Is An Llc Worth The Money For A Small Hobby Business?

[LeeU]

Forming an LLC for a tiny home studio with only online sales and a few local small shops (& low quantity) does not seem to warrent spending a few hundred dollars (when one does not readily have that to spare), based on the pros and cons noted in the forums, and the truly very low odds of getting sued. I only do non-food-use pieces, like my incense cone burners or small catch-all dishes.

 

Anybody have anything to add to what has already been discussed regarding the LLC status???  

 

In my state we have no income tax or sales tax for a small business and I have verified that I absolutly do not "have" to, or really need to, have an LLC certification or any kind of license or permit.  It would probably be most sensible to just keep it simple. So I am just curious if I have missed anything, like maybe it generates a positive perception on the part of purchasers (tho my hunch is they probably don't notice or care).  

 

aaarggh   Why won't the save changes "take" my full editor effort to correct Llc in the title to LLC? 

[Guest JBaymore]

Lee,

 

This is a tough one.  No one can give you a "hard and fast" one-size-fits-all answer to that one.  You have to weigh the level of risks that you are willing/able to take. 

 

SO... no food items.  BUT.... you are making and selling even more potentially hazardous products.  Something with FIRE in it.  So what if your incense burner malfunctions (cracks or ??????) and catches someone's house on fire?  What if someone is hurt in that fire?  What if someone dies in that fire?

 

There are potentially big issues sitting there. 

 

What if someone's house catches on fire and they simply decide to BLAME your incense burner?  Now you are into a war with who hires the best lawyers.  Even if you win.... you lose.  Because of legal fees.

 

NOW.... all that being said.... how often does that stuff happen? 

 

Obviously not often or we'd be hearing about it constantly on the various pottery forums an in the press.  You can get about $2 Million dollars of combined premises liability, product liability, and tool and equipment protection as a potter for under $1000 a year.  That alone says it does not happen often.

 

I have talked to people who have had legal issues with oil lamps.  Don't personally know of any with incense burners.  I have to say that I stopped making oil lamps a long time ago..... out of concerns for product safety and potential suits.  I still make incense burners intended for Tea Ceremony.  For a VERY limited and "attentive" market.

 

Some people feel that HAVING such insurance makes you a target for suits.  Some people feel that if they sort of "have nothing" (no significant assets in house, bank accounts, stocks, etc.) then there is nothing to lose so why bother.

 

An LLC separates your personal assets from the business assets.  It means that someone can't take almost literally everything from you. 

 

Insurance and doing stuff like forming llc-s can feel like "wasted money" when all is good.  But that one time you NEED the protection..... it is a godsend to have the protection.  It is like medical insurance.  People complain loudly over the high premiums every month.  But then POOF....... a significant medical event comes along.... and the resulting hospital and doctors bills make all those insurance payments suddenly look like a REAL bargain.

 

That's all I can say on the subject.  I'm sure others will have opinions also.

 

best,

 

...............john

[Mark C.]

My business liability insurance is for 2 million at 375$ per year thru state farm in Cal.

I hate insurance (its worse than that really) and my father was an agent.

If they sue- that's what they go after- this pot of money not my estate.Which has grown over the years.

did I mention I hate insurance?

[Guest]

Any competent lawyer can piece the veil of an LLC.

 

I hate insurance too, but ya gotta have it.

[GEP]

LeeU, I've been keeping it simple for 14 years, with no plans to form an LLC. This is on the advice of my accountant. He works with maybe 100 small businesses, and says there's no reason for me to file two tax returns. And very tiny chances that a one-person busness will screw up badly enough to need that kind of protection. Also, you can buy insurance without being an LLC. Talk to the person that you buy your homeowner's policy from. They can give you coverage for your studio equipment and liability.

 

(ps, forum software makes the first letter of every "word" in a thread's title upper-case, and everything else lower-case, whether you like it or not. I think it's odd too.)

[Pugaboo]

I've been thinking on the LLC issue as well. It's on my "when I get bigger" list. I did finally get liability insurance and feel so much better knowing it is there. I posted about that here on the forum when I got it in December. I got a policy through a link I found here under the Ceramic Arts Daily Pottery council or something like that. It's been a few days since I clicked on it and can't remember the exact path I took to get there. If you are interested search my postings over the past month and it should pop up. I am sure there are other policies out there this one works for me right now and as I grow I plan to up my coverage.

