Home: Message List - Worries about liability - holding me back!

Re: Worries about liability - holding me back!

weboffice — Mon, 26 Jan 2009 15:16:02 GMT

CoachMike and Lighthouse - you both make excellent points. I'm definitely on board with Lighthouse in promoting non-incorporating until you determine the liability and feasibility of your new entity. Incorporating just sets you up for more expenses and headaches then you need when starting a new business. However, with regard to another thread that asked about an EIN, although I am a sole proprietor, I obtained an EIN because I didn't want to give out my social security number to everyone. Further, once you obtain an EIN as a sole proprietor, you can use that same EIN for as many entities as you choose - as long as you remain a sole proprietor. This certainly makes things much easier all the way around! I have two different businesses for which I use my EIN and I've never had a problem in the 8+ years I've been in business.

Now, for the question at hand, if Silver is hosting "at home" jewelry parties, she will have liability in the respect that she is inviting people to her home. If someone should slip, trip or fall resulting in personal injury, she would be liable for damages if the person should sue. Her homeowners insurance would cover damages up to the policy limit but, anything in excess of policy limits, she would be personally liable. This doesn't affect her concept of selling jewelry - it should be taken into consideration when inviting people to your home for business purposes.

She may be best served by obtaining an umbrella policy covering her home, business and personal assets. You can obtain a $1,000,000 policy for a reasonable amount of money these days. Although it seems ridiculously high, I can tell you that in today's society you can't have enough.

I've been a paralegal for over 25 years and have seen quite a bit in my experiences. You can't take enough precautions these days.

Good Luck!
Valerie Nowottnick
Paralegal Consultants
www.paralegalconsult.com

Re: Worries about liability - holding me back!

CoachMike — Thu, 08 Jan 2009 17:18:25 GMT

I was just wondering silverjewelry what decision you had come to.

Re: Worries about liability - holding me back!

silverjewelry — Tue, 09 Sep 2008 22:56:53 GMT

Thanks you two. That was interesting. I am going to definitely do home parties but I am buying the jewelry wholesale and reselling it. So I will be handling the merchandise. I may also do some arts/crafts shows and then just some good old word-of-mouth, referrals, business cards, flyers...

It's probably far-fetched that someone may sue me but I'd rather be prepared.

Thanks again to everyone.

Re: Worries about liability - holding me back!

Lighthouse24 — Tue, 09 Sep 2008 16:44:26 GMT

Good point, CoachMike -- that would be what, $125/year (if the owner can DIY, more if the owner needs an attorney or filing service)? If I'm not getting any tangible benefit, I'd rather have the money for advertising or inventory -- but that only makes it the right answer for me, not someone else. I think we've done a good job of explaining two viable options and the rationale for each. I wish more of the "question" threads evolved this way. Regards - DH.

Re: Worries about liability - holding me back!

CoachMike — Tue, 09 Sep 2008 16:02:17 GMT

Hi Lighthouse. I was not aware that the business was selling jewellry in home parties. And I tend to agree with you, but...if an accident occurs, who is going to get sued? The homeowner who provided the premises or our entrepreneur? I understand what you say about costs of having a corp., but in Florida there is no income tax and on a Sub S corp you file to notify Florida you are a Sub S and you are exempt from filing any more returns. So if she were an LLC her costs would be the upfront cost and then the annual fee for having a corp or llc. That would be it.

Different perspectives...aint it fun

Mike Crosa

Re: Worries about liability - holding me back!

Lighthouse24 — Tue, 09 Sep 2008 13:50:53 GMT

CoachMike, thanks for the reply. I understand your point re: a grocery store (which would meet one or more of the criteria I listed for considering a corporate structure). This isn't a grocery store, or even a brick-and-mortar business. The owner asking the question sells jewelry at home parties, and wouldn't even see or handle the actual item sold and shipped to a customer in most cases. I'm just not able to figure a real benefit for the owner in having a more complex business structure than a sole proprietorship at start-up in this specific case.

Different perspectives . . . not a bad thing to have in a community like this. Best wishes.

Re: Worries about liability - holding me back!

CoachMike — Tue, 09 Sep 2008 12:09:09 GMT

Not at all Lighthouse. Lawyers can sue everybody in sight. The question is would they prevail. I'm sure in the case of personal negligence or breach of duty you could be sued. This is more true if you are a professional (CPA, Dr., Lawyer), than if you are a layman. I was referring more to the slip and fall types. For example, you slip in your local grocery store. You sue the store. I doubt that the manager of the store is going to be sued for negligence. If he is I would think the judge would throw it out. So to answer your question no I don't think the outcome would be the same.

Mike Crosa CPA, Certified QuickBooks Pro Advisor
Helping my clients increase their bottom line
877-538-4392

Re: Worries about liability - holding me back!

Lighthouse24 — Tue, 09 Sep 2008 03:48:31 GMT

CoachMike, are you saying that a plaintiff couldn't/wouldn't sue both an LLC and the LLC's single/member manager in the case of something like negligence or inaction (breach of duty). If so, then I'd have to disagree (at least as I understand how attorneys pursue tort cases against businesses in most states). If not, then wouldn't the ultimate outcome be the same for the business owner (sole proprietor or LLC single member) either way?

Re: Worries about liability - holding me back!

silverjewelry — Tue, 09 Sep 2008 01:14:23 GMT

Thanks. Yes, a lot of food for thought and I appreciate every morsel!

Re: Worries about liability - holding me back!

CoachMike — Tue, 09 Sep 2008 01:02:55 GMT

Good luck in your business venture. I feel that you would do well to consider forming an LLC and electing to file your taxes as a sole proprietor. That way you have the corporate form to protect you but you pay taxes as if you were self employed. One caveat. Having a corporation does not protect you if you do not have liability insurance. Courts have held that a prudent person would have insurance and since a corporation is considered a person they should also have liability insurance. There have been cases where the corporation did not have insurance and the court have pierced the corporate veil and held the stockholders responsible.

The big difference as I see it is if you are a sole proprietor and you are sued and you lose, the insurance company will pay up to the limits of the policy and then wish you well and walk away. If the judgement is larger than the policy limits, then you will be liable and could lose everything you own. In the case of the LLC if you lose, the insurance company will again pay to the limits of the policy and wish you well. But then you hand over the keys to the business and walk away. Your liability is limited to your investment in the business, not everything you own.
More food for thought.

Mike Crosa CPA, Certified QuickBooks Pro Advisor
Helping my clients increase their bottom line
www.businessprofits.com
coachmike@businessprofits.com
877-538-4395