Do you feel an LLC is a must?

J

jtwodogs

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Feb 1, 2009
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With the litigious society we live in, would it be foolish to start selling knives without an LLC, to cover your butt?
 
If you get sued, they will sue the company, and you personally - no advantage



Maybe for taxes but the level of sales would have to be there
 
I have a million dollar liability policy. Can around with local Commercial insurance brokers in your area. Runs about 5-600.00 buck a year. I'm in Cally.
Where they love to sue! So it may cost you less in Ky.

Get a REAL business license for the town you live in and a resale license for the state first!
 
An LLC does several things. First, if you are scrupulous about your personal and company funds, it protects the personal assets of the members of the corporation (LLCs have members, not owners) in case of litigation. Member 12345678910 is correct in that a lawsuit will name a number of respondents, including the individual members of the LLC and request access to their personal assets in many cases. However, this doesn't mean they will get them. After all, you can file a lawsuit against anyone for anything anytime. Second, the LLC can provide a tax advantage if you itemize your tax returns. Legitimate business expenses become deductible (unconditionally for a number of years, after which the company must show a profit). This can be done with a Sole Proprietorship company, but the effort of segregating funds becomes more tricky. Third, an LLC, as a business, may be eligible for special banking arrangements at your local branch, loans, credit cards, and discounts with vendors. Finally, an LLC tells yourself to take the work more seriously as a business and others to take you more seriously as a craftsman and a businessman. Don't underestimate the value of this last one.

Not the same as an LLC is what Rhinoknives1 mentions, a company liability policy. You'll need this. And don't let customers or unreliable friends tour your shop or forge (unless they sign a waiver of liability). You don't need that sort of exposure.

LLCs are cheap and easy to set up. The IRS website and your state's Department of State website have lots of information that will help you decide what to do.

Best of luck

Zieg
 
Stop and ask yourself when you heard of a knifemaker being sued for any liability related to his knives. We have discussed this several times before and there are some long threads on the subject. Licenses, taxes, permits, and insurance are needed. Usually a spouse with a good job and medical benefits for both of you is also a must, also.


If you are the owner, and the only employee, and work at your home, then you are where the buck stops. Short of setting up two scrupulous checking and accounting accounts, an LLC for a small to medium size knifemaker is not really needed. You would have to set up a payroll and pay yourself a salary, withhold and send in taxes to the state and federal Govt., etc. Paying any expense from knife shop funds that benefits you more than the LLC will negate most of the protection. Even if run exactly right, on the scale of a self employed knifemaker, it really isn't much of a protection or advantage.
 
Let's not confuse general liability with product liability. I am not well-versed on the matter, but my impression is that they are distinct.
 
S corps are a viable alternative. Corporate income flows through to the officers. You can take some disbursements as K2 income and that isn't subject to both halves of SS withholding and such.

In today's society some shielding often makes sense. A corporation is a separate entity. You have to follow the rules and hold annual meetings and have minutes and such. If the corporation doesn't act like a corporation, the corporate veil is pretty easily pierced. Follow the rules very carefully, and document everything with regard to your compliance, and a corporation protects your personal assets.
 
I did a lot of reading on the subject some years ago, in regards to another business not knife making. I don't remember most of what I learned, but I remember that the statement that kind of ended my research was that someone has to be legally responsible for every organization. That's why you hear about corporate CEOs going to prison for illegal activities of their companies. I know we're talking about financial, not legal liability, but I gotta figure legal/punitive liabilities would extend to financial as well???
 
Lots of excellent and experienced discussion here, some relative to taxes and some relative to legal concerns.

But imo Stacy makes the most practical comment here. Myself I would go with Laurence's advice of adequate insurance coverage and not be concerned about risk of legal action.
As stated , anyone can file against anyone for any reason anytime. You want to make sure the customer service is such that the customer never feels like they have to go this route.

I've had 3 auto collision shops under S corps. It's tough to please customers when they have been in an accident and they want their bmw back better than new. But we never got sued. I'd rather do the job for free (and I have) rather than let a customer get to the point where they need to take legal action.

Same applies at the machine shop I work at now. The owner is in business 35 yrs and never ever required the use of an attorney.

You are doing a risk assessment and I would suggest insurance from a well known company.
 
If you are running a hobby business, you need to be making some good money to cover all the associated costs of starting and running a separate entity. In the end, if it's a one man show, you will have no protection and you're just wasting the money for the accountant and lawyer. Additionally, because it is a separate entity, any losses incurred stop there whereas, if you run as a sole proprietor, those Schedule C losses can reduce your overall personal tax liability.

Bob
 
Who here has told their insurance provider that they make knives as the primary business operation? How did that work out?

If you did not disclose this fact, what do you think will happen if you attempt to file a claim for a customer injury/loss?
 
Losses from the entity do count towards your tax liability. I am self employed with 2 entities I do business under and personally having that barrier between my personal finances and the business finances helps me sleep at night. To RangerBob's point if you do it incorrectly then you miss out on opportunity.
 
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Maelstrom78 said:
Losses from the entity do count towards your tax liability. I am self employed with 2 entities I do business under and personally having that barrier between my personal finances and the business finances helps me sleep at night. To RangerBob's point if you do it incorrectly then you miss out on opportunity.
Click to expand...

You have a good point and I was probably vague. I believe a LLC can pass losses through to personal filings. I had a corporation and could not.

Bob
 
I've been full time for almost 25 years and never had a LLC, or anything like it. I just run as self employed.
 
Some reckless advice in this thread.

Protect yourself with an LLC and thank me later. Your personal assets will be in danger if you do nothing. Product Liability, patent infringement, trademark, logo, etc. you can be sued for anything...At $300-$500 per hour a patent attorney will suck up your bank account in a blink of an eye. LLC is like $100-$500 depending on state. You decide if its worth to lose it all...
 
Hopefully this thread isn't too old to drag back up. I've been looking into this lately. In regards to getting a business plan together and presenting it to a bank for a small business loan(for advanced equipment), which entity would be most conducive? Sole proprietorship or LLC?

Is it possible to get a tax ID number for a sole proprietorship, that can be used to start a business account at a bank? My bank requires a tax ID number for the company to setup a business account.

My local university has a non-profit for small businesses and I've been going to some classes there. A couple of the instructors I've spoken with seem to think that a bank would be more inclined to do a loan if there's already a business account for the company.
 
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