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Operating as an LLC


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Hi Everyone,

I wanted to clear up a few things I saw in one of the insurance threads. First let me start out by saying that if you are selling to the public, you should absolutely be operating as an LLC (and NOT as a sole proprietor or partnership). An LLC in most cases is the perfect answer for small businesses because they can be run informally like a sole proprietorship/partnership but provide you with the same protections for your personal assets that a corporation does. It's the cheapest "insurance" you can buy. Most states require an initial organization fee of ~$100 and then yearly reports that usually cost somewhere between $25-50. I think we'd all agree that this is a very small price to pay to ensure that your personal assets (home, car, bank accounts, etc.) are protected. Just make sure you keep complete and accurate records and a separate business banking account (don't intermingle personal and business funds) and you should be protected. That way, if you do get sued, only your business assets are at risk and not your personal assets. Setting up an LLC in most states is extremely easy and doesn't require an attorney. Simply go to your state's Secretary of State website and they'll usually have forms and instructions on how to set up your LLC.

That being said, I'll echo what others have said in that it's certainly a good idea to have general liability and product liability insurance to protect your business assets in case someone brings a suit against you (assuming you have enough business assets for insurance to be worth it).

Sincerely,

Your friendly neighborhood corporate attorney :)

Mandatory Disclaimer: the above is provided for informational purposes only and does not constitute legal advice nor does it create an attorney-client relationship. If you have any questions particular to your situation, you should contact your own attorney for legal advice.

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Thanks so much for your input! I didn't know enough about the specifics of an LLC to describe it. :)

I wonder sometimes if certain businesses are "targeted" for product liability suits because of their organizational structure and having liability insurance... kinda like the scammers who look for business vehicles in front of which to throw themselves because they KNOW there's an large business liability insurance policy in the glove compartment... :confused:

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Good Information Les Chandelle...

I set my biz up and a Disregarded Entity LLC.

Exactly for the reasons you stated above..

It won't take tie up all my personal assets if I would ever have a problem.

I did it my self and got all the information right on line.

Simple, inexpensive and I know I feel much safer not worrying about my house being taken away if some nut ever tries to sue.

We as chandlers are literally playing with fire.. So cover you butts!!!

Les Chandelle - Your friendly neighborhood corporate attorney,

where did you come from and what made you post this??

For your second post, it just seems strange..

Do you know of a chandler being sued and sought us out?? LOL

Anyway.. Good Advice IMO and I am sure it will help many..

It's nice getting free legal advice, THANKS!

Edited by islandgirl
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Les Chandelle - Your friendly neighborhood corporate attorney,

where did you come from and what made you post this??

For your second post, it just seems strange..

Do you know of a chandler being sued and sought us out?? LOL

My girlfriend and I actually bought a small candle company last year and we just found these boards about a month ago and we've been reading them trying to learn a few things ever since. I sensed from another thread that there was some confusion about what protection an LLC provides and about liability in general, so that's why I posted. Sort of as a public service to the board. And actually, I've never heard of a candle company being sued for product liability. Let hope it stays that way!

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Thanks, Les Chadelles, for sharing that. I thought I remembered (from a college course several years back) that an LLC becomes a legal business entity, so this is the "person" that gets into hot water if there is a suit filed, and that's how the layer of protection is built between you and the potential liability. That, and having bank accounts separate from your personal ones...but that's just good business practice, although I know a few small business owners who DON'T do that. I have no idea how they do their taxes!

Just as a curiosity, what type of insurance do you have for your company? Something from IBN or purchased through an agent? As an attorney, what would you say to those who have decided to make a go of it without the safety net of insurance? (I am not one of those people, and will certainly be insured when/if I decide to sell.)

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You should get yourself familiar with the Small Business Association (SBA) website. It has tools for the small biz and you can find a local office in your area that offers courses. The courses I took cost only $30 and covered how to make a biz plan, insurance, start up, biz types and entities, marketing, networking, etc..

