$ The Billionaire's Business Blueprint $

April 1, 2007 THE BILLIONAIRES BUSINESS BLUEPRINT

2Copyright 2008 Reginald Ringgold


www.corporatecreditassociation.com 2 3 3 3 S a n Ra mo n Va l l e y Rd . S a n Ra mo n , Ca 9 4 5 8 3 Phone:(888)817-8882 Fax:(925)215-4593



C o p y r i g h t 2 0 08 R e g i n a l d Ri n gg o l d A L L RI G H T S RE S E R VE D

No part of this book may be used or reproduced in any form or by any means or stored in any database or retrieval system without express permission in writing by The Corporate Credit Association of America. Some of the articles contained in this report are considered Bonus articles, provided as a benefit to the reader. All Bonus articles are copyright their respective authors. Disclaimer Corporate Credit Association is providing this manual on an "as is" basis and makes no representations or warranties of any kind with respect to its contents. The articles contained herein are sold for informational purposes only and all local laws apply. Any use or misuse of this information is solely the responsibility of the purchaser. CCA disclaims all such representations and warranties, including for example warranties of merchantability and fitness for a particular purpose. In addition, CCA does not represent or warrant that the information in this manual is accurate, complete or current. This information was gathered from sources believed to be reliable, but cannot be guaranteed insofar as they apply to any particular individual. This manual is sold with the understanding that CCA is not engaged in rendering legal or accounting services. Questions relevant to the specific tax, legal, and accounting needs of the reader should be addressed to practicing members of those professions. Neither CCA nor any of its directors, employees, other representatives or advertisers will be liable for damages arising out of or in connection with the use of this manual. This is a comprehensive limitation of liability that applies to all damages of any kind, including (without limitation) compensatory, direct, indirect or consequential damages, loss of data, income or profit, loss of or damage to property and claims of third parties. Let me explain my writing style I have been using the Dragon Naturally Speaking 9 off and on. It is a device that allows you to speak into a microphone and it types what you say. If you notice words that seem like they do not belong in the sentence, it is because the device sometimes has a hard time deciphering the4Copyright 2008 Reginald Ringgold


difference between like sounding words. When I am typing I get so excited with the thought of teaching Corporations how to build Corporate Credit, that at times when I write I think faster than I write. I also write like I talk and the result is that my writing style does not mirror Shakespeare. However I get the message across clearly. If you read anything that is grammatically incorrect, I apologize, but keep in mind that its the message that is important, not the style. Warning corporate credit is for business activities only!!! The personal use of corporate credit is illegal. Acknowledgements Special thanks to My Heavenly Father, my mother Alesia Webb, to Emily Williams for being my backbone and giving me my two boys, my Boys Reginald Ringgold IV & Ryan Ringgold , my business partner Jerrod Lakey, Victor Pamiroyan if we did not go through what we went through I would not know half of what I know. My Dr. Glen Weirsma, my Attorney Alastair McCloskey and my business coach Jim Fagan I appreciate everything that you have done for me. And to the rest of my friends and family without you none of this would be possible. Thanks to the whole CCA staff. Thanks to allbusiness.com for your help, insight and wealth of knowledge. Thanks to D&B, Experian, Equifax, Gail Donovan, Susan Hammel Joyce, and Stephanie Stephens of the Federal Reserve Bank of New York, Top Secret Publishing credit magic and financial secrets, Kelli Nielson and the Enlightened Wealth Institute, Richard Parker, How to Buy a Good Business at a Great Price, Donna Fox from credit repair to credit millionaire, Nevada Corporate Headquarters, Wikipedia, the free encyclopedia John V. Childers Jr. The Secret Millionaires Guide to Nevada Corporations and anyone I forgot to name thank you for your help and insight.



Table of ContentsDisclaimer.4 Acknowledgements..5 Table of Contents.6 Introduction...10What you don't know can hurt you11 Jack of all trades12

Chapter 1 Corporate Credit.16What is Corporate Credit...16 Why Corporate Credit17 Corporate Credit vs. Personal Credit.........19 How much Corporate Credit can I obtain..............................................................20 What kinds of Corporate Credit are available................21 The 5 Cs of Corporate Credit...............23

Chapter 2 Borrowing Is In ...25To borrow or not to borrow...................................................................................25 Once upon a time...25 Lets get down to business..............26 John & Robert...26

Chapter 3 Leverage...29Definition of leverage................29 Leveraging.29 How to buy a business with no cash or credit (LBO)31

Chapter 4 The Different Business entities...............37Sole Proprietorships...38 General Partnerships..39 Limited Partnerships..41 Limited Liability Companies.42 Corporations...47 C-Corporations...49 S-Corporations...50 Close Corporations.50 Professional Corporation...............51 International Business Corporation (IBC).51 Non-Profit Corporations51 Shelf Corporations.53

Chapter 5 Incorporating...69Why Incorporate....................................................................................................69 When should one incorporate70 Where to incorporate..............................................................................................71 Foreign Corporation...72 Why Nevada...........................................................................................................73 6Copyright 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRES BUSINESS BLUEPRINT Why Wyoming...............74 Why Delaware...............77 Selecting the right name for your corporation...78

Chapter 6 The Business Credit Reporting Agencies.............82Dun & Bradstreet (D&B)................82 D&B Checklist...82 Applying for a Duns number.84 Whats a business credit profile.85 D&Bs Different Business Credit Reports.85 You should make sure you have a business credit profile if..................................86 What is in my Duns profile....................................................................................87 Duns Profile Example (Business Information Report)..89 How can I improve my business credit profile....................................................100 Duns Right...102 Paydex score........103 Duns Rating.104 Financial Stress Summary106 Financial Stress Score Table107 Commercial Credit Score.107 Commercial Credit Score Table...108 Incidence of Delinquent Payments..109 High-Risk or Red Flagged Status109 Experian.110 Equifax111 Client Checker111 BusinessInsight/FDInsight112 Business Credit U.S.A113

Chapter 7 The 7 Steps to Business Success...115Step 1...116 Step 2...118 Step 3...120 Step 4...121 Step 5...124 Step 6...127 Step 7...128

Chapter 8 The Top 10 mistakes Business Owners Make.....136Mistake 10136 Mistake 9..137 Mistake 8..137 Mistake 7..137 Mistake 6..137 Mistake 5..138 Mistake 4..138 Mistake 3..138 Mistake 2..139 7Copyright 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRES BUSINESS BLUEPRINT Mistake 1..139

Chapter 9 Personal Credit..140Personal Credit.....140 Credit Worthy Officers (CFOs)..143 Bank Loan Procedure...............144 Personal Financial Statements.145 What If I Do Not Have Financials...145 To Personally Guarantee or not to Personally Guarantee....................................145 No Personal Guarantee146

Chapter 10 Business Loans & Commercial Finance....149The Four Stages of Developing a business..149 Choosing a Bank Thats Right For You......150 Reasons to borrow....150 Business Loan Checklist..151 Business Loan Criteria.....151 Preparing Your Business Plan and Loan Request....152 Packaging Your Loan Proposal...161 How your Business loan request will be reviewed......163 Advantages of Business Loans164 Financial Analysis....164

Chapter 11 Financing..171Is Your Business Credit Worthy..172 Loans Types and Terms...173 How Much Money...............................................................................................178 What Kind of Collateral...........178 What Are the Lenders Rules................................................................................181 The Loan Application..184 Evaluating the Application......184 If Your Application Is Not Approved..184 Conventional and Unconventional Financing..185 Sure-Fire methods of Methods of Raising Instant Cash..193 How to Raise Capital for a Business....195

Chapter 12 Think, Look, & Act Like a Billionaire...201I Think I Can I Know I Can.....201 Dealing with Bankers...202 Image Is Everything.....205 Billionaires Dont.....206 Assessing A Bankers Needs Instead Wants.208 The Bankers Response.........208 The Luncheon with the Banker....209 Add $10,000,000 to Your Balance Sheet for Less Than $50..........210

