an entity, that’s not a legal reason.
That’s a sales reason. And it also can encourage you to think about your business differently than your individual kind of bank account and individual finances. It kind of encourages a formality and a formal decision-making that can lead to better business decisions, kind of treating it as a separate entity from accounting perspective from strategy sessions.
So, yeah, I, that’s not a legal reason. Liability is the primary legal reason. The third reason I see is when you have, and this doesn’t apply to you, Matt. But if you have partners, you can’t form a sole proprietorship with other people. It’s a partnership. And when you have multiple people involved, you’re liable for what the other person does unless you have an entity.
And so, it’s a way to protect you from your partner’s actions, because the entity is the one taking the actions and your owners of the entity, liability gets cut off at the entity. So that’s the, there are legal reasons and there are non-legal reasons. Oftentimes, the non-legal reasons are just as important to the growth in the business.
Jason Gillikin: This is what’s annoying though. When you’re doing a side hustle and you’re trying to get some business, any business, and you’re working a nine to five job and you’re spending an hour or two hours, however long on this client or this business.
You don’t want to take the time to go ahead and set up an LLC, and figure out how exactly to do that. And so, like you, you might run that that risk. I understand the value in it, for sure. But it just stinks that you have to do that, but walk us through like, you know, worst case scenario here.
So, Matt’s taken some design projects. This is back, you know, before he incorporated his business. He takes on a design project. They’re paying them $5,000 for this and, what’s the worst-case scenario here?
Dan Tracey: Yeah. So, there’s, that’s a great question. Let’s imagine how bad it can get, right, for Matt. No, you might want to cover yours, Matt. So let let’s say that you come up with a design that is, happens to be something that’s copyrighted by somebody else and you don’t know. And a big company that you’re working for a big client has paid you a lot of money over many years. And all of a sudden that company comes to you and says, that design you came up with is actually copyrighted by somebody else.
And they’re suing us for a lot of money because we’ve made a lot of money using your design. If you’ve signed an agreement with your client that says you will indemnify, you will hold them harmless for any intellectual property risks that may arise, you could be on the hook personally for the damage you cause your client.
And when you’re working for bigger companies, the damage is going to be a lot bigger than, you know, it’s going to be relative to the size of the company. So that’s the risk. You can buy insurance, an individual can buy business insurance to protect against them, but when you have an LLC or a, or a corporation that’s cutting off the liability, know you might have to close down the business, which would be bad, but you can walk away with all of your personal assets. You wouldn’t lose your house.
Jess Porta: Yeah, yeah.
Matt Stevens: Something I’m curious about too, like reputational risk, perhaps, like I seen that with branding a lot of times where like someone will make a logo and then like the public reception of that logo isn’t great, and it causes some reputational problems for the organization.
Dan Tracey: Yeah. You know, that’s a great, I mean, that’s not a legal issue, right?You can always close down that company that created the terrible brand or terrible logo and open a new one with a different name. And you’ve kind of, you kind of moved and moved away from that reputational risk. That’s a great point.
Jess Porta: But it would be really hard to stop being Matt Stevens. Yeah, do some name changes. You know, I think this is a really interesting topic because I was thinking about it on the drive over, this conversation might not have applied to everybody, to a large group of people, maybe 10 years ago, but now that we have the gig economy, I mean, I’m going to say like more than 50% of Americans could have at some point had some kind of sole proprietorship they’re accepting money for some reason or the other, even if it’s just like, you know, I have one still for selling art.
I sell books on Amazon, you know, but I don’t need to become an LLC because, I mean, I think the risk is low. But let me give you another worst-case scenario, story, Matt. Yeah. So, I think it was three years ago or so, and so my husband has his own company. It’s an IT related company and he was operating as a sole proprietor for years.
He’s Dutch. He’s from the Netherlands. He came here to marry me about seven years ago, to get married. And he started his business when he got here very much like an American dream kind of thing. he was very excited and it’s really easy to start a business in the US because of this sole proprietor category, you don’t have that actually in a lot of European countries, and certainly not necessarily in the Netherlands, you have to file different paperwork, costs more money. So, it was able to just get started and work. And it wasn’t a big deal because he had one or two clients, he was doing small work fixing things. And as he gained more and more clients, he had more responsibility. He was hosting some domains and servers and things.
