# Starting a soap business- LLC?



## christellita (Feb 25, 2009)

Hey there,
I've been thinking of starting a small soap business! I'm so excited.  Does anyone have experience with this that could give me advice about sole proprietor vs. LLC? I don't want to get sued personally if there's a lye pocket in my soap or something. Any advice would be great!
Thanks!


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## Maria (Feb 25, 2009)

Depending on what state you are in, an LLC gives the most protection for the least amount of money. It is slightly cheaper than an S-corp as long as you do your own tax returns. You need legal advice relevant for your state as things can vary. Sole proprietors do not have any protection.


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## Ilovesoap (Feb 25, 2009)

or could you go sole prop and obtain product liability ins. as well as home business insurance?


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## christellita (Feb 25, 2009)

i live in Oregon.
would it be cheaper to do sole proprietor and then purchase additional insureance? any ideas on how much purchase liability and home business insurance are? do they protect you as well as an LLC?
Thanks!


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## Maria (Feb 25, 2009)

I would not even consider sole proprietor unless you have no assets in your name. Insurance is not the same as asset protection. You really need a lawyer or possibly an accountant to help you decide.


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## Guest (Feb 25, 2009)

I'd recommend going with an LLC.

As a sole proprietor, your business and your personal assets are one in the same.  A lawsuit can cost you your savings account and anything else that you own.

With an LLC, your risk is limited to your business assets. 

Whether or not you get liability insurance (which isn't a bad idea either), it's best to keep your own personal assets outside of risk in the event that your soap reacts badly with someone's skin and they file a lawsuit against you.


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## Drex (Feb 26, 2009)

> With an LLC, your risk is limited to your business assets.


This is often the case but in many states there have been cases of negligence and fraud being brought against LLC members. You must consider that an LLC is considered a separate entity beside you. You are basically a representative of the LLC. You will be held personally responsible for your representations.

You need to talk to a small business counselor or hire a consultant. Insurance and the liability protection provided by a LLC are two very different things.


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## beachgurl (Feb 26, 2009)

Drex .. you're 200% right.  I'm taking business law right now and the trend in courts is towards holding responsible individuals (even if they didn't intend any wrong doing or know about any ills) liable in criminal and civil courts, whether those individuals are part of an LLC, corporation, or sole proprietorship.  

As far as cost, I want to say you can form an LLC with Legal Zoom for about 600 dollars.  2 million of insurance costs about the same (a little less actually).  Moreover, before you LLC, you might want to know if you'll be required to learn accrual or cash based accounting for reporting purposes.  The choice is really personal preference.


ETA:  Yes, someone will probably eventually have an allergic reaction to one of your products.  If you're following labeling guidelines set forth by the FDA/Consumer Products safety commission, then they really don't have a leg to stand on.  If I use almond oil I make sure it's included on the label and also put a noticeable warning.  I asked my professor (a Juris Doctorate) this:  How can they sue you if you properly labeled according to federal standards and even provided an extra warning?  The answer is that while they can, they will not win and you can then countersue for legal fees and some other stuff.


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## andreabadgley (Feb 26, 2009)

This is a great thread - thanks for the legal info Beachgurl.  I'm currently a sole proprietorship with insurance through the Handcrafted Soapmakers Guild, but we're hoping to upgrade to an LLC soon.  Sounds like we might need to talk to a small business attorney and get some advice.


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## Maria (Feb 26, 2009)

Florida  LLC's are easy to form. Go to www.sunbiz.org you can file yourself. The important part is understanding the rules so you are not held responsible personally and that is where the professionals come in. If you use turbo tax at $99 a year to file your business return and file your own annual statement, it is not expensive at all.


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## andreabadgley (Feb 26, 2009)

Maria said:
			
		

> Florida  LLC's are easy to form. Go to www.sunbiz.org you can file yourself. The important part is understanding the rules so you are not held responsible personally and that is where the professionals come in. If you use turbo tax at $99 a year to file your business return and file your own annual statement, it is not expensive at all.



Oh wow, thanks Maria!  I didn't know this!


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## Maria (Feb 26, 2009)

My husband and I got our business advice and set up first an S-Corp and later on an LLC using that website. It is silly to pay someone hundreds of dollars to that part. The legal advice is priceless though.


