HELP!! I'm scaring myself out of business!

[summerbug]

I am driving myself crazy! I'm sure I already know the answer to this (Get Insurance and talk to a lawyer!) but I need moral support.

I am still new - 1 year running a soy candle business - I have a tiny wholesale account and now am being approached by 2 large accounts and I'm driving myself crazy debating on what I should do.

Right now I don't have insurance - ug! (I'm trying to find something I can afford). And I don't know if I need to talk with a lawyer to set up some type of release of liability form should the retailer alter my candles (i.e. add flammable material) and one of the retailers wants to do private label so I don't know if I need to still have my name somewhere on the candle legally and where does liability fall on private labeling - me still? hence the release of liability should the retailer change something I guess; and so on and so on.

Sorry to ramble but I am worrying myself out of business - I guess to put my mind at rest I should get the old credit card out and contact legal advice and get insurance.

Has anyone been through this? I appreciate all the help I can get.

[Candlewitch]

LLC or incorporate the business and make sure you have the warning label on everything. That should be enough for now but talk to a lawyer first. When you are larger you may need something more but I am not a laywer, HEY ANGELA? Pssssssssssst:rolleyes2

[The_Dallas_Texas_Dean]

Summer.....

IMHO

Beyond a shadow of doubt, I would enlist the services of an attorney and get insurance immediately.

There has been much conversation about this and everyone has different viewpoints, but whatever your situation is, you need to be protected in this very litigious society. There have been some that have chosen to educate themselves and save the lawyer fees. Brave souls.

[AngelaVA]

LLC or incorporate the business and make sure you have the warning label on everything. That should be enough for now but talk to a lawyer first. When you are larger you may need something more but I am not a laywer, HEY ANGELA? Pssssssssssst:rolleyes2

Definitely talk to a lawyer ASAP. If you are working without insurance and as a sole prop., then if anything happens you are personally liable and your personal assets are at risk. You can set up an LLC or S-Corp to protect you from being personally liable. Your lawyer can tell you which is best for you. In VA, it's only a $100 filing fee to set up an LLC, so it shouldn't be cost prohibitive. You will still need to find insurance so that you are covered if sued. The attorney fees alone to defend a lawsuit are probably more than you would want to spend out of pocket. You will also have to keep all assets separated and keep good accounting records. But it is definitely worth it for the liability protection and tax advantages that you will recieve. As far as the private labeling and liability release, again, a good lawyer will be able to tell you what the laws are in your state regarding this and can draft a solid release form.

I would choose a law firm that practices business law. I would not go to a "general practitioner" who does all sorts of things because they may not be well-versed enough in business law to keep you adequately protected. There are nuances to running a corporation to make sure that the court cannot pierce the corporation and come after you personally. Simply having an LLC is not enough, there are standards for practice that must be followed (such as not commingling assets and sufficiently capitalizing your biz). You can check www.martindale.com or www.findlaw.com to get attorneys in your area. Martindale gives attorneys a rating and AV is the best. Feel free to PM me if you have any more questions

[ChrisR]

You should have had insurance in place before you sold or even gave away your first candle, just to protect yourself if anything went wrong. Even with private labeling, you ultimately are responsible for the candle and can be sued whether it's your candle's fault or another parties.

[islandgirl]

Summerbug,

Take the plunge!!!!

Thinking about it is always worse than getting it done!! SOOO...

Start calling insurance companies today to get coverage!!

Go on-line and look up your samll business page in your state, you can fill out, or at least print out, the forms and get your sales tax ID#.

I am an LLC and I incorporated on my own. It really is not that hard.

Just READ what your state requires and fill out the forms.

The LLC and Sole Prop are the easiest to do on your own.

If you have questions, call your state and ask them what they require.

They will be able to guide you.It Could save you some money to start out by not getting a lawyer. You can always change our corp status later.

If you become and S-Corp as the Dean did, there is much more involved.

So you might want to get some help with that one.

Do get a great CPA!! Mine is wonderful and helps me a lot with any questions I have regarding taxes and my state laws with my LLC.

HTH and I say GO FOR IT!!!!

[AngelaVA]

Summerbug,

Take the plunge!!!!

Thinking about it is always worse than getting it done!! SOOO...

Start calling insurance companies today to get coverage!!

