LLC's, S-Corps, and the small buisness

[Former_Member]

So how have you all dealt with the more legal sides of business? It's a little scary making kid's items, especially if you make them yourself. I was just looking into forming an LLC for protection, but after looking into it found myself unsure what to do.

It seems being an LLC or other such corporation would provide protection should one find that, despite their best efforts, they were not in compliance with whatever government standard. But it would not provide protection against situations where, say, something you made injured someone, since you were the one who made it and could then be held personally liable. That made me think maybe liability insurance was the way to go...

Anyways, I was just curious how other people out there had decided to protect themselves, and why?

[FayeMaloneDesigns]

Corinne from ModestlyModest says

But it would not provide protection against situations where, say, something you made injured someone, since you were the one who made it and could then be held personally liable

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An LLC is a limited liability corporation, meaning you can not be personally sued, only your business assets. Your personal property is not at risk.

After looking at your shop. what do you make or are considering making that you feel could put you at risk? Could you be more specific? We have a LLC covering out businesses.

And if someone trips putting on a pair of pants, it is not the fault of the garment, and they would have a difficult time taking that to court.

But get liability insurance after you form a LLC if you would feel safer, If you can find someone to sell it to you. The CPSIA scared a lot of insurance companies. and drove the prices thru the roof, is my understanding.

[ShopDeatsGifts]

Hi Corinne,

I have a little blurb on the Etsy Seller's blog about forming an LLC and commercial liability insurance:
http://www.etsy.com/blog/en/2012/four-lessons-for-financial-success

It's a little extra protection for us sellers who sell children's items. I'm actually talking to my lawyer tomorrow about finalizing my LLC. I already have commercial liability insurance. The price actually wasn't too bad for me and I got it through State Farm.

Hope this helps!

[Former_Member]

Thanks! I think what I was most concerned about would be the if someone were to get burned because something I made caught on fire - I do prefer to work with cottons for the most part.

Thanks for the link. I guess that does for the most part answer my question - do I gain anything from forming an LLC? And the answer would seem to be yes!

[Former_Member]

Yes, actually the link addressed another issue I was concerned about - people using my slips as sleepwear. I'm going to add "not intended for sleepwear" to my tags and listings, as well as "keep away from flame", just to cover all my bases.

Thanks, you guys have greatly reduced my stress level over all this!

[FayeMaloneDesigns]

Most fabrics being sold pass burn tests. If you have a concern about a fabric, send it off for burn testing.

http://www.cpsc.gov/businfo/ffa.html

[Former_Member]

Some states, like mine, don't legally see an LLC as an LLC if it is a sole proprietor business. You must have business partners and be set up functioning as a corporation. You need to check with someone who knows your states laws and court precedents. Wisconsin is very clear from court cases that a single owner is still viewed as liable as a single owner even if they file and pay the LLC fee. If I was to set up business with family members or friends and establish a CEO and such, then I would get the liability protection. My $ in and out is also not enough to legally look like a corporation in my state. Other states, it is totally different, so find some actual legal advice. Every state is very different.

and just fyi, glass blowers only wear cotton. It is the least flammable and will not melt and adhere to skin like synthetics.

[Former_Member]

Katrina - That's what I thought, about the cotton - that it's definitely better than synthetics, but the gov't is weird with their child safety laws and all, you know...:) I've been scouring the state business website for info - I'll check on the things you mentioned just to make sure. I'm in CO, it seems like it is quite different!

Thanks for the link, Beverly.

[ShopDeatsGifts]

Agreed with what Katrina mentioned. I have to have an Operating Agreement and other documents that will separate my business from my personal liability. He also advised me on how not to comingle funds, etc.

The lawyer gave me great legal advice and we are moving forward to converting to a LLC.

[CourtyardCraftsGifts]

Forming an LLC but still filing that LLC as a sole prop on your individual tax return doesn't offer you liability protection (some other people have pointed this out correctly).

In order for an LLC to offer protection from your personal assets, you must form a single legal entity LLC that stands alone separate from you.

Many people think because they formed an LLC but still have the LLC's assets flow through to their individual tax return, they are liability protected but they are not.

Use an attorney to form a legal, separate LLC for the protection you seek.

Or buy a personal liability insurance policy on yourself as a sole prop of a business. I suggest no less than a $1 million policy.

[Former_Member]

So, obviously not intended as legal advice, but say, form an LLC and file taxes as an S-corp?

[ShopDeatsGifts]

LLC is different kind of entity as a S-Corp I think.