 

I've been wondering and pondering the LLC issue and browsing through past discussions of it. I have a path laid out that I hope to follow to get where I need to be in the timeframe I need to get there, and it's going okay so far, somdiscussions like this one, wholesaling, etc always interest me.

 

T

[Roberta12]

Lee,

In Colorado, I was able to set up an LLC through the state.  Very affordable.  I want to say it was around $56.  I registered my business as an LLC.  I consulted with a local accountant who suggested that being set up as an LLC would separate personal assets  from business assets as John said.  I have insurance for my business through State Farm also and it runs about $30 per month.  Just like they say...."peace of mind".   I probably would not have needed to set my business up as an LLC and RonSa is most likely correct in saying a lawyer could take that apart easily, but still, I didn't want my small business to jeopardize our personal accounts and assets.  I felt more comfortable being set up that way.   It seems there are differences from state to state and with personal circumstances or biases, but that was what I based my decision on. 

 

Roberta

[Marko]

Thanks for bringing this up LeeU. I don't know, but I do need to find out. Mostly about the insurance. I'm going to get a quote. As for the LLC; maybe you could get with a SBA associate. They work with advisors from the S.C.O.R.E. They are retired business owners that offer free advice. But you have to set up and appointment. Check with your local Chamber of Commerce. 

[GEP]

Question for the whole group: does anyone know of any case where a potter got sued and lost their assets due to their pottery business? This is an honest question. I have never heard one, but if anyone knows of any such case then we should share and discuss it.

[Stephen]

Hey I think your guy is wrong about the 2 tax returns unless it's a state thing. On the federal level you can just do it the same as you do now if you want if you do not have partners beyond a spouse. It really is just a small fee ($69 in WA) once a year and everything online in about 5  minutes, at least in my state and if something did happen why take the risk just because you haven't heard of it being an issue for someone else. I like the KISS approach as well but this is really simple and cheap. My old studio was/is an LLC I formed and personally maintained from 2011. WA does require a registered agent though and the one we use charges $125 a year so there is that.

 

I'm in another state right now starting a new studio and going to do it just because it really makes no sense not to, Just another cheap thing you can do that might help if something happens. Obviously good lawyers can accomplish lots of things but LLCs do offer protection for personal assets if you have a good lawyer.

[GEP]

Thanks for clarifying that Stephen. You are right. The conversation I had with my accountant was also about "employees" and "incorporation" not just about an LLC. A simple LLC with one owner doesn't need a separate federal tax id number.

 

Edit to add: speaking of employees, this is what my accountant explained about liability. When you are one person working alone, it's easy to control everything about what you produce, and keep yourself safe from liability. It's when you have employees that you need to worry, because it's hard to control what other people do.

[Chris Campbell]

I think it is a matter of deciding what level of risk you are comfortable with.

 

I had two incidents that made me get an LLC ... one elderly woman who picked up a lit luminary and spilled hot wax all over her hands and one small child dropped a piece and reached down to grab the shards.

I quickly stepped in to manage the situations and no one got overly upset in either case but I got an LLC because it was just too close for comfort.

 

Our reputation for being "poor potters" probably makes us a less tempting target for lawyers.

Could a lawyer pierce it? Maybe, but is it worth their time?

[LeeU]

 Fire Trap

 

Thanks all

 

Bottom line: not doing the LLC...$200 (in my world) buys a lot of supplies.

 

Thanks GEP for solving the mystery of not being able to fix the title.

 

@John--if an incense cone burns someone's abode to the ground and they try to blame my chunk of clay, I'll just go underground and resurface in Bolivia or something. (But yes, I take to heart the possible issues---just willing to throw the dice on that one, regarding the stuff I make.)  

 

I do have insurance--oh, and Marko--I agree--entities like SCORE, and in NH, the NH Small Business Development Center, can be good supports..I have been using them/their materials for months now. 

 

It's kinda exciting...I'm almost finished with the logo for my new web site & business card. And I finanlly chose WIX for the site generator (leaving GoDaddy-it's just not flexible enough for how I like to control my own art & design). Lotta work (and the up-front expense) for something that I just want to end up paying for itself. Yeah, I know...good luck with that !!