And one day I was down in the kitchen and I hear, as I mentioned, my husband is Dutch and I hear a slew of Dutch swear words, just cascading down the stairs. And I knew something was wrong.
Jason Gillikin: Can you say those and we’ll just bleep it out for effect?
Jess Porta: I shouldn’t actually, it would actually literally offend people. side story, all Dutch curse words are actually wishing cancer upon somebody or wishing cancer upon a specific body part of yours, they’re really, really cruel. So that’s the level of cursing that is coming down the stairs.
And so, I’m like what is going on? And Ben comes down and all the blood, my husband’s name is Ben, all the blood is just like out of his face, he’s like ghost white, I’ve rarely seen him in this form. And I’m like, what, what, what? And he cannot believe that he has deleted three servers online.
It’s a really silly, but actually not too hard mistake to make on AWS because of the way that they were stacked. And so, the issue was that they had been doing backups, but only quarterly or something. So, in the meantime they had put on some new information, and so for the last several months, they were missing entire bits of software that were there.
So that includes like customer and client data, financial data basically everything that ran their company. And so, we, you know, I was working for Raleigh Founded at the time Jason Widen, one of our owners, is a good friend of mine. I called him and I was like, what’s going to happen? Like, what do we do?
And Ben and I sat down, talked about how do we face this with like honesty and transparency, but how do we also keep you very safe? And, you know, what aspects of this were your fault and what were their policies and fault. But at the end of the day, he was still operating as a sole proprietor.
So, at the end of the day, we knew that we literally had to file for an LLC that day. I mean, we got in touch with some attorneys and folks that Jason had put us in touch with and insurance. We also got some insurance, which is not necessarily something you have to do, but liability insurance is an important piece of that.
And so that day he filed for an LLC. He, you know, did right by the client, and the end of the day did not get sued, did right by the client, helps recover as much data as they could, provided free services to them for a certain period of time to make up for the error. And they were gracious about it at the end of the day.
I’m not happy but, you know, we navigated a really difficult situation and what could have very well been our house and our assets and everything that we had worked towards and stuff. He got an LLC later, was advised to get an S Corp for different reasons, which we could talk about or not. But that’s just my very personal story of why it’s important to when it comes to that point of you taking a certain level of responsibility, you wanting to separate yourself from your business.
Jason Gillikin: Oh my gosh. I can’t imagine the risk involved. I can’t imagine the marriage tension there, like what did you do? You put us at risk? Oh my gosh. That is a scary story.
Matt Stevens: It makes me glad I have an LLC.
Jason Gillikin: So, Ben set up an LLC. Matt, you’ve set up an LLC. Talk about the process of what exactly you did.
Matt Stevens: so, I did a lot of research, just, you know, searching the internet, like seeing what best practices were. At first, I consider like using some like legal zoom or some other services.
And then when I started diving into it more, I realized how easy it was. Went to like a government website, filled out a form, paid some fees, and I was done.
Jason Gillikin: Okay. I mean, you said you took some time to research, legal zoom, and the others. Why did you ultimately not make that decision to go that route?
Matt Stevens: I think it was a knowledge issue at first. Like I was like, I don’t know what I’m doing. I don’t know that I’m like checking the right boxes. But then once I like found out more information about it and how easy it was, and then I talked to some other entrepreneurs and they were like, you know, super easy. so yeah.
Jason Gillikin: Yeah. Okay. So, I don’t want to be a part of the story by any means, but here I go. Legal zoom is kind of the worst.
I’ve set up LLCs with legal zoom before and dissolved it through legal zoom because it just didn’t work out. And I keep getting calls, keep getting calls, keep getting calls every single year, telling me I need to refile, tell me I need to refile, and they will send letters and they will send, they will try to send collections and all this. And I have to call, I have to take time out of my day and answer it and be like, no, like I, I took care of this, please stop. And it it’s just not working. Good job just doing it on your own.