Chapter 13 Establishing Corporate Credit...211Passively Establishing Corporate Credit..211 Actively Establishing Corporate Credit...211 The Four Factors of Establishing Corporate Credit.212 8Copyright 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRES BUSINESS BLUEPRINT Trade References (Trade Information)....213 Applying For Corporate Credit....215 Establishing Corporate Credit with Divisions.217 Obtaining higher limits on Corporate Credit cards..221 How to raise $200,000 in 24 hours..227 Establish AAA Corporate Credit in 30 Days...227 How to Borrow Money Interest Free...228

Chapter 14 Protecting Your Assets from Uncle Sam & Sue Happy Suzy....231Better Safe than Sorry.........233 Estate Planning.........234 Family Limited Partnership.236 Tax Savings..240 Multiple Corporation Strategy.241 Becoming Debt Free With Your Corporation..244 Investing in Real Estate with Your Corporation.245 How to Stop Paying Property Tax...249 Land Trusts..249 Living Trusts251 The Inside Secrets of Trusts and Personal Tax Shelters..251 You Cant Squeeze Blood Out of A Dry Turnip.....253 Asset Protection does not Protect the Asset254 How to Disappear into Corporate America.254 How to Get Free Travel.......254

Chapter 15 Survival Tips for Small Businesses...257Organization.....260 Corporate Credit Scams & Myths....261 Food For Thought264

Q&AS..266 Glossary........278 Appendix...301 Examples of Financial Statements...301D&B Rating Table...311 Trade/Vendor List319 Retail Creditors323 Corporate Credit Cards328 Funding Sources...331

Notes..332



Introduction Over the past few decades I have started, acquired and sold quite a few businesses with my Leverage Buyout Firm. In fact I started my first business when I was 6. I would go around in my Ghostbusters outfit busting peoples ghosts for a fee. After I ran out of ghosts to bust (really after I went to every apartment in my apartment complex) I had to think of another way to make money to buy candy and fruit snacks. So I held garage sales in my apartment complex. At first this was a good idea but then I ran into a problem. I ran out of stuff to sell. So I figured since I liked candy so much and I knew my friends and all the other kids at school liked candy too. So I decided to use the money I had made from the garage sales and busting ghosts to buy candy at wholesale. I did not know it was called wholesale at the time, I just knew that my mother would buy me and my sister big boxes of candy and give us candy here and there as rewards for good behavior. I knew that at the price the box of candy costs I could sell the pieces individually and still have enough profit to buy more candy and still have some candy left for myself to eat. I am going to tell you a story about how I got into corporate credit; now I have had one of my corporations since I was old enough to sit on the board of a corporation. When my business partner and I decided to invest in real estate and other businesses, we decided to leverage some of the business credit it MUST have established. We made an appointment at the bank where we had our business checking and saving accounts, to see how much credit our corporation had built up, with its10Copyright 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRES BU BUSINESS BLUEPRINT

multiple

business

accounts,

credit

cards

and

vendors.

We had a rude awaking!! We were informed that our corporation had ZERO credit we did not even have a Duns number. (For more on the Duns number refer to the Business Credit r. Reporting Agencies Chapter). The business credit that we did have was based on our personal credit and was all tied to us personally, not to mention none of the personally, trade references that we had were reporting to D&B. We did some more research and found out that our corporation didn't even have a corporate credit file with D&B or Experian. (For more info on D&B and Experian refer to the Business Credit Reporting the Agencies chapter.) How could this happen! We were seasoned business veterans with paid professional advisors! (Or so we thought!) After our shocking discovery, we decided to do our due diligence and we discovered the real story. As it turns out, our banker wasn't much help. He was as l uninformed as we were. So he referred us the banker who handled the business accounts, the banker we spoke with was full of outdated, BAD information. Neither of them knew the first steps to establishing real corporate credit! So we took it in our own hands. What You Don't Know Can Hurt Y You If in your personal life you paid for everything with cash. And then at 45, you finally decide that you want to finance something. Would you be able to The to? answer is no, you would be declined. Why? Well what would your personal credit score be? You wouldn't have one, and that's why you would be declined. This is the same for business credit; only 5% of businesses are successful in obtaining a Corporate Credit profile that is separate from their personal credit profile. The rate fact is 97% of all business credit applications are denied, 94% of all businesses fail within the first two years, four out of five fail within the first five years, and 87% wait until they run out of money before they do something about it. t



Jack of All Trades Now I was at a business mixture when a guy walked up to me, for privacy reasons will say his name is Jack. Jack: That was really interesting stuff you were talking about, I'm sure glad I already have corporate credit, maybe I can refer some clients to you. Do you have a business card? Me: I handed him one you say you have corporate credit? Now tell me how exactly did you go about setting it up? Jack: Well, I applied for a few credit cards under my business and I was approved. Me: So you have credit cards in your businesses name. Jack: Yes. Me: Are they tied to you personally? Jack: No. Me: Did they ask you for your Social Security Number? Jack: Yes but that's normal isn't it? Me: Yes if you're intent was to personally guarantee that item. Did you give them your DUNS Number? Jack: What is a DUNS Number? Me: D&B provides businesses with a separate unique nine-digit identification number called the Duns number it is used to track and rate your business credit profile. Your Duns number is asked for when applying for lines of credit, and with some credit card and leasing companies. (For more on D&B and the Duns number refer to the Business Credit Reporting Agencies Chapter). Jack: I thought they issued all that stuff when you apply for a credit?12Copyright 2008 Reginald Ringgold


Me: No you have to apply for a Duns number and register your trade references with D&B so I take it you did not register your trade references with D&B? Jack: I thought that the creditor did that. Me: See what you have to understand, is unlike personal credit with business credit there are certain steps one must follow to obtain corporate credit, or in other words a high Paydex score of 80 or above. (For more on Paydex score refer to business credit reporting agencies chapter). So how many business credit cards do you have? Jack: Seven. Me: Have you still been applying for credit? Jack: Yes. Me: Have you been declined on any of the credit you have applied for lately? Jack: Yes it seemed odd, after the seventh card I've been declined on every card I applied for. Me: How has your credit been affected from all those inquires? Jack: My Fico score dropped. Me: What were the reasons they gave you for being denied? Jack: They said my balances were too high compared to the credit available on my cards, my debt ratio was too high, and I had too many recent inquiries. Me: Your Personal credit was affected when you personally guaranteed the credit on your companys behalf. The high limits and inquires affected your personal Fico score and your ability to obtain more credit. You were put at risk when you used your personal credit to finance your business. And now because of that your business is at a standstill correct? Jack: Unfortunately you are correct.



Me: If an emergency occurs and you need to use your personal credit for whatever reason, you will not be able to because you are currently overextended. And even though you can prove your business is responsible for the debt your Fico score is still affected. Though it is true you can expedite the process of building business credit through personally guaranteeing loans. Keep in mind when you personally guarantee a business loan, your tying your personal credit to your business debts. Businesses have needs in order to maintain day-to-day business operations. They need materials, parts, equipment etc. on a continuous basis. And as it expands there's more and more need for capital. Unfortunately with personal credit, the more you apply for financing for the business, the more Inquiries you create. And every time an inquiry is pulled your score goes lower. And every time you acquire debt your debt ratio increases making you undesirable to banks and lending institutions. This is why it is important to establish a corporate credit profile that is separate from your Personal credit.