Go on-line and look up your samll business page in your state, you can fill out, or at least print out, the forms and get your sales tax ID#.

I am an LLC and I incorporated on my own. It really is not that hard.

Just READ what your state requires and fill out the forms.

The LLC and Sole Prop are the easiest to do on your own.

If you have questions, call your state and ask them what they require.

They will be able to guide you.It Could save you some money to start out by not getting a lawyer. You can always change our corp status later.

If you become and S-Corp as the Dean did, there is much more involved.

So you might want to get some help with that one.

Do get a great CPA!! Mine is wonderful and helps me a lot with any questions I have regarding taxes and my state laws with my LLC.

HTH and I say GO FOR IT!!!!

Yes, you can set up an LLC without a lawyer, but simply having an LLC is not enough to protect your personal assets. There are certain things that must be done and procedures to follow to ensure that the corporate entity will not be pierced by a court if you are sued. If the court finds that the procedures have not been followed, the LLC is meaningless and you will be held personally liable for any judgment rendered. This is not an area where saving money should be the first prority. Going to an attorney will cost more money, but it is money well spent.

[summerbug]

Definitely talk to a lawyer ASAP. If you are working without insurance and as a sole prop., then if anything happens you are personally liable and your personal assets are at risk. You can set up an LLC or S-Corp to protect you from being personally liable. Your lawyer can tell you which is best for you. In VA, it's only a $100 filing fee to set up an LLC, so it shouldn't be cost prohibitive. You will still need to find insurance so that you are covered if sued. The attorney fees alone to defend a lawsuit are probably more than you would want to spend out of pocket. You will also have to keep all assets separated and keep good accounting records. But it is definitely worth it for the liability protection and tax advantages that you will recieve. As far as the private labeling and liability release, again, a good lawyer will be able to tell you what the laws are in your state regarding this and can draft a solid release form.

I would choose a law firm that practices business law. I would not go to a "general practitioner" who does all sorts of things because they may not be well-versed enough in business law to keep you adequately protected. There are nuances to running a corporation to make sure that the court cannot pierce the corporation and come after you personally. Simply having an LLC is not enough, there are standards for practice that must be followed (such as not commingling assets and sufficiently capitalizing your biz). You can check www.martindale.com or www.findlaw.com to get attorneys in your area. Martindale gives attorneys a rating and AV is the best. Feel free to PM me if you have any more questions

Thanks everyone! I failed to mention - I have formed an LLC - through my accountant. AngelaVA - thank you so much for your input - I pm'd ya.

[islandgirl]

Yes, you can set up an LLC without a lawyer, but simply having an LLC is not enough to protect your personal assets. There are certain things that must be done and procedures to follow to ensure that the corporate entity will not be pierced by a court if you are sued. If the court finds that the procedures have not been followed, the LLC is meaningless and you will be held personally liable for any judgment rendered. This is not an area where saving money should be the first prority. Going to an attorney will cost more money, but it is money well spent.

What certain things?? LLC is pretty basic.

ETS. I am a Disregarded Entity

[AngelaVA]

What certain things?? LLC is pretty basic.

Yes, setting up an LLC is pretty basic. However, running the corporation so that a court will find that the business has been kept separate is not so basic. Every state's laws will differ, but generally you need to have an operating agreement, separate accounts, proper corporate formalities (like minutes of meetings, etc) and proper capitalization. The fact that she does not have insurance and likely does not have much money in the LLC account means that her business is drastically undercapitalized. This means that if she were sued right now, a court might likely find that the undercapitalization shows that the corporation is simply an alter ego for herself personally and therefore the court can "pierce the corporate veil" and render her personally liable. It's not a risk worth taking. Talking to an attorney who practices business law is money well spent.

[islandgirl]

Thanks Angela!!!!

[Ollivander]

For craft fairs and internet sales is Sole Prop with product liability insurance enough - or should it be LLC with product liability insurance.

[AngelaVA]

For craft fairs and internet sales is Sole Prop with product liability insurance enough - or should it be LLC with product liability insurance.

Being a sole prop means that you are personally liable. If the amount of insurance you have isn't enough to cover the judgment against you, your assets are at risk. The risk is rather low because there are not many cases where chandlers are sued, but there is still a risk. Having an LLC with liability insurance means that even if the insurance doesn't cover the entire amount of the judgment against you, you personally are not liable for the debts of the LLC. Make sense?

