Starting a soap business- LLC?

[christellita]

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!

 

[Maria]

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.

 

[Ilovesoap]

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

 

[christellita]

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!

 

[Maria]

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.

 

[Guest]

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.

 

[Drex]

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.

 

[beachgurl]

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.

 

[andreabadgley]

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.

 

[Maria]

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.

 

[andreabadgley]

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!

 

[Maria]

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.

 

[Lindy]

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

 

[AshleyR]

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:

 

[Lindy]

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....

 

[xyxoxy]

"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.

 

[AshleyR]

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

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

 

[Lindy]

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.

 

[kaseencook]

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?

 

[AshleyR]

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!