Chapter 1 Corporate Credit"It is much easier to borrow 1 million in corporate credit than to earn it at your job or spend years trying save it."Reginald Ringgold

What is Corporate Credit? Did you know that business credit is the largest lending market in the world? Corporate Credit is credit that is granted to one business by another business. Corporate Credit functions the same as personal credit, except the debt accumulates in the corporations name. Your corporate credit profile is what companies primarily use to evaluate whether to do business with you, and on what terms. Companies rely on your business credit worthiness to make critical decisions, including whether: -to lend you money -you are viable as a partner -to lease the equipment you need to grow your business -to increase your line of credit -to help you carry more inventory at competitive prices -to give you favorable financing rates and terms -you stack up favorably against other companies competing in your market Corporate credit is not a credit card with your business name on it, but rather a corporation that has credit that is separate from the personal credit of its owners. The following business entities will never be able to establish Corporate Credit without personal guarantees: Sole Proprietorships, General Partnerships, and Limited Partnerships. Why one might ask? These entities are simply extensions of their owners as opposed to separate entities. As such the Social Security number of the partner or proprietor will always be used for business financing even if the SP, GP, or LP, has a separate taxpayer ID. I strongly suggest a Corporation, this gives your company the image of a larger corporation with more employees, and16Copyright 2008 Reginald Ringgold


the highest business credit ratings are reserved for larger corporations with a lot of employees (more on this in the business credit reporting agencies chapter). The longer your business has been in business the more creditability your business has. You can do nothing and as the days go on your corporate credit is getting better and better. Although you can do nothing and your business credit builds. There are steps one must follow to obtain the highest Paydex score and Duns Rating with Dun & Bradstreet (more on these steps in the seven steps chapter). Without advanced techniques it takes six months to two years of corporate credit building and good payments to develop a solid business credit foundation. Why Corporate Credit? Having corporate credit established for a business is the key to its success. Throughout the history of a business the need for credit will most likely arise. Establishing the businesss credit should be started before the company needs it. No lending institution wants to lend money to a business in need of cash flow. The business can start out using the owners or officers credit to gain approvals under the business name, but as the business grows it should start to establish its own credit history and credit profile that is separate from the personal credit of its owners, in order to take on corporate credit of its own. To prevent people from becoming overextended, consumer credit keeps track of how many credit or loan applications a consumer makes using inquiries, most of which count against your consumer credit score. On the other hand, business credit does not count numerous applications for financing against you, since businesses usually seek financing on a regular basis as a way to run and grow the business. You are only allowed one personal credit profile. But, you can create and grow as many corporations with corporate credit files as you need. That means you can have multiple corporations with 6-7 figure corporate credit limits. Good business credit is the lifeline of your business. Business credit allows you to have convenience in purchasing. Just by building a business credit profile you will be able to limit the use of your personal guarantee. Good business credit enables you to obtain funding for things like expansion, capital expenditures, research and development, staffing etc. It is the principal contributing factor to your businesses future growth, not to mention the cash necessary for survival. Having established Corporate Credit allows you to respond quickly to time-sensitive requirements, without halting or compromising operations.



Building Corporate Credit allows you to: Limit your personal liability Eliminate the need for using personal credit Prepare your business for future lending needs Protect your personal assets from any business losses Purchase Real Estate, vehicles, equipment etc. without using personal guarantees

Corporate Credit Saves You Money One of the biggest advantages of having a good business credit profile is saving money. By obtaining a more favorable Paydex score, you will be able to lower the interest you pay on loans and leases. For example: Average or No Paydex Good Score Score Loan Amount Length Loan Interest Rate Payment Total Paid Total savings with good credit $9,924.00 $50,000 of 10 years 11% $689.34 $82,720.80 $50,000 10 years 8% $606.64 $72,796.80 Paydex



Corporate Credit V.S. Personal Credit Corporate Credit Personal Credit

Corporate credit does not show up on personal credit reports. Inquiries do not affect your paydex score. If set up properly Corporate Credit is not tied to your personal credit or you personally. So you are not held liable for your business's debts and actions. $50,000 of corporate credit does not require tax returns or financial statements. With Corporate Credit there is no such thing as too much credit. Corporate Credit cards do not appear on you business credit profile. If you max out a business line of credit it does not affect your paydex score, or your ability to obtain more financing.

All personal loans show up on personal credit reports.

Inquiries hurt your Fico score. Personal credit is tied to you personally that's why it's called (personal) credit. This means if you default on a loan your personal credit is affected.

Requesting a $5,000 personal loan requires recent pay stubs and bank statements etc. With Personal Credit too much credit will lower your Fico score and increase your debt ratio. Personal credit cards do appear on your personal credit report. With personal credit if you go over 50% of the high credit available it will lower your Fico score, and hinder your ability to obtain more financing.19

Copyright 2008 Reginald Ringgold


With business credit there are several financing options that are not available to individuals. With Corporate Credit the individuals who are responsible for dispersing funds are not responsible for any losses that the business may incur. Corporate credit is tax deductible With Corporate Credit if you ruin your corporate credit you can start over again.

With personal credit financing is limited to personal loans and credit cards. With personal credit the individual is responsible for losses.

With the exception of your home personal credit is not tax deductible. With personal credit if you ruin your personal credit you have to wait years or go through credit repair before your granted credit again at favorable terms.

And the winner is Corporate Credit!

How Much Corporate Credit Can I Obtain? Most businesses are under the impression that it is better to get as much corporate credit as possible when they are first starting up, but it is extremely important to remember that you must be able to demonstrate your businesses ability to successfully manage the debt in order to maintain a strong business credit rating. Your combined corporate credit profile, including your company assets, financial needs, and the overall state of your business finances should all contribute to the amount of credit that you request and will be considered when a potential creditor decides what they will feel comfortable extending to your business. It is important to anticipate not only your financial needs, but what you can and cannot manage in terms of financial responsibility.20Copyright 2008 Reginald Ringgold


One way to help determine a manageable credit limit is to predict an amount that is small enough so that you can pay it off in full for at least one month during the year. This demonstrates solid business practice and shows that your finances are under control. If you cannot pay off your business credit cards in full for at least one month during the year, it may be seen as a reflection by the potential lender that your business has initially borrowed too much money in the past year, or that your businesses revenues are not what you expected, or that some other form of financial trouble is affecting your business. But ultimately you can create and grow as many corporations with corporate credit files as you need. That means you can have multiple corporations with 6-7 figure corporate credit limits. So it is unlimited the skies is the limit on how much corporate credit your corporation can obtain but make sure that your corporation has the capacity to service the debt. I recommend if you are going to obtain Corporate Credit for a just in case scenario, which is quite alright because its better to be safe than sorry, but if it is for just in case then it is best to obtain a revolving line of credit instead of a loan. This way you avoid paying a payment until you utilize the line of credit. What Kinds of Corporate Credit Are Available? When applying for Corporate Credit it is important to know what kinds of Corporate Credit you are applying for. For example if your business needs $10,000 for a new company car, a $10,000 credit card from Home Depot would not help much. So when applying for Corporate Credit, make sure you know what kind of Corporate Credit you are applying for. There are a few types of Corporate Credit available: Cash Credit, Trade/Vendor Credit, and Leases. Cash Credit- is the credit you get from credit cards- such as Visa, Master Card, and American Express as well as lines of credit or any loans from lending institutions, private investors, venture capitalist etc. Most cash credit is reported to Experian. (More on Experian in the business credit reporting agencies chapter.) Trade/Vendor Credit- is credit from stores such as Office Max, Office Depot, Home Depot, Lowes etc. A good way to establish trade references is to ask the suppliers who do business with your company to finance the products, materials etc. that they sell to you. Make it clear to your supplier that your businesses goal is to find a supplier that not only provides a reliable product, but also is willing to defer the receipt of payment until your business sells the products. Most Trade21Copyright 2008 Reginald Ringgold


credit is reported to D&B. (More on D&B in the business credit reporting agencies chapter.) Leases- there are two types of leases Capital leases and operating leases. In a lease you are paying for the deprecation during the term of use on the equipment. Leases are commonly easier to obtain then loans or other types of credit. Capital leases: A lease that meets one or more of the following criteria, meaning it is classified as a purchase by the lessee: the lease term is greater than 75% of the property's estimated economic life; the lease contains an option to purchase the property for less than fair market value; ownership of the property is transferred to the lessee at the end of the lease term; or the present value of the lease payments exceeds 90% of the fair market value of the property. Operating leases: An operating lease is a lease whose term is short compared to the useful life of the asset or piece of equipment (an airliner, a ship etc.) being leased. An operating lease is commonly used to acquire equipment on a relatively short-term basis. Thus, for example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease. Your Corporate Credit profile includes a variety of factors about your business, such as the date it was started, the skills and experience of your listed officers, and number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your businesses (character) past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time and in the past is factored into your ability and likelihood of paying your bills in the future. The fact is 97% of all business loan applications are declined, because most business owners apply for loans not knowing the banks underwriting guidelines. But how do you become one of the other 3%, educate yourself know the banks lending criteria. Did you know most lenders will decline your application if they cannot find your business name and phone in the 411 directory assistance? Most lenders will decline you if your company does not have a Duns number. Most lenders require your debt coverage ratio to be 5 to 1 or your personal fico score to be 680 and above. Corporate credit is evaluated using the 5 Cs of Corporate Credit.