[Ollivander]

Being a sole prop means that you are personally liable. If the amount of insurance you have isn't enough to cover the judgment against you, your assets are at risk. The risk is rather low because there are not many cases where chandlers are sued, but there is still a risk. Having an LLC with liability insurance means that even if the insurance doesn't cover the entire amount of the judgment against you, you personally are not liable for the debts of the LLC. Make sense?

Makes sense - Thanks.

[Di_in_AZ]

I have to put in my two cents here.

LLC means just that, LIMITED Liability--there is STILL liability and you can STILL be personally sued by someone. A person can sue a company and sue the owner. That is the first thing I learned from the SBDC--you should find your local one they are usually at community colleges. They will be able to explain it to you. You need to research this because this is a very common misconception and gives people a false sense of security.

[Luci]

LLc is the way to go. I personally have an LLC corp with my brother and sister with property that we inherited. My brother is an attorney. This is how I keep my personal money protected. I can be sued, but I am only liable for what I have in my LLC, wnich is only a couple of million. I don't keep but a bit more of that in my personal accounts.

[AngelaVA]

I have to put in my two cents here.

LLC means just that, LIMITED Liability--there is STILL liability and you can STILL be personally sued by someone. A person can sue a company and sue the owner. That is the first thing I learned from the SBDC--you should find your local one they are usually at community colleges. They will be able to explain it to you. You need to research this because this is a very common misconception and gives people a false sense of security.

There is always liability, but with an LLC, the owner/director is not personally liable. You may be sued in your capacity as a director or shareholder, but not personally. The only way that you can be held personally liable is if you fail to keep the proper corporate formalities or breach a duty of loyalty or care.

[islandgirl]

I am only liable for what I have in my LLC, wnich is only a couple of million. .

Want to be my new friend????? LOL

[Di_in_AZ]

There is always liability, but with an LLC, the owner/director is not personally liable. You may be sued in your capacity as a director or shareholder, but not personally. The only way that you can be held personally liable is if you fail to keep the proper corporate formalities or breach a duty of loyalty or care.

This is a description of the LLC (posted below), notice if you do something illegal, unethical or irresponsible (i.e. make a defective candle)--you ARE personally liable and the protection afforded by the LLC no longer exists. That is what I was referring to when I said that you CAN be held personally liable, to say you cannot is lulling yourself into a false sense of security.

http://www.nolo.com/article.cfm/ObjectID/ED01121A-B4BF-498A-8BC0DBD121A0C869/catID/5DE04E60-45BB-4108-8D757E247F35B8AB/111/182/FAQ/

Like owners of a corporation, however, all LLC owners are protected from personal liability for business debts and claims -- a feature known as "limited liability." This means that if the business owes money or faces a lawsuit for some other reason, only the assets of the business itself are at risk. Creditors usually can't reach the personal assets of the LLC owners, such as a house or car. (Both LLC owners and corporate shareholders can lose this protection by acting illegally, unethically, or irresponsibly.)

[AngelaVA]

This is a description of the LLC (posted below), notice if you do something illegal, unethical or irresponsible (i.e. make a defective candle)--you ARE personally liable and the protection afforded by the LLC no longer exists. That is what I was referring to when I said that you CAN be held personally liable, to say you cannot is lulling yourself into a false sense of security.

http://www.nolo.com/article.cfm/ObjectID/ED01121A-B4BF-498A-8BC0DBD121A0C869/catID/5DE04E60-45BB-4108-8D757E247F35B8AB/111/182/FAQ/

Like owners of a corporation, however, all LLC owners are protected from personal liability for business debts and claims -- a feature known as "limited liability." This means that if the business owes money or faces a lawsuit for some other reason, only the assets of the business itself are at risk. Creditors usually can't reach the personal assets of the LLC owners, such as a house or car. (Both LLC owners and corporate shareholders can lose this protection by acting illegally, unethically, or irresponsibly.)

Thank you for the link, but seeing as how I have completed law school, the bar exam and am now practicing business law in a large law firm, I don't need to read a nolo article about LLC formation. I would be very careful about those nolo articles and books, since they are general statements of the law and not always correct for your application. They are also not a substitute for the advice of an attorney.