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## Lindy (Feb 26, 2009)

I'm going through the forming of a "company" right now with the help of the Self Employment Program in Canada which is funded by the government.  The advice my business advisor has given me is to remain a Sole Proprietor until the company makes enough money that I want to be able to shelter some of those funds and not have to take them out every year as you do with a SP.  I have $2 million in Liability Insurance and my insurance company has told me I need to do 2 things to protect myself from lawsuits - properly label my products with all ingredients & advise the consumer on the label that this product is meant for external use only.  Yes at some point someone is going to have an allergic reaction but it is their responsibility to read the label.

I will be selling at different Malls and they are looking for the liability insurance and most are looking for the $2 million.

HTH


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## AshleyR (Feb 26, 2009)

Lindy said:
			
		

> I'm going through the forming of a "company" right now with the help of the Self Employment Program in Canada which is funded by the government.  The advice my business advisor has given me is to remain a Sole Proprietor until the company makes enough money that I want to be able to shelter some of those funds and not have to take them out every year as you do with a SP.  I have $2 million in Liability Insurance and my insurance company has told me I need to do 2 things to protect myself from lawsuits - properly label my products with all ingredients & advise the consumer on the label that this product is meant for external use only.  Yes at some point someone is going to have an allergic reaction but it is their responsibility to read the label.
> 
> I will be selling at different Malls and they are looking for the liability insurance and most are looking for the $2 million.
> 
> HTH



Lindy, who do you have your insurance through and about how much are you paying (if you don't mind me asking! Totally understand if it's secret!)  :wink:


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## Lindy (Feb 26, 2009)

Hey Ashley - no secret - it's The Co-Operators and I'm paying around $700 for $2 million - $1 million is around $600.  They were the best I could find plus there are a lot of insurance companies that won't take us on because of the liability risk of injury through allergies or mis-use of the product..... :shock: .....I really didn't want to know how people could misuse soap....


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## xyxoxy (Feb 26, 2009)

"SCORE" is a great place to start for free advice on business.
http://www.score.org/index.html

I don't know if there is a Canadian equivalent etc. but they have been around in the states since the 60's and got started by a bunch of retired business folks who wanted to share their knowledge with those just starting out.


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## AshleyR (Feb 26, 2009)

Thanks Lindy! $700 is reasonable I think (for Canada!)

Is it only product liability insurance or insurance for working out of your home too?


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## Lindy (Feb 26, 2009)

It is strictly Liability - I did let my home insurance company know what I'm doing and they are covering the home business part for replacement of equipment etc. but I had to get someone else to do the liability.  I shopped around a bit and this was the best deal I could find by a couple of hundred dollars.

XYXOXY - I don't know if such an association exists in Canada.  What we do have is the Self Employment Program and even people who don't qualify to receive the living allowance can attend the information seminars and meet with the Business Advisor.


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## kaseencook (Feb 26, 2009)

I also put an additional "terms of purchase" on my site. When someone orders something they must agree to the "terms of purchase", which generally says that the purchaser is responsible for ensuring that the product is suitable for them, and that the business is not liable for damages that occur as a result of misuse of the product. And that people with skin allergies are not advised to purchase our soaps, and if they purchase soaps, do so at their own risk.

I do not know how much protection this gives, maybe nothing, but essentially if a person agrees to the terms, at least it makes a person think before they buy, especially if they have skin allergies. 

Does anyone know how much protection "Terms of purchase" would give?


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## AshleyR (Feb 26, 2009)

kaseencook said:
			
		

> I also put an additional "terms of purchase" on my site. When someone orders something they must agree to the "terms of purchase", which generally says that the purchaser is responsible for ensuring that the product is suitable for them, and that the business is not liable for damages that occur as a result of misuse of the product. And that people with skin allergies are not advised to purchase our soaps, and if they purchase soaps, do so at their own risk.
> 
> I do not know how much protection this gives, maybe nothing, but essentially if a person agrees to the terms, at least it makes a person think before they buy, especially if they have skin allergies.
> 
> Does anyone know how much protection "Terms of purchase" would give?



I don't think it protects you legally (at least I know it doesn't in Canada), but people do still use "warning, use at your own risk" type labels to make the customer THINK they can't do anything about it if something does go wrong. May scare some people off from suing you if the thought ever crosses their mind!


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## kaseencook (Feb 26, 2009)

Hehe, well hopefully it does scare off those people who are just out there to sue people to get a buck - like that lady who put a finger in her fast food. I hope no one finds a finger in my soap   

Has anyone actually seen/heard of a homemade soap maker being sued?