5 C's of Corporate Credit 1. Capital: a business must have a stable capital base before a bank will grant a loan. Otherwise the bank would be making, in effect a capital investment in the business. Most banks refuse to make loans that are capital investments because the potential for return is limited strictly to the interest on the loan, and the potential loss would exceed the reward. In fact, the most common reasons that banks give for rejecting a business loan application are undercapitalization and too much debt. The bank expects the business to have the equity base of investment by the owner(s) that will help support the venture during times of financial strain. 2. Capacity: a synonym for capacity is cash flow. The bank must be convinced of the firm's ability to meet its regular financial obligations and to repay the bank loan, and that takes cash. More businesses fail from a lack of cash than from a lack of profit. It is possible for a company to show a profit and still have no cash, and that is to be technically bankrupt. Bankers expect the business loan applicant to pass the test of liquidity, especially, for shortterm loans. The bank studies closely the company's cash flow position to decide whether it meets the capacity required. 3. Collateral: collateral includes any assets the owner pledges to the bank as security for the repayment of the loan if the company defaults on the loan, the bank has the right to sell the collateral and use the proceeds to satisfy the loan. Typically, banks make very few unsecured loans (those not backed by collateral) to business start-ups. Bankers view the owners willingness to pledge collateral (personal or business assets) as an indication of dedication to making a venture a success. A sound business plan improves a bankers attitude towards a venture. 4. Character: Before approving a loan to a business, the banker must be satisfied with the business owner's character. Evaluation of character frequently is based on intangible factors such as honesty, competence, determination, intelligence, and ability. Although the qualities judged are abstract, the evaluation plays a critical role in the banker's decision. Loan officers know that most businesses fail because of in competent management, so they try to avoid extending loans to high-risk managers.



The business plan and a polished presentation can go far in convincing the bankers of the owners capability. 5. Conditions: The conditions surrounding a loan request also affect the owners chance of receiving funds. Banks consider factors relative to the business operation such as potential growth in the market, competition, location, form of ownership, and the loan purpose. Again the owner should provide this relevant information in an organized format in the business plan. Another important condition influencing the banker's decision is the shape of the overall economy, including interest rate levels, inflation rate, and demand for money.



Chapter 2 Borrowing is in"I not only use all the brains that I have, but all that I can borrow."-Woodrow Wilson

To Borrow, or Not to Borrow? You can build great wealth quickly, if you use the leveraging power of corporate credit. Any person can make millions in a short period of time; first he/she has to know: 1.) Who is ready to lend money 2.) Understand borrowing techniques 3.) Borrowers for investment purposes only ("investment purposes only") 4.) And knows how to put corporate credit to use, while building his/her fortune. If you notice in number 3 I said borrow for investment purposes only. Most people will take out a business loan and then will spend the money on some new clothes, a car, or a vacation. This is not recommended because these things depreciate in value. And they do not bring any return on investment, not to mention the extra costs you will incur on gas, electricity etc. when you borrow for business purposes there is a great chance of earning profit. Unlike that new car or boat that doesn't bring you any profit. So why not borrow did you know the banks borrow your money to make more money. Where do you think you go when you need a loan? To the very bank where your money is deposited!

Once Upon a Time We should love debt because it offsets taxes and builds credit. A lot of people may be shocked to hear this statement but its true. See back in the day the American dream was to pay off your mortgage free and clear to avoid debt, and save up for a new car to avoid interest. But times have changed people are no longer willing to wait for the things they desire. Instead they would rather borrow the money to enjoy their new car now and make monthly payments to pay off the debt. This also gives them more motivation to work harder to make more money25Copyright 2008 Reginald Ringgold


to pay the loan off. An added bonus is the interest cost is tax deductible. You can work on the job for 50 years and make only enough money to barely get by, but if you start applying the Smart Money strategies and techniques shown in this book you can build great wealth using corporate credit in a very short period of time. Although the average person gripes about the difficulty of borrowing money, most people never tried for anything more than a car or house. At this end of the market, the competition for dollars is keen. Those who think big, however bring big ideas to the major money sources, they find that there are fewer out stretched hands at the zenith and more of a chance of convincing lenders to open their Purses. Remember money lenders are in the business to lend money that is the only way they profit.

Lets Get Down to Business When an individual borrows money from a bank or any other source for personal use, you get what is called a personal loan. The interest for a personal loan is much higher than the interest on a business or any other loan. Why because there is a greater risk involved to the lender when it makes a personal loan. With personal loans often times a person spends the money on a liability that will cost them even more money on expenses. With business loans there are larger profits for the banks, because often times businesses take out larger loans, and larger loans equal a higher return on interest, which equals more profit for the banks. Let's face it banks are in business for profit like any other business. There's also a greater chance in getting their money back because business loans are taken out for business purposes, which bring profit instead of more liabilities. Lenders prefer lending to businesses over individuals, for the simple reason that individuals can only have one income stream, while businesses can have many. So put yourself in the banks shoes if you're a bank or a lending institution, who would you feel more comfortable lending your money to an individual or a business?

John & Robert John is a business owner who is looking for capital to get his pottery business off the ground he consults with a business consultant who advises him that it would be wise of him to either seek a joint venture partner or to apply for a business loan. Since he does not have the corporate credit to qualify for a business loan he has no26Copyright 2008 Reginald Ringgold


choice but to find a joint partner. A buddy of his named Robert approaches him and says I heard you were in need of some capital to get your business up and running. Robert says how about we enter into a joint venture agreement I put up the financial backing, you make the product, and we split the profits 50-50. So John tells Robert that he will have to talk with his wife and he will get back to him later. When John gets home later that evening he says to his wife Robin, Robert approached me today willing to back the business financially, Robin replies Honey that is wonderful, John responds no it's not I would have to split the Profits with him and I have to do all the work. Well can't you hire somebody to help you and don't you want to get your art out there to the public Robin asked. John says yes but I deserve all the profit it's my idea and my art that I created. Later that evening Robert arrives back home to his wife Daisy, he also lets her know that he offered to provide John with the capital he needed for his business so Daisy asks well honey, what did he say. He did not sound too excited in fact he told me he would get back to me I would hope we could make the right decision because 50% of something is better than 100% of nothing. (To be continued)





Chapter 3 LeverageWe go to school to learn to work hard for money. I write books and create products that teach people how to have money work hard for them. Robert T Kiyosaki

The leverage ratios measure a company's use of borrowed funds in relation to the amount of funds provided by the shareholders or owners. These ratios tell the lender how much money you have borrowed versus what money you and other owners have put into your company. This is important because borrowed money carries interest costs and your business must generate sufficient cash flow to cover the interest and principal amounts due to the lender. Generally speaking, companies with higher debt levels will have higher interest costs to cover each month, so low to moderate leverage is nearly always viewed more favorably by prospective lenders. Definition of leverage Leverage Strategic advantage; power to act effectively; mechanical advantage gained by the lever Leveraging Investing with borrowed money as a way to amplify potential gains. Finance: to borrow money hoping to make more: to borrow money in order to buy a company, relying on it to make enough profit to cover the interest payable on the loan. Leveraging Leveraging your assets An example of leveraging your assets would be to put a mortgage on your home to finance your business. Leveraging capital29Copyright 2008 Reginald Ringgold


