Do you feel an LLC is a must?

I had two boat building companies where product liability is a LARGE issue. In both cases, a lawyer advised a Subchapter S Corp. The losses and profits carry through to your personal income and as long as you keep separate legitimate books for the Corp. you are protected. Worst case, let them sue you and walk away.
 
JG Custom Metal Works said:
My local university has a non-profit for small businesses and I've been going to some classes there.
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:thumbup:

That was going to be my first, and really only bit of advice: speak directly with experienced professionals in your area. Laws and regulations and all that stuff can vary widely from state-to-state and even city-to-city.

For instance, where I'm at an LLC didn't really add up. Since it's just me, no employees other than some help from a family member (my wife stitches my sheaths), local regulations allow me to work as a "self-employed/home business" with nothing more than a city and state tax license. But I can't have a retail store on the property - that's different zoning, licensing, etc. More importantly, my entire operation has to remain under the same roof as my house. No outbuildings. An attached garage counts for that here; putting my shop in a detached garage would disqualify me and bring up a whole other set of regulations.

My wife has pretty good health coverage so I'm covered there. My homeowner's insurance covers my tools and all the normal liability, since it's just me and I conform to the "home business" regs. BUT! I do not have employees, or allow visitors/shop tours during work hours, and perhaps most of all, I don't forge. That would open yet another whole can of worms.

Insurance agents are very familiar with guys having a grinder or some saws and routers for woodworking or stuff to putter around on their weekend hotrod, or even an (electric) welder... that kinda stuff will not surprise them.

But I'll hazard a guess that a forge in your shop would surely raise some eyebrows, and probably your rates. (they have this weird thing about open flames ;) ) So insurance is going to depend on a number of factors, too.

As for getting sued over personal injury... look man, no sane lawyer on earth is gonna take a case against an independent craftsman because his client cut his finger off with the craftsman's knife. I'm not saying it couldn't happen, but A) people know what knives are, for pete's sake, and B) the numbers just aren't there. Unless you make some really cheap junk that simply falls apart and gets someone hurt, I don't see it being much of an issue.

Trademark? Don't be mucking about with known trademarks when it comes to logos and advertising and blatant copies of other peoples' knives, obviously. But it turns out, other than certain locking mechanisms, there's not really a whole lot you can trademark on a knife. (Except for a Talon Hole... you can trademark that, apparently. I doubt that would really stand up in court, but we'll never know until someone hires the lawyers to argue it. )

Now copyright... that's important. Never use an image or soundfile you didn't create yourself, or hire someone to create, or pay royalties on, in any promotional stuff, website, etc.


Anyway, that's why I say talk to professionals in your area.... this stuff can get complicated quick. It doesn't have to be as complicated as running a multi-million-dollar machine shop with 30 people on the payroll, but you'll sleep better at night knowing you're legal, and your behind is reasonably well covered.
 
I run my health care business as an .ltd. Separation of my professional life from my personal assets is the biggest benefit, and the tax burden for corporations is greatly reduced. The financial benefit doesn't add up in Canada until you make over $40k. You have to follow the laws regarding incorporation or the benefit dissolves.

My house builder is in this boat right now. He completely screwed up the build, and then tried to change company names to avoid the liability. Since he didn't follow the laws regarding incorporation, his personal assets are on the line.
 
Thanks a bunch for the info gents. It turns out that a sole proprietorship is probably gonna be best for me. I won't have any employees and if I was to do an LLC then I would have to do payroll and pay myself a salary. There really wouldn't be any substantial benefits for me to do a LLC either. I spoke with the secretary of state's office and they said, if someone was to sue me as a LLC, then it be very possible that they would sue all the officers within the LLC as well. So the insulation offered by an LLC wouldn't really amount to much in for me.

I found out that, as a sole proprietorship, I can create a business account under a DBA(doing business as) account. This account can be presented in the business plan, when trying to get a small business loan.
 
Some erroneous information in this thread. If you are genuinely concerned about being sued, and nobody can tell you with any certainty that you won't be, then looking into some form of corporate protection makes sense. Steps have to be taken to be sure the corporate veil won't be pierced. The law looks at the corporation as a separate legal entity, but to make sure the protection provided will hold up there are a number of steps you need to take. Things like annual meetings with minutes, not co-mingling funds, etc. If you are genuinely concerned it's worth talking with one of those rare beings known as an honest attorney, preferably one with experience or specializing in setting up corporations and business law. You would need a registered agent, and often times folks use their business attorney.

Like Stacy said, you don't hear about a lot of folks suing knife makers. Litigious people file crazy lawsuits all of the time. In most states the truth is that unless you have a contract between the parties that specifies any legal costs will be awarded to the winner of a dispute, you will be liable for your own defense. Even senseless lawsuits aren't free to defend. If they're totally frivolous they can often get dismissed, but the bar to do so if extremely high in some states as the courts have taken the stance that everyone deserves their day in court. No matter what, if someone does choose to sue you for any reason, unless your homeowners coverage provides something, or you have some type of insurance, you will pay the costs to defend yourself. Even if you have a corporation they will likely name you as an individual in any lawsuit. That's pretty much SOP and then you have to prove that the reason you were being sued relates solely to your actions within the corporation and not you as an individual. Some people have trouble wrapping their head around the concept of the corporation being a truly separate entity.

Setting up a corporation and following through on everything that must be done to keep the corporate veil from every being pierced in the event of a lawsuit, costs money and time. I would suggest that looking into what insurance may be available may be more cost and time effective. Your home owners may even offer some type of rider for limited business activity. Talk with your agent.

Free online legal advice is always worth just what you paid for it, and you follow it at your own potential peril. Talk with an insurance professional first, and if you don't like what may be available, talk with a legal professional.
 
Work smart and make educated decisions.

If you are working alone in a small scale private workshop, I personally don't see the need.

If you have a larger production facility with employees, payrolls or students... liability may become issue.
 
If you ask your insurance agent about ANYTHING the answer will be "no don't do that the liability will be huge." Your insurance carrier doesn't even want you to get out of bed in the morning.

If you ask your lawyer the answer will be "don't do it, you could be sued." but if and when somebody goes to sue you the attorney will demand payment right up front and that's usually the end of the suit. If you adversary gets past coughing up some legal fees their attorney will start sniffing around to see what you have. Most of us don't have enough to spark an attorney's interest and the case ends right there.

If you are worth millions and for some reason decide to make and sell knives then you have to answer all these questions but if you are worth millions, I'm sure you have already jumped through all the hops.

Life is short. Do what you want to do.
 
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