I googled it, but didn't find anything related. It is a huge paranoia, and we have to payout tons of money to get insurance companies to ease our paranoia.... well I guess that's how insurance works, he he  :wink:


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## christellita (Feb 27, 2009)

that's a good question- i've never heard about anyone getting sued but in all my books it always warns about it.  I'm definitely paranoid!
Thanks to all for all the great advice.  I definitely think I will talk to a consultant before I make this decision!


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## Lindy (Feb 27, 2009)

I think the insurance is just good business.  As my Business Advisor put it - we are increasingly living in an age where people would rather sue than take responsibility for their own actions or talk about it with the person they feel/believes is responsible for their problem.  Has it happened that a soaper got sued?  Don't know - could it?  You bet.  The other thing is that depending on where you're selling you may be required to have the insurance.  For instance, the malls that I have booked space in require I carry my own insurance - this is required by their insurance companies.

Just my 2 cents..... 8)


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## kaseencook (Feb 27, 2009)

I agree that insurance it a good idea, I suppose it's just a sad reality of today's society, I just wish it wasn't so dang expensive!  :shock:


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## Etelka (Feb 27, 2009)

christellita said:
			
		

> Hey there,
> I've been thinking of starting a small soap business! I'm so excited.  Does anyone have experience with this that could give me advice about sole proprietor vs. LLC? I don't want to get sued personally if there's a lye pocket in my soap or something. Any advice would be great!
> Thanks!



How long have you been soaping christellita?   If you're even slightly worried or entertaining the idea of lye pockets or something  in your soap,  you should not be selling them
Etelka


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## christellita (Feb 28, 2009)

I've been soaping for over a year now.  I just used lye pockets as an example - i'm more worried about people getting an allergic reaction to an ingredient and trying to sue me for it (even if i have it labeled). I'm not too computer savvy so I've been making soap alone for a year and now that i've found this forum, I'm asking all these questions that i wish i had the answers to a long time ago!!!! :wink:


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## Lindy (Feb 28, 2009)

Christellita - good on you for wanting to ask these additional questions.  I don't think we ever quit learning no matter how long we've been doing something.


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## LomondSoap (Feb 28, 2009)

OMG your insurance is so expensive!
In the UK, I can buy £1 million liability for £70 or $125 CAD.
What a huge difference. Do you all have to have products certified by cosmetic chemists? That's quite a big cost here.
Interesting thread...


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## Lindy (Feb 28, 2009)

Hey Corrie - no we don't have to do any certification - we have to register our recipes with the government but there is no cost or investigation or approval process.  That's probably why it is so expensive...


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## Etelka (Feb 28, 2009)

christellita said:
			
		

> I've been soaping for over a year now.  I just used lye pockets as an example - i'm more worried about people getting an allergic reaction to an ingredient and trying to sue me for it (even if i have it labeled). I'm not too computer savvy so I've been making soap alone for a year and now that i've found this forum, I'm asking all these questions that i wish i had the answers to a long time ago!!!! :wink:



Sorry,  I didn't mean to step on your toes or anything like that,  but some ppl think they can have a few batches under the belt and start selling.  I didnt mean to offend you  
Our insurance is high but yours is way too high,  so if you list all your ingredients and have your warning on there like nut allergies or to avoid certain eos during pregnancy,  how can they go after you,  isn't up to the consumer to decide if they are allergic to something?


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## kaseencook (Mar 1, 2009)

Indeed I think the only thing a person could really sue for would be claiming that the soap was still lye heavy or (as said) contained a pocket of lye. That's the only negligence I can think of besides wrong labeling.

If all ingredients are labeled on the package, I agree, you won't think that the consumer would have much of a case because a consumer could be allergic to ANY product and people have to be responsible for them selves. I suppose if they claimed that their reaction was due to lye in the soap then how could anyone know if they are not just allergic to something else in the soap that is not lye? You would need the original soap and soap testing details for every soap to prove it was or was not lye heavy, and even that is not much good because the soap will have changed by the time it would go to court... 

I imagine it would be very hard to prove someone was negligent by selling lye heavy soap. It would have to be an extreme case. I agree, if a soap is labeled properly, and someone has an allergic reaction, it is not the result of negligence. But democratic judicial systems can be rediculus sometimes, so we have to have our shields ready  :wink:


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## christellita (Mar 2, 2009)

No worries Etelka! You didn't offend me at all 8)


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