You can leverage your capital to build corporate credit. Did you know instead of putting money directly into your business, you can put money in a C.D. account at your local bank and take out a business loan against it. This will show as a line of credit with the Bank on your Duns Profile (More on Duns Profile in the business credit reporting agencies chapter) and this will build your corporate credit. More importantly you would have comparable credit. So let's say you deposit $50,000 in your bank and borrowed $50,000 against it. The bank will report your payments on the $50,000 and you will not have to worry about them reporting it as a secured account, you can even set it up with automatic payment so that the payments will be made automatically! Then, when you go to the next lender all they see is that you have a $50,000 line of credit with that bank. The bank line shows a great business credit history to Dun & Bradstreet now other credit providers and suppliers, will give you comparable credit of a $50,000 line of credit to buy or lease their products. Leveraging Corporate Credit To leverage Corporate Credit you must have Corporate Credit to leverage, an example of leveraging Corporate Credit would be to do a leveraged buyout (LBO). A LBO is a takeover of a company or controlling interest in a company, using borrowed funds, often using the companies own assets as collateral. Another example would be to finance your office building instead of leasing. Now without Corporate Credit none of these things are possible. You would not be in a position to buy your office building, car, or whatever it is you desire. With corporate credit you have leverage and with leverage great things are possible. Remember you can leverage your corporate credit to earn more money as long as your profits exceed your expenses. Leverage Exacts Very Excellent Results Always Gained Effortlessly



Its no mystery success is gained effortlessly when you prepare yourself with the knowledge that is needed to succeed. Financing is a very critical part of expanding a small business and in most cases always a very large concern for the owners. Nothing is more important and vital to the growth of a small business than having the right financing in place. With corporate credit you have leverage, and access to the financing you need. Leveraged Buyout: A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt. A leveraged buyout is a strategy involving the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans, in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

How to Buy a Business without Cash or Credit (Performing a Leveraged Buyout) When doing a leveraged buyout you must follow the LBO guidelines: 1. 2. 3. 4. The business must have been in business for at least five years. The business must be incorporated The business must have a Duns rating and a Paydex score of 80 or better. The business must have two years audited financials with record of growth, trained employees, a solid customer base, proper equipment and an established inventory.

If a business meets the criteria, you got the green light. It sounds like something only huge corporations can do, but it simply refers to using the assets and income of the company to secure and pay off the debt.



Here's how it works: 1. The business costs $1 million. 2. The gross revenue is $2 million per year. 3. The cash flow is $600,000. You can use the business as collateral for the $1 million dollar loan, and the $600,000 net cash flow to repay the loan. You should not have to personally guarantee the loan if you follow the LBO guidelines. The business generates gross income of $165,000 per month, with net income of $50,000. After subtracting $20,000 for the loan payment, you would have $30,000 net profit every month to live on. Could you get used to living on $30,000 per month? The only way to put your financial future in your own hands is through business ownership. A growing business will give you the opportunity to make more money in your sleep or while youre on vacation that you ever dreamed possible. Owning a business is the best vehicle to accumulate financial independence. Its better than real estate than the Stock Market etc. For example it is better than real estate because there are a lot of businesses that are for sell with the real estate and all other assets included. So not only are you buying real estate, youre buying the businesses assets and cash flow. This makes obtaining financing for a business a lot easier than financing the real estate alone. It is much easier to obtain financing on a $10,000,000 business with the real estate included then it is to finance a $500,000 house. Because when you purchase a house you have to prove you make enough money to afford the note. But when you buy an existing business with several years in business and cash flow, there is a proven track record showing that the business has the capacity to service the debt. Buying businesses is better than trading stock because anyone can trade stock. But in order to have your own stock traded on the open stock market you must be in business as a corporation. When the shares of stock go up your profit goes up which means you got in on the ground level of the business when the stock was worth whatever par value you set and when the stock skyrocketed so did your net worth. Also an individual can take the profit from selling shares of stock and reinvest them back into the stock market. In the stock market you risk losing money but when you own a business you only risk not making profit. And if you32Copyright 2008 Reginald Ringgold


Leverage an existing business with all the inventory and equipment needed to operate your initial investment is minimal. Unlike being an employee owning your own business gives you security. As an employee you never know when the company is going to downsize and lay you off, switch ownership, or file for reorganization. When you own a business you make the decisions and delegate whatever duties and decisions you do not want bother with. It doesnt make much of a difference what your background is, your experience or whats in your bank account. Your success is determined on hard you push yourself until you finally purchase that business that puts $20,000, $50,000 or whatever it is you need to live comfortably every month. Dont listen to those who tell you that it is not a good idea because they either work for someone else or work every day like an overworked employee. The fact is when you buy the right business it does require for you to be there for it to operate. The owners and/or management usually stay on for long term or to help transition. The employees stay in place and nothing changes except the ownership and any new ideas you implement. Sellers often spend a lot of time and effort trying to prove to you how much of a great business it is and so on and so forth. But keep in mind that if it such a great business then why are they selling it. Get as much information as you can no matter how time consuming it may be. Buying business can be a daunting task as you navigate through the business buying maze of studying, searching, meeting, negotiating, doing due diligence, renegotiating and closing. But you must do your due diligence so you can make an informed decision to buy and not just make an offer on impulse. Allow yourself the time to fully educate yourself on the business. Add proper contingencies giving you a clear exit strategy to protect your corporation and your deposit. Which brings me to my next point always buy the businesses with a corporation this provides liability protection. As stated in the LBO guidelines the business must be incorporated this allows you to put your existing or new corporation as a Director or listed officer of the corporation. Also corporation can go public and put it shares on the open stock market unlike LLCS. This is why I do not recommend LLCs, S.P.s, and G.P.s not to mention most of these businesses and their debts are tied to the sellers making it harder to transfer ownership and establish corporate credit since the businesses credit is based on the seller. Keep in mind that every business that you come across will have a few imperfections but do not let this discourage you or keep you from moving forward in your Investigation. Here is an example I am currently in contact on a transportation company in Florida this company has great potential. But from the33Copyright 2008 Reginald Ringgold


outside looking in it did not appear this way at first glance. The numbers for the previous year dipped compared to the year before and they would not explain why until we flew out to Florida to do a site visit. At first we were skeptical but then we realized we were going against our own rules we hopped on the Jet and flew out to Florida. It was a good thing we did because not only was the facility being under used with the potential to rent out the other units, there was an auto body shop out back to service the buses that was bringing in extra income because they were fixing others business in the area. They were they only shop with a facility that fixes tour buses within a 100 mile radius and there are no more being built in the near future. They had an advertising company that did all their artwork and advertising for the transportation company and other companies in the area. But this was not the best part about the business; the best part was that business was in a lawsuit for 5 million with the manufacturing company of the tour buses. The lawsuit was in their favor because three tour buses caught on fire the previous year. This explained why the businesses numbers dropped compared to the year before. Had we not did our due diligence we would not have found out all of the positives of the business. So try your hardest to differentiate and separate the difference between the minuet issues and the catastrophes. Follow these guidelines and youre on your way to success. When I negotiate a deal to buy a business I always get the seller to carry paper of at least 25% of the business. Unless its the deal of a century and the seller is not willing to negotiate because of their current situation. I do this for two reasons, when there are assets involved like equipment and real estate it is easier to get a loan against the assets and have the seller carry paper on the unsecured proportion of the business, which is the business itself. If they seller is not willing to carry paper ask why. Because it could be that he does not believe the company can service the debt because of cash flow issues. This could be the reason theyre selling the business in the first place. This brings me to the second reason I make sellers carry paper is because when the seller still has money vested in the deal they will make sure that they do everything in their power to make sure the business is successful. Again do not get discouraged if you do not have a whole lot of money or a wealth of knowledge on buying businesses. Just like realtors, mortgage brokers, and loan officers are there to assist you in the home buying process. There are Business Brokers, Corporate Attorneys, Corporate Accountants, and Business Bankers to assist you in the business buying process. If you have not yet hired a professional team I suggest you do so before you start the business buying process. Trust me the34Copyright 2008 Reginald Ringgold


money you save from costly mistakes will be much more then the money you pay for the advice and guidance. Remember if you want to become as rich as Bill Gates, you have to remember that it is cheaper to wait for a small company to come up with something good and then buy them. In the old days, antitrust laws kept monopolies from buying potential competitors. But not anymore, When Microsoft products were threatened by network computers and Web-based applications, they simply bought WebTV and Hotmail.