So, Dan, what do you recommend when somebody is starting out and some of the different things that you have to think about?
Dan Tracey: I think Matt hit the nail on the head. It’s a lot easier than you might imagine, right? Once you kind of go to the, in North Carolina, you form an LLC by registering it with the secretary of state. It’s a one-page form that you know most of the answers to, you know, what’s your mailing address? Who’s the primary point of contact?
There’s different words they use, but that’s the type of information they’re seeking and then you pay a fee. And so, it’s for a sole proprietor or somebody forming a business to operate it through an LLC is, it’s pretty easy, even if it’s, like you mentioned the gig and it’s a side gig, it’s not, your primary business. You can do it. It’s about $125 in North Carolina. You have to pay that amount every year to keep it active. So, there’s ongoing fees, but for some people it’s worth it.
You don’t need to hire a lawyer to do that where we can add value is where there are multiple people involved, there’s investors you’re raising money, you want to sell the LLC. You want to, do more complicated things. That’s when kind of a lawyer can help, but just for forming an LLC, we, we work a lot of our clients come to us with an LLC formed already, and then they want, you know, maybe some governing documents as to how decisions will be made among the owners or the managers.
That’s where a lawyer can often add some value. Filing the paperwork as Matt can attest is not, it’s not that hard.
Jess Porta: Then let me ask why, just cause, you know, I brought up briefly, why would somebody want to be advised maybe to do an S Corp over an LLC? Do you know when that might be appropriate?
Dan Tracey: There can be tax advantages to forming a S Corp and how you pay the owner and what employment taxes will be deducted, that gets into the minutia of tax law. As far as forming a C corporation, that is often required or recommended when institutional investors are investing in a company.
They like to see a C corporation. The difference is that from a tax perspective, the S-Corp is essentially the same as the owners. So, the owners pay tax on an S-Corp as if they were receiving the revenue and paying out the expenses of the business.
Jess Porta: Okay.
Dan Tracey: On a C Corp, the C Corp pays its own taxes and then passes what’s left over, and in the form of a distribution, a dividend, on to the owner. And so, it’s how the two entities are viewed from a tax perspective. I don’t know if you want to have all this.
Jess Porta: No, I’m curious. I do think there’s a lot of people that might be listening in that are early stage starting out and thinking about fundraising. So, it would be good to know that if you’re going to fundraise, what kind of entity do you want to become?
Dan Tracey: I think that’s a question I get all the time. Do I need an entity? The answer is most, many institutional or venture capital investors or angel investors, they have their own feelings on what type of entity they want to invest into. So, while almost every investor is comfortable investing into a C corporation, a lot of them are comfortable investing into LLCs too. And so, I would not try and forecast the type of investor you are going to get. If you’re looking at raising money, I would, if it was me, I would probably form an LLC.
And you can always change to a corporation and that’s in the scheme of if you’re raising money and it’s a significant amount changing your entity form is not going to be a roadblock to investment.
Jess Porta: Good to know.
Jason Gillikin: It is. And so, how difficult is it then to change from LLC? You know, let’s say you start the company and it’s growing and all of a sudden it becomes investible, like, like Matt starting EyeForty, great brand.
Like, I didn’t even read it right at first. And then when I said, oh, Matt Stevens with EyeForty I was like, oh, the road I 40, but it’s EyeForty. It’s like, oh, what a great name. So, yeah. So, let’s say he scaled it up. It starts to grow. And he’s like, man, if I want to scale this, I need some investors here. Would it be best then well, I guess that’s a different conversation. Would it be easy enough to switch from an LLC to a C Corp? And what does that process look like?
Dan Tracey: A lot of states allow you to switch the entity by a simple filing. It’s easier with fewer owners, where it gets complicated is if you have multiple owners and have to get shareholder or member approval.
In North Carolina and a lot of other states, you can do it on a relatively easy, you know, from a legal perspective, it’s relatively easy to change the organization from an LLC to a Corp. It can be more complicated for tax reasons to go from a Corp to an LLC.