I also think that you are misunderstanding me a bit. As I said in my earlier post, the laws in every state differ, but generally, doing something "illegal or unethical" would be considered a breach of either corporate formalities or an owner's duty of care/loyalty. What qualifies as a corporate formality and the standards for duties of care and loyalty will vary from state to state. If there is a breach of these duties, the court will "pierce the veil" of the corporation and render the owner personally liable. I never said that there could not be personal liability. In fact, if you read my other posts in this thread, you will see that I harp on the fact that simply having an LLC is absolutely not enough to protect someone from beng held personally liable. You seem to be arguing with me, but I honestly don't understand what you are disagreeing with.

[Di_in_AZ]

Wow, how funny. From reading the above posts, once I said there was personal liability, you quoted me and your first line is:

"There is always liability, but with an LLC, the owner/director is not personally liable."

It didn't sound like you were agreeing at all. If you were trying to clarify or you were agreeing, I wouldn't think you wouldn't be using the word "but". I know as a lawyer, you can understand how easily words are played on.

I have quite a few law courses under my belt and understand that each state is different, I posted from nolo because it is in laymen's terms and it would have been a waste of bandwidth to have posted individual state laws regarding LLCs.

Bottom line, as I said before, it is misleading to say there is NO personal liability. Thanks for agreeing.

P.S. Editing to let you know I did see that you edited to add that you completed law school and the bar exam! Congrats!

[AngelaVA]

Wow, how funny. From reading the above posts, once I said there was personal liability, you quoted me and your first line is:

"There is always liability, but with an LLC, the owner/director is not personally liable."

It didn't sound like you were agreeing at all. If you were trying to clarify or you were agreeing, I wouldn't think you wouldn't be using the word "but". I know as a lawyer, you can understand how easily words are played on.

I have quite a few law courses under my belt and understand that each state is different, I posted from nolo because it is in laymen's terms and it would have been a waste of bandwidth to have posted individual state laws regarding LLCs.

Bottom line, as I said before, it is misleading to say there is NO personal liability. Thanks for agreeing.

Okay, you are completely taking my post out of context. Here is my entire post:

There is always liability, but with an LLC, the owner/director is not personally liable. You may be sued in your capacity as a director or shareholder, but not personally. The only way that you can be held personally liable is if you fail to keep the proper corporate formalities or breach a duty of loyalty or care.

You only quoted my first sentence, but if you read my entire post, as well as all of my other posts in this thread, you will see that I clearly state that personal liability is a possibility. If a director does not keep the proper corporate formalities or if he breaches a duty of loyalty, then he can be held personally liable. I really don't understand what your point is. I never said that there wouldn't be personal liablity. Therefore, I was never misleading. I am trying my best to keep people from being mislead by informing them that an LLC, in and of itself, may not completely protect someone from liablity. And I post in the terms that I do because those are the terms that are in most state statutes, particularly in the statutes of my state. Nolo books and websites are very general in information and they are not always correct. It's a good starting place, but not a substitute for getting advice from a licensed attorney in your state. It honestly seems like you are trying to argue with me, but you are agreeing with me at the same time. Strange.

[Di_in_AZ]

Angela, why did you quote my post in the first place? If you agree, why do you keep reposting the same? If you were disagreeing, I could see your point. I am sorry but I don't--unless you are solely posting to try and "upstage" my answer. Perhaps you should take this to a law message board and try to impress them there. It is not working with me because you haven't said anything that I didn't, except you are putting it in "legal jargon". I see you just rolled out of law school, I wish you luck but trying to talk down to people will get you no where fast. :rolleyes2

[Funky Monkey]

Hey.. did you hear that sound? I'm me running screaming from the building!!!

Just a little humor!

FM

[AngelaVA]

Angela, why did you quote my post in the first place? If you agree, why do you keep reposting the same? If you were disagreeing, I could see your point. I am sorry but I don't--unless you are solely posting to try and "upstage" my answer. Perhaps you should take this to a law message board and try to impress them there. It is not working with me because you haven't said anything that I didn't, except you are putting it in "legal jargon". I see you just rolled out of law school, I wish you luck but trying to talk down to people will get you no where fast. :rolleyes2

I quoted your post because it was a little misleading. Your post stated that an owner in an LLC may be sued personally. This is a blanket statement and one that is not necessarily true. I wanted people to understand that having an LLC does give them protection from personal liability when they run the LLC properly.