Chapter 4 The Different Business EntitiesIf you want to make over $100,000 a year, why are you talking about making money with someone who makes under $100,000 a year? To whom are you listening? Wade B. Cook

When starting a new business, one of the first decisions a business owner faces is choosing what form of business entity is best for the business. A Corporate Attorney will help with this decision. The fact is most business owners fail to think this through properly and choose a business entity that does not offer many tax benefits or much protection for their personal assets. Unfortunately most business owners operate as a Sole Proprietorship or a Partnership. Though it is true these business entities are easy and less expensive to start than a corporation, a corporation offers more tax benefits and more protection for ones personal assets. When trying to establish corporate credit I recommend forming a corporation. I do not recommend Sole Props or partnerships because there is no legal distinction between the business and its owners. Which means the business and its owners are one in the same. I do not recommend LLCS because of charging orders, if an LLC loses a lawsuit instead of a judgment they are hit with a charging order. The members of the LLC can decide not to distribute profits yet still submit a K-1 distribution to the IRS that states the creditors are responsible for the tax obligation of the distribution, even though the profits were never distributed. Most attorneys will advise their clients not to take a lien on distributions. This makes most creditors require a personal guarantee when trying to apply for business loans. Because of charging orders the owner of an LLC will never be able to build a Corporate Credit profile that is separate from their personal credit profile. Again I do not recommend operating as a Sole Proprietorship or a Partnership but for the sake of education I am going to go over all of the different business entities, their advantages and disadvantages, and their comparisons to each other.



Sole Proprietorships (S.P.S) One of the most commonly used business entities is a Sole Proprietorship. It is a business that is owned by one owner, there is no legal distinction between the business owner and the business, so the owner is completely liable for every aspect of the business structure. Although a S.P. is the cheapest and easy business entity to set up (because all you have to do is register your business with the city, file your fictitious business name with the county recorders office, put up a sign outside and youre in business as a sole prop). But this business entity does not provide protection for the business owners personal assets, and owners receive fewer tax advantages or tax deductions. So as a sole prop business liabilities automatically become personal liabilities. The companys bills are their bills. If the business is sued successfully, sole proprietors may get a judgment levied against their personal assets. Advantages Ease of Formation: A Sole proprietorship is one of the easiest business entities to from. It only requires a business license and a DBA filed with state. Pass-through tax treatment: All the profits flow directly through the individual who reports the profits on their personal tax return. This makes things a lot easier because only one tax return is involved instead of two separate ones. Less Upkeep and Paper work: There are fewer formalities to keep track of, no meeting to conduct, and no formal documents to draft up or file except a business license and DBA. Disadvantages Personal Liability: The business owner is responsible for all the debts and obligations of the business, as well as any judgments against the business. This means your personal assets are not protected in the event of a lawsuit against the business. Lack of Continuity: When the business owner dies or for whatever reason is unable the run the business the business dies or languishes. The heirs or successors can only sell the assets of the business and not the business itself.38Copyright 2008 Reginald Ringgold


Harder to attract funding and money from investors: A S.P. is not attractive to investors because in the event of a lawsuit, it does not provide much protection for the owners personal assets, or the investors investment. A S.P. cannot raise capital through offering its stock to the public on the open stock market, because it has no shares of stock. Raising capital is all ways caped off at a very limited amount. This is because most lending institutions dont want to deal with risk and liability of lending money to a high risk business entity. Most Sole Props are funded by the business owners own funds, which makes them an even greater risk because in the event the business fails the business owners have more to lose. Bigger profits means bigger problems: When a S.P. starts to make more profit it will be taxed at a personal tax rate which is usually higher than the corporate tax rate. Harder to sell: It is harder to sell a S.P. since the value of the business is based on the owner and not the business. General Partnerships (G.P.S) A partnership consists of two or more individuals or entities coming together for the purpose of conducting a business. Though it is recommended to have an agreement that explains the terms of the partnership, no formal documents are needed to establish a partnership. Some states require registration. Just like a S.P. a partnership has pass-through tax treatment, all the profits flow directly through the individuals who report the profits on their personal tax returns. Partnerships just like any other entity are required to get a tax payer identification number. Though this structure is simple and requires few formalities, partnerships have the greatest risk involved because the partners are responsible for the actions and decisions made by any one of the other partners, even if it was not authorized by all of the partners. So in other words you are responsible and could lose everything you worked so hard for because of someone elses mistakes and actions. I do not recommend this entity for building business credit. Advantages Ease of Formation: Just like a S.P. a G.P. is a very easy business entity to from. It only requires a business license and a DBA filed with state and a partnership agreement, depending on the state. (If you are going to form a partnership I recommend you draft up a partnership agreement).39Copyright 2008 Reginald Ringgold


Pass-through tax treatment: All the profits flow directly the through the partners who report the profits on their personal tax returns. Less Upkeep and Paper work: There are fewer formalities to keep track of, no meeting to conduct, and no formal documents to draft up or file except a business license, DBA statement, and a partnership agreement. Disadvantages Personal Liability: The business owners are responsible for all the debts and obligations of the business, as well as any judgments against the business. This means your personal assets are not protected in the event of a lawsuit against the business. Lack of Continuity: If one of the partners dies or retires the partnership is usually dissolved and is no longer valid. Harder to attract funding and money from investors: A G.P. is not attractive to investors because in the event of a lawsuit, it does not provide much protection for the owners personal assets, or the investors investment. A G.P. cannot raise capital through offering its stock to the public on the open stock market, because it has no shares of stock. Raising capital is all ways caped off at a very limited amount. This is because most lending institutions dont want to deal with risk and liability of lending money to a high risk business entity. Most Partnerships are funded by the business owners own funds, which makes them an even greater risk because in the event the business fails the business owners have more to lose. Bigger profits means bigger problems: When a G.P. starts to make more profit the business owners will be taxed at a personal tax rate, which is usually higher than the corporate tax rate. Harder to sell: It is harder to sell a G.P. since the value of the business is based on the owners and not the business. Unilateral Decision Making: Each individual owner is responsible for all decisions made by any one of the other owners, even if it was not authorized by all of the partners.