Jason Gillikin: What about this, Dan? if I remember right from filing for previous LLC, they were incorporated in Delaware or another state. Am I remembering that right, and do you see this a fair amount?
Jess Porta: I see this a lot.
Jason Gillikin: Okay. Yeah. Why is that?
Dan Tracey: There’s some good reasons why businesses choose to incorporate or form in Delaware. So, Delaware over the last a hundred years or so through a variety of reasons, and financial incentives has tried to encourage businesses to be domiciled and formed in that state. And what it has led to is a really, really robust body of law that has addressed all sorts of business-related disputes. And so, us lawyers, one thing we hate is uncertainty, and in Delaware they have so many businesses that have been formed and that operate as Delaware entities that the Delaware court have addressed the most types of disputes so that you know how something might play out in that state.
So, there’s more predictability as to how a dispute would turn out in Delaware. Now that is not to say that it is my advice to form a business in Delaware. There North Carolina and other states have for the average business, plenty robust bodies of law. So, there’s no there’s not really a great reason in my opinion that every business needs to be thinking about forming in Delaware.
Jess Porta: Yeah. I was just laughing because there’s a lot of young startups that form in Delaware, I think because of tax reasons or financial incentives. How do you do that if you’re not a resident?
Dan Tracey: Yes. So, anybody can form a business in any state. You know, you need to hire somebody to be your feet on the ground in that state and you’ll need to pay them, and it’s cheap. It’s 10 or $15 a month. They’re you’re kind of feet on the ground in the state so that if you get sued in that state, they received a letter.
So that, that creates a little more expense to forming in Delaware. Whereas if you’re a North Carolina resident and you’re living in North Carolina form the business here, you have your own address here.
A lot of them. The rationale for forming in Delaware, I think is misguided. I think that it’s the perception that bigger businesses, there’s a lot of publicly traded companies that have formed in Delaware. Those are the companies that are benefiting from that expansive body of case law.
But the average small business that’s operating in North Carolina or another state is not going to need that kind of sophisticated assistance of the Delaware courts that you get when you’re a Delaware.
Jason Gillikin: It just seems like you would want to support North Carolina, file there, like get basically have them on your team, so to speak instead of going out to a different place, it just seems to complicate things.
And I honestly, now I think about it. I don’t even know where Earfluence is incorporated. It could be North Carolina, it could be Delaware. It could be Arkansas for all I know, but I should probably figure that out. That’s a great way to look at it. I appreciate the insight there, Dan.
So Matt, you know, we, we want to spotlight you more. So, tell us where EyeForty is going. Tell us, you know, about the, the business more. Tell us about your future of growing from an LLC to an investible business. If that’s something that you want.
Matt Stevens: Yeah. Most of the work I do currently is, I have like a small body of clients, but they give me a lot of work landing pages, web design, things like that, lead generation work, working with like marketers and people like that to like help them create landing pages and like automated email campaigns and display ads and things like that.
So that’s a big chunk of what I do. I’ll say working with some businesses to make like Shopify pages and WordPress sites and things like that. Is that where I see this going, I really just trying to scale my business. For the most part, I do most of them work myself, but I have about four or five subcontractors that I work with on various projects.
And over time, like I would like to build that database of subcontractors, like meet more photographers, videographers, web developers, various other people that I could, you know, begin to use their services as I’m scaling up and taking on more projects.
Jason Gillikin: So, what has been your biggest challenge in the early months, years of running your business?
Matt Stevens: I think as a designer, it’s hard to like, take that hat off sometimes and like put on the business hat, you know, like that’s been the hardest challenge for me because like I’ve spent the majority of my career working as a designer on marketing communications teams.
And I didn’t have to think about these types of things, but now. Like just trying to figure out how to be profitable, how to like set up my business properly, how to run QuickBooks, like all these things that like, I have never had to deal with before that are new to me, but like, I kind of see it like working out or something like I’m flexing those muscles and conditioning and like every time, like it will become second nature and I’ll get more comfortable with it.
Jason Gillikin: Awesome.