Here's the SBA website http://www.sba.gov/

Edited by Candybee
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You should get yourself familiar with the Small Business Association (SBA) website. It has tools for the small biz and you can find a local office in your area that offers courses. The courses I took cost only $30 and covered how to make a biz plan, insurance, start up, biz types and entities, marketing, networking, etc..

Here's the SBA website http://www.sba.gov/

In some towns they are 100% free too! Our SBA is free for everything... they are a fantastic help.

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Most shows I've done don't require proof of insurance. I have only had one farmers market that requested a copy. But that doesn't mean you don't need it.

You should have a copy of your state tax certificate on hand showing that you are registered to collect sales tax. Although most don't even ask for that you need one before you start selling and a state rep could show up at a show and request it. Some shows collect state sales taxes at the end of show so you should have your certificate with you.

Edited by Candybee
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I would just like to add a note since my husband happens to be a corporate attorney. When you do turn you company into an LLC (highly recommend), make sure it is on all your papers, i.e. receipts, invoices, signs. It is your responsibility to communicate to your customers that you are an LLC. It sounds weird, but you need to CYA.

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Although the only assets at risk if you get sued are your business assets ~ you may wind up selling your car or taking a mortgage out on your home to pay your defense lawyer if you go without insurance.

I can't recommend one over the other.

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I just checked on Legal Zoom and it's 149.00 for the economy package and $612 in fees for the great state of IL. Wow - those are some high fees compared to other states.

I just checked the state of Iowa and it's only $50.00 in state fees. I live less than 10 miles from the border. Can I set up a LLC in another state? It's actually where I'll be doing my selling if I ever get started.

Edited by safetysue
added iowa info - spelling
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If I remember correctly (this was in 2005 or so) it costed me $175 w/ NYS. I didn't go through an attorney. It was a very simple process. I went to the licensing office, filed, they gave me what I needed as well as a receipt then I went to news paper of the county I would be running my business out of to run my articles of formation? (forgot what it's called).... I believe it ran for 6 weeks then It was all set. SMLLC's are truly the best.. you don't have to worry about all the hoopla w/ filing separate or anything. LLC's are looked at as sole proprietors when filing taxes. NYS nixed the annual $100/per member fee for single member llc's. I'm glad they did that...

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OK maybe Im misunderstanding here but I was interpreting that if your assets werent much and you didnt have insurance you could start out as LLC and be ok. That they couldnt touch your personal assets. And as your business grew then get insurance. Is that what was being said?

this is correct. i am not insured yet.

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Yes I checked in PA and it is $125 and there is no annual fee unless you are a professional such as dentist, doctor, lawyer, etc. Of course, the legal ads in the paper aren't cheap. But I am going to set up an LLC for my business very soon. I have enough problems as it is. Don't need any new ones. Thanks to everyone for all the great advice.

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I just finished reading "Own your own corporation" by Garrett Sutton, Esq. It explains the differences, benefits, and problems between each type of corporation C / S / LLC / LP. The author writes it for the common Joe to understand and provides scenarios to explain his point. He even goes into tax benefits and selling between states. I would highly recommend picking up a copy to help clear up any confusion.

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OK maybe Im misunderstanding here but I was interpreting that if your assets werent much and you didnt have insurance you could start out as LLC and be ok. That they couldnt touch your personal assets. And as your business grew then get insurance. Is that what was being said?

That's basically correct. In the beginning you have to do a cost-benefit analysis to determine whether you have enough assets for insurance to be worth the cost. It's a business decision.

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I just checked on Legal Zoom and it's 149.00 for the economy package and $612 in fees for the great state of IL. Wow - those are some high fees compared to other states.

I just checked the state of Iowa and it's only $50.00 in state fees. I live less than 10 miles from the border. Can I set up a LLC in another state? It's actually where I'll be doing my selling if I ever get started.

You can certainly form the LLC in Iowa, but you'll probably also have to file a document with IL that allows you do to business there. Of course, there will be a fee attached to that as well. I'm not familiar with IL law so it would be best to contact the IL secretary of state or a local attorney to see if such an authorization would be required if you're not actually selling in IL.

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