Limited Partnerships (L.P.S) A L.P. has the same basic features as a G.P., except for one very significant difference. L.P.S by definition have one or more limited partners, who generally have neither liability for business activities nor management responsibilities unless otherwise agreed upon. L.P.S have one or more General Partners who have the same rights, responsibilities, and status as the limited partners do in G.P.S. L.P.S are required to have at least one general partner and one limited partner. I do not recommend L.P.S because the general partner takes on all the managerial responsibility and liability of the partnership. So there is no personal asset protection provided for the general partner. The limited partners who are merely passive investors do not have managerial powers, and they are only liable for the amount they have invested in the partnership. Since the Limited Partners have no managerial powers they have no control over whether the business fails or succeeds. If a Limited Partner participates in the businesses day-to-day activities they risk losing their limited liability protection. There is also Family Limited Partnerships (F.L.Ps) serve the same purpose as the L.P. except all partners of the partnership are family members. Then there is the Limited Liability Partnership (L.L.P) the L.L.P serves the same purpose except all partners are Limited Partners. Unlike G.P.S, L.P.S must pay state filing fees and obtain a certificate of limited partnership. However in return, the general partners gain the ability to attract investors who would otherwise not have invested in the partnership if they were subject to the same rules and guidelines that the general partner is subject to. Although a Limited partnership is a very effective tool for asset protection and estate planning. I do not recommend this entity for building business credit. Advantages Limited Liability: The Limited Partner is not responsible for the actions and activities of the partnership beyond the amount of their capital contribution or their contribution obligation as long as the limited partner does not become actively involved in the partnerships day to day activities. Pass-through tax treatment: All the profits flow directly through the partners who report the profits on their personal tax returns. Financial Flexibility: A Limited Partnership can take on more limited partners to raise additional capital.41Copyright 2008 Reginald Ringgold


Provides Asset Protection: A Limited Partnership is a very effective tool for asset protection and estate planning. Disadvantages Personal Liability: The general partners are responsible for all the debts and obligations of the business, as well as any judgments against the partnership. Lack of Control for the Limited Partners: The limited partners are legally required not to participate in the management of the business. If they do participate, they risk losing their limited liability protection. Bigger profits means bigger problems: When a L.P. starts to make more profit the business owners will be taxed at a personal tax rate, which is usually higher than the corporate tax rate. Limited Liability Companies (LLCS) An LLC is a legal entity separate and distinct from its owners, who are called "members.", these members may be individuals, partnerships, corporations, or trusts, etc. An LLC is a hybrid between a corporation, which has shareholders, and partnerships, in which the partners own the company but don't have shares. In an LLC, the owners of the company receive units, not shares, and the rights, duties and obligations of LLC members are governed by an "operating agreement." You can compare an operating agreement to the bylaws of a corporation. An LLC is like a LP except it does not require one general partner. The liability is limited to the capital that members have invested in the company. While LLCs have some formalities they must follow, the rules and requirements are not generally as strict or burdensome as the formalities that corporations must follow. For example, the laws do not generally require LLC's to have any annual meetings (although some LLC operating agreements require meetings - but thats a choice you make at the time you are organizing your company). However, it is a good idea for LLC's to have periodic meetings of its members and managers to discuss significant business matters. At these meetings, it is also a good idea to have a secretary keep written records of what took place, including any votes (i.e., there should be minutes of the meeting). Most states do require some type of filing by the LLC, so you should check the law of the state your LLC is organized in, as well as any foreign states in which you have qualified your company. One of the disadvantages42Copyright 2008 Reginald Ringgold


of a LLC is if a member dies or for whatever reason no longer wants to be a part of the LLC, the LLC is dissolved. For tax purposes LLCS are similar to SPS, GPS, LPS, S-Corps, and Trusts. An LLC has the option to have pass-through tax treatment or to be taxed as a corporation. But if the LLC chooses to have passthrough tax treatment and it fails to follow the formalities the LLC will be taxed at a much higher corporate tax rate. Unlike a C corporation, no losses can be carried forward into future tax years and an LLC cannot keep retained earnings, meaning that it must distribute the profits or losses to its members every tax year. An LLC has perpetual life in most states but in others they are limited to no more than 30 years. I do not recommend LLCS because of Charging Orders. If an LLC loses a lawsuit the members can decide not to distribute profits yet still report a K-1 distribution to the IRS, even if the creditors have not received a dime they will still have to pay taxes to the IRS. The benefit to you is most lawyers will not have their clients accept a lien on distributions because of the potential tax issues, so in most cases you will rarely be hit with a charging order. And for this reason most creditors will always require a personal guarantee. This makes it virtually impossible for the LLC to ever establish corporate credit without a personal guarantee. Here is the LLC Chain of Command Structure: Members- are similar to shareholders in a corporate structure. They are the owners of the company. They do not possess any power in daily decisions. Managers- create the long and short-term policies and goals. They appoint and remove management, and are not involved in daily activities. Management- hires and fires employees and supervises daily operations. Employees- perform the day-to-day operations and carry out all the policies of the company.



The Structure of LLCS LLCS are made up a few key documents. These documents determine the laws, guidelines, procedures and format of how a LLC is put together, operated and dissolved. These documents are: State Statutes- Are laws that are developed by each state that governs how an LLC can operate within their state. Articles of Organization- Is an equivalent to a corporations articles of incorporation, an LLC must file the articles of organization with the secretary of state to begin existence. On the following page is an Example of an Articles of Organization form:



Articles of Organization I The name of this Limited Liability Company is Corporate Credit Association LLC. II The purpose of this Limited Liability Company is to engage in any lawful act or activity for which a Limited Liability Company may be organized under the BEVERLY-KILLEA Limited Liability Company act. III The name and address in the State of California of this Limited Liability Companies initial agent for service of process is: Name: Reginald Ringgold Address: 2333 San Ramon Valley Blvd. City: San Ramon State: CALIFORNIA Zip: 94583

IV This Limited Liability Company will be managed by All Limited Liability Company Member(s)

Signature of Organizer



Operating Agreement- is an agreement, similar to a corporation's bylaws, among the LLC'S members, which govern the LLC'S operations and the rights of its members. Member List- is required for all LLCS; it is an annual list of Members that must be filed with the Secretary of State indicating the names of the Members of the LLC. Certificate of Ownership- is the LLCS paper that represents the percentage of ownership by the members of the company. Advantages Less Formalities: While LLC's have some formalities they must follow, the rules and requirements are not generally as strict or burdensome as the formalities that corporations must follow. Pass-through tax treatment: An LLC has the option to have all the profits flow directly the through its members, or to be taxed as corporation. Charging Orders: Because of the tax issues involved most attorneys will not have their clients accept a lien on distributions. So in the event the LLC loses a lawsuit they in most case will not be hit with a charging and if they are, they can choose not distribute the assets but still hold the creditor responsible for the taxes. Limited Liability: The members are not responsible for the actions and activities of the LLC beyond the amount of their capital contribution or their contribution obligation. No Limitations on ownership: There are no limitations on the type or number of members. Unlike S-Corps that are limited to no more than 75 share holders and all owners must be U.S. Citizens or resident aliens. Disadvantages Charging Orders If an LLC loses a lawsuit instead of a judgment they are hit with a charging order. The members of the LLC can decide not to distribute profits yet still submit a K-1 distribution to the IRS that states the creditors are responsible for the tax obligation46Copyright 2008 Reginald Ringgold


of the distribution, even though the profits were never distributed. Most attorneys will advise their clients not to take a lien on distributions. Because of charging orders the owner of an LLC will never be able to build Corporate Credit without a personal guarantee. Federal Security Limitations: This is by far the biggest disadvantage of a LLC. The LLC is only available to privately owned companies. In order for a company to go public (IPO), it would have to be a C-Corp. The Company can easily be dissolved: An LLC has perpetual life in most states but in others they are limited to no more than 30 years. And if a member dies or for whatever reason no longer wants to be a part of the company, the LLC is dissolved. Loss of Pass-Through Tax Treatment: If a LLC does not follow the proper formalities and it loses its pass-through tax treatment it will be double taxed at a higher corporate tax rate. Unresolved Taxation Issues at the State Level: Some states require the LLC to pay income or franchise tax. Limited Case studies: Case law backing up the concept is limited. Corporations What is a corporation? Black Laws dictionary defines a Corporation as: an artificial person a legal entity created by or under the laws of a state or nation, composed, in some rare instances, of a single person and his successors, being incumbents of a particular office, but ordinarily consisting of an association of numerous individuals, who subsists as a body political under a special denomination, which is regarded in law as having a personality and existence distinct from that of its several members, and which is by the same authority, vested with the capacity of continuous succession, irrespective of changes in its membership, either in perpetuity or for a limited term of years, and of acting as unit or single individual in matters relating to the common purpose of the Association, within the scope of the powers and the authorities conferred upon such bodies by law. A franchise possessed by one or more individuals, who subsist as a body political, under a special denomination, and are vested by the47Copyright 2008 Reginald Ringgold