Jess Porta: That’s really smart because I think a lot of people, especially people that either start with freelancing or whatever their craft or specialty is, maybe sometimes software development and they start their own software development company, go in, they lean in first with their skillset, or actually, you know what a good example of this is like a restaurant.
Right. You’re really good at making donuts. And so, you think I’m really good at making donuts, which means I should open a donut shop. It actually doesn’t mean that, but you know, let’s say you do that. You you’re really good at making donuts. They opened this donut shop, but you have to actually run a business at the, you know, at the end of the day.
What, I always advise people as you, you might even be better off, like, if you’re really good at running a business, opening a business and hiring somebody who’s good at making donuts, cause you will see people who, again, start a company and only think about their craft or their specialty or their service.
And there’s all these surrounding things that’s essentially going to keep their business from being successful or not, which are what you mentioned, the backend, the accounting, some of the legal stuff you’ve been doing, customer management, customer service, lead generation for yourself, you know, that you haven’t had to think about before.
And a lot of people put things like marketing, legal needs as you know Dan, like on the back burner. And so, I think you’re being really smart about taking this, you know, approaching this as on a whole.
Jason Gillikin: And just, what are some of the resources that Raleigh Founded provides to help out with that?
Jess Porta: That’s a good question. So, I mean, part of the reason we created Raleigh Founded in the early days, or at least that our founders did was because they were individuals who started their own companies at different points, and found that it’s really helpful to have a community of people to work with.
Because as you know, entrepreneurship can be a bit of an island you’re on your own, so that the community, the network’s important, but also resources that you’d otherwise have to seek for yourself. So, what we try to do is bringing people like Wyrick Robbins, you know, so attorneys, accountants, marketing professionals, into the same community space, so that it’s easier to collaborate with those people and get advice when you need it more easily.
We’ve put together some resources like our jobs board, our resource guide, you know, a number of things over the last couple of years to really add value in particular to early-stage startups, at least that’s been the goal. Matt, I don’t know. I mean, this is not a loaded question. Have you been able to take advantage of some of those things here?
Matt Stevens: Yeah. So, I’ve reached out to some of the accountants and various other folks that you have on your list.
Jess Porta: Yep. That’s one of the things we do try to do and even having this conversation today is sort of one of those things where we’re trying to learn from other people who’ve been there so that when there’s somebody new coming in next month, and they’re asking me, when should I file for an LLC? I can actually direct them, you know, to this podcast as a resource. So, I think that’s great.
Jason Gillikin: Absolutely. Dan, any final thoughts? Any advice that you can give for founders listening, who are thinking of incorporating or thinking of filing for their LLC?
Dan Tracey: It’s easy to focus on the kind of legal structure at the expense of the business. And at the end of the day, I mean, entrepreneurs, you know, there’s lots of administrative tasks that have to happen, but you need to be providing the community around you. Something of value that somebody will either pay for or wants, and so I think it’s really important not to put legal needs ahead of the business.
They need to be kind of in the context of the business. And so, if that means waiting to form it because you need to really focus on actually getting the business running. I think in my opinion, that’s a worthy trade off.
Jason Gillikin: Yeah, that’s such a great point. Well, where can people connect with you for resources or help with their, with their entities?
Dan Tracey: So, our firm, the website is www.wyrick.com.
Jess Porta: You can also email me if you need a connection with one of our reps.
Jason Gillikin: Awesome. And your email address.
Jess Porta: Oh, sorry. It’s firstname.lastname@example.org.
Jason Gillikin: All right. Perfect. And Matt, where can people find you for amazing graphic design, website design, retargeting ads, all those things that you provide at EyeForty?
Matt Stevens: EyeFortydesign.com
Jason Gillikin: Awesome. Well, this has been Founded Connect, brought to you by Raleigh Founded. For more information on Raleigh Founded, you can go to raleighfounded.com. For Dan Tracy, Matt Stevens, and Jess Porta. I’m Jason Gillikin. And we’ll see you next time on Founded Connect.
Founded Connect is edited and produced by Earfluence, and recorded in-studio at Raleigh Founded.