For over 30 years, Sutton has been providing business leaders and real estate investors with the necessary support for asset and legal protection while maximizing their financial goals. He founded two companies, Corporate Direct and Sutton Law Center, which have helped scores of clients and incorporate their businesses and protect their assets.
Garrett also is part of the elite group “Rich Dad Advisors” tied to bestselling author Robert Kiyosaki. A number of the books Sutton has authored are part of the bestselling Rich Dad, Poor Dad wealth-building series.
Garrett attended Colorado College and the University of California, Berkeley, where he received a B.S. in Business Administration in 1975. He graduated with a J.D. in 1978 from Hastings College of Law, the University of California’s law school in San Francisco.
Licensed in Nevada and California, Sutton is a member of the State Bar of Nevada, the State Bar of California, and the American Bar Association. His professional articles have appeared in the Wall Street Journal and Credit.com, among other publications.
In this EquaStart interview, Sutton discussed the growing world of business formation and what it means for both startups and established businesses.
How did the concept of corporate entities come into existence?
When we fought in the American Revolution, we took not only the English crown on but a giant corporation, the British East India Company. This was during a period in our history when people were generally upset about corporations.
So at the founding, there was some interest around creating a national corporate law. There was a lot of resistance to this as the populace instead wanted each state to have its own corporate law. So that’s how it was carried forward, a decision which allowed states to compete in terms of the favorability of their laws.
So which states currently offer the greatest favorability?
Delaware has always been out in front. But Nevada and Wyoming have made efforts to become the go-to states. Wyoming when it comes to LLC’s is great. And Nevada is the only state that allows the charging order protection, the key LLC asset protection feature for corporate shares. So we’re in a dynamic period, one where each state that wants to compete can amend their laws in an effort to become the most favorable they can.
What’s one of the common mistakes businesses make when setting up a corporation?
With all due respect, the first one is that you often have CPA’s, telling people that they don’t need to set up a corporation or LLC when starting a new business. Our joke as corporation attorneys is that CPA stands for “Can’t Protect Assets.” So in my opinion, it’s imperative for new businesses to talk with an attorney, someone who understands what the risks are of operating as a sole proprietor, such as the fact that all of your personal assets are exposed. So that’s a rookie mistake right out of the gate, not setting up an entity from the get-go.
Are there any other mistakes?
Yes, a second blunder common among business owners when setting up an entity is utilizing one of those $99.00 providers that will form the company for you and get it chartered with the state without providing you with the paperwork you need to be a legitimate corporation. In other words, things like by-laws for the corporation or an operating agreement for an LLC are often missing. The issue here is that if you don’t have that paperwork together, someone can pierce through the corporate veil of your business and reach your personal assets. So it’s important to not only to do it right at the start but to have all the documents you need set up and ready to go when requested.
How are these documents typically organized?
Some of these formation services send you a disk with the agreement on it and you’re supposed to fill it out and sign it. But many business owners forget to execute the signatures. So you just have this disk when you walk into court, try to print out what’s on it, and if it hasn’t been properly signed, you are going to lose the case. So it’s important from the very start to make sure that you print out the document and sign it.
What about corporate minutes?
Businesses need to have minutes every year, the corporate annual documentation of the directors and the shareholders' meetings. For LLC’s, its important to have regular meetings of the members that are documented through meeting minutes. If you’re ever called into a court of law, you’ll need to have those annual minutes prepared. Because if a judge looks at your minute book and sees that you haven’t met the requirements for a couple of years, he/she could say that you’re not following the requirements of a business.
Are these minutes an annual requirement?
Yes. You need to be conducting your annual meetings even if the state law says otherwise. In Germany where the LLC was started way back when, if you didn’t have the annual meeting minutes, your corporate veil could be pierced.
What about corporate entities and how they’re set up business taxation?
There are two issues. The first is how your business is going to be taxed. We work with CPA’s all the time to have an LLC taxed as an S Corp, if necessary, or as a C Corp, or partnership or as a disregarded single entity. So we work with CPAs on how your entity is going to be taxed and what’s the best taxation method for you.
And certainly, the CPA has a great role in selecting the method of taxation.
What about stock certificates? And the emergence of blockchain to manage them?
When it comes to stock certificates and all, they’re going to be important if you are a public company, or if you are going to have a large number of shareholders.
It’s here where blockchain technology is certainly going to assist in the issuance of stock certificates. Delaware, in fact, has recently allowed for blockchain stock certificates. So it’s a dynamic area right now.
Can you share with us a little about you’re long-term working relationship with Rich Dad/Poor Dad author Robert Kiyosaki?
I’ve been very fortunate to collaborate with Robert Kiyosaki and the Rich Dad/Poor Dad group for almost 20 years. They initially asked me to write a book that would be accessible to the average person who wants to understand corporate and LLC structures. So that’s why I wrote the first book “Start Your Own Corporation” which I’ve updated a number of times over the years because of tax laws changes and changes in asset protection laws.
And then there’s the book “Loopholes of Real Estate” where I talk about the legal strategies for investing in real estate. I use stories to make points about the concepts. Instead of a dry narrative around how you’re supposed to do things, I tell a story as my readers seem to learn better from the examples.
So it’s been very enjoyable for me to write these books, and to get feedback from others. I’m on the phone with people all the time from around the country and the world and a lot of them say that they have appreciated the book because it provides such a comprehensive overview of asset protection.
What do you believe is ahead in terms of corporate entities?
That business formation will continue forward at a steady pace. Because a lot of people are investing in real estate you are certainly going to see a growing demand for LLCs. People are also using LLC for other forms of investing. A lot of people, for example, are looking to Wyoming as a place to form a Wyoming LLC and hold their digital assets there because such a favorable set of laws exists there for bitcoin and other forms of digital currencies.
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