policy of the law with the capacity of perpetual succession, and of acting in several respects, however numerous the associations may be, as a single individual. A corporation is a legal person. It has its own birth certificate, called a corporate charter, and its own Social Security number, called an Employer Identification Number. A corporation can buy real estate and other businesses, and it can have credit. A corporation can even have offspring, in the form of divisions. Corporations are the most commonly used entity for conducting business. A corporation is a separate and distinct legal entity. This means that a corporation can open a bank account, own property sign binding contracts, pay taxes, have certain constitutional rights, do business under its own name, and otherwise participate in society. Corporations issue shares of stock to individuals supplying ownership capital and it issues bonds to individuals lending money to the corporation. The primary advantage of a corporation is that stockholders or shareholders are not personally liable for the debts and liabilities of the corporation. For example, if a corporation looses a lawsuit, and is forced into bankruptcy, the owners will not be required to pay the debt with their own money. If the assets of the corporation are not enough to cover the debts, the creditors cannot go after the stockholders, directors or officers of the corporation to recover any shortfall. A board of directors manages a corporation, which is responsible for making major business decisions and overseeing the general affairs of the corporation. Like representatives in Congress, the stockholders of the corporation elect directors. Officers are appointed by the board of directors to supervise management. The only thing a corporation cannot do is think, walk, talk, vote or act for itself. This is where the owners come into play. A corporation can only act through its people, and those people are its members, officers, shareholders, or agents. A corporation cannot have knowledge or belief independent of the knowledge or belief of its members. A corporation is a citizen of the state where it was formed and does not cease to be a citizen of the state where it was formed by engaging in business or acquiring property in another state. A corporations power is derived from the laws and constitutions of the state in which it was formed. Corporations receive many tax benefits that are not available to most of the other entities, such as tax deductions for group accident, health, and retirement plans.



C-Corporation A C-Corp give provides the most flexibility and still provides limited liability protection for the officers, shareholders, directors etc. this protection creates the corporate veil. A C-Corp allows unlimited number of shareholders that can live anywhere in the world and be any type of entity. It provides numerous tax benefits that most of the other entities do not provide. In most cases with the proper corporate structure C-Corps pay less tax then individuals. The profits from a CCorp are taxed at corporate rates on an 1120 tax return that is separate from the individual tax returns of the shareholders. Profits from a C-Corp can be kept as retained earnings or distributed to a retirement plan to defer taxes. The ownership of a C-Corp can easily be transferred. The board of directors of a corporation can determine their own corporate year, which can be used to defer taxes for up to a year. There are many perks and fringe benefits that are fully deductible; and shareholders do not have to pay self-employment taxes. The flexibility of this corporate structure makes asset protection much easier. The biggest downside to a C-Corp is double taxation. This occurs when the corporations profits are taxed initially, then the dividends that are paid out to shareholders are taxed at a personal level. Double taxation can easily be avoided by proper tax planning, retaining the corporations profits for future use after they have been taxed on the corporate level, or deferring the corporations profits to a retirement plan and not dispersing them to the shareholders is a good way to avoid double taxation. The biggest advantage of a C-Corp is this entity can deduct any business related expense thus lowering the tax liability for the shareholders. (So as long as that new car was for business purposes or that night at the stripe club was with a client, or that new dress with the shoes and purse to match was for a business event etc.) Though there are many advantages of a corporation there are some disadvantages as well. Most corporations have many formalities to follow, such as appointing a board of directors, and holding shareholder meetings. If these formalities are not followed or proper records are not kept the corporate veil can be pierced. Ways to reduce or minimize the burden of formalities is to form a Close Corporation. So beside double taxation and formalities C-Corp are the best entity to build corporate credit on I strongly recommend a C-Corp to build Corporate Credit.



S-Corporations There are several qualifications that the corporation must meet in order to elect S corporation status. A corporation must file a 2533, form with IRS to become classified as an S corporation. The corporation may have no more than 75 shareholders, it may only have individuals, estates or certain trusts as shareholders, it must be a domestic corporation formed in the U.S.A, and it may not have nonresident alien shareholders, and it may only have one class of stock. The biggest advantage of an S-Corp is pass-through tax treatment all the profits flow directly the through the shareholders, so there is no double taxation. The S-Corp provides limited liability for its shareholders. S-Corps can own subsidiaries. S-Corps must conform to state statutory restrictions, which limit the transfer of shares and owner of the corporation. Companies expecting start-up losses, or companies that do not expect to issue multiple classes of stock, or do not intend to go public should elect S-Corp status. All the profits of an S-Corp are taxed even if the profits are not distributed. An S-Corp requires full disclosure of corporate owners. S-Corps are subject to the same formalities that C-Corps are subject to. It is possible to avoid burdensome formalities by opting to become a Close Corporation. Close Corporation Under California law if a corporation has 35 shareholders or less the shareholders can elect to be Close Corporation. A Close Corp is formed when the articles of incorporation state that the corporation elects to be treated as a close corporation and that there are no more than 35 shareholders. Once a corporation has elected to become a close corporation, the owners can dispense with many of the corporate formalities and govern by shareholder resolution. Close Corps are like G.PS in a sense that they do not have to adhere to corporate formalities relating to meetings of directors in connection with the management of its affairs. This structure is good for business owners who struggle to maintain many corporate formalities. One disadvantage the IRS will often disregard the corporation the fact that the corporation is a close corporation and treat the Corp as a partnership for tax purposes and for purposes of piercing the corporate veil. Due to uncertainty of corporate benefits, tax treatment and limited liability, the Close Corp is not the ideal business structure because of unfavorable treatment by the IRS and other federal agencies.



Professional Corporation A professional corporation is a special kind of corporation that only members of certain professions, such as lawyers, doctors and other healthcare workers, can create. By forming a professional corporation, professionals can limit their personal liability for the malpractice of their associates.

International Business Corporation (IBC) The term international business corporation or IBC refers to a corporation formed in an offshore financial jurisdiction, which is afforded certain tax advantages and protection as to the disclosure of its beneficial owner. Depending on the offshore financial jurisdiction, shareholders of the IBC may remain confidential through the use of bearer shares. Just as with U.S. corporations, the same person may act as a shareholder, director, president, agent, or as any other officer within the company. Generally, however, the beneficial owner(s) will appoint resident officers and directors for the IBC. Typically an IBC is authorized to do business anywhere in the world except in its home country where it was incorporated. The IBC may purchase real estate, cars, businesses, etc. The beneficial owner may act as an agent of the IBC to purchase assets on its behalf. By this means, assets are held under a corporate name, thereby helping to protect the beneficial owner's privacy.

Not-for-profit or Non-Profit Corporation A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary or scientific purpose. A nonprofit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status. The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations. What are the benefits of forming a nonprofit corporation?



Nonprofit corporations enjoy an exemption from corporate income taxes on profits from activities that are related to their organizational purpose. Also, a nonprofit is permitted to raise funds by receiving public and private grant money and donations from individuals and companies. (And the tax laws encourage people and businesses to donate money and property by allowing donors to deduct their contributions on their own tax returns.) Finally, structuring an organization as a nonprofit corporation protects its directors, officers and members from personal liability for the corporation's debts and liabilities. How do I form a nonprofit corporation? There are several steps you must take to create a nonprofit corporation. The first is filing the "articles of incorporation," with the corporations division of your state government. To do this, you'll have to pay a filing fee of $30 or so. After you file your articles, you must apply for state and federal income tax exemptions (the most common federal tax exemption comes from Section 501(c)(3) of the Internal Revenue Code), which require you to complete a fairly lengthy set of forms. You must also write "corporate bylaws," a document that sets out the rules that govern your corporation, including procedures for making major business decisions, voting rights and other important guidelines. Finally, before you start doing business, you must elect a board of directors and hold an initial meeting of the board. Is it difficult to run a nonprofit corporation? Although operating a nonprofit corporation requires some attention to detail, as long as you understand and follow some basic rules, you'll be fine. The first rule is to hold required meetings of

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