Insurance

[Bubz]

From what I have been reading, it seems like the best thing to do instead of getting an LLC is to do a DBA and get a good insurance. Correct me if I am wrong on that. I'd like to start selling my excess soap, I really don't want to deal with the hassle or price of a LLC.

Can anyone recommened some insurance that covers the cost of defence?

Out of curiosity, should you have insurance for donating soaps?

And I'm sure this is a no no, but can you give away soap suggesting that you accept donations?

 

[Ephemerella]

I did as you suggested and forwent LLC'ing for a DBA with insurance. I get my insurance here: https://www.soapguild.org/

You'll need to do your own due diligence to find an insurance company that covers what's important to you.

I donate a lot of my soap to 501c3s so they may raise funds, and I am insured as a cautionary step. Unless you are a 501c3, I can't imagine you can accept donations yourself.

 

[AliOop]

I'm sure this is a no no, but can you give away soap suggesting that you accept donations?

By definition, it's not a donation if they are receiving goods or services in exchange for any payment made. Instead, I'd mark them as "name your own price."

PS- good call on getting insurance rather than an LLC - it's a much better use of your money!

 

[Ephemerella]

^^^ So glad you mentioned that @AliOop, for a large charity organization I support, that is precisely what we do at in-person fundraising opportunities. We have a table of gifts that are available to whoever wants them for a donation of their choosing. Do we once in a while have someone who donates $1 and takes an item that has a perceived value of $50? Yes. However, way more often, people throw down $20 and take an item with a much lower perceived value.

Interestingly, when I decided to be serious about considering selling, I tested the waters by donating hundreds of bars to charity organizations and manned the tables to observe what donors' perceived value of my soap was — so I could get a real-world sense of pricing. Even taking into account that the sums offered for soap were inflated due to the charitable aspect, I was surprised at how significantly high the perceived value of my product was. Through this experience, I knew I could come out of the gate setting a premium price for my products, and I had a confidence boost to boot, which is invaluable.

 

[AliOop]

Thanks for sharing your experience, @Ephemerella. I agree, donating is a great way to get your name and products out there for people to enjoy, and then hopefully turn around and buy!

I should clarify my prior statement to say that any amount the "donor" pays to a non-profit which exceeds fair market value of the item or service received, is considered a donation. But that still assumes the recipient is at least non-profit. The entity also needs to be a 501(c)(3) if the donor wants a federal tax deduction.

 

[Bubz]

Thanks for the responses. Honestly I get overwhelmed with all the legal jargon when it comes to business.

When donating soap, are you still liable for it? Can someone still sue if you didn't sell it to them?

I think on one of alioops posts she said that even if you had product liability insurance it's the cost of defence that will bankrupt you first. From the insurances that I have looked at far, I may be overlooking or not understanding the phrasing, hasn't listed that as part of the insurance.

 

[AliOop]

When donating soap, are you still liable for it? Can someone still sue if you didn't sell it to them?

I think on one of alioops posts she said that even if you had product liability insurance it's the cost of defence that will bankrupt you first. From the insurances that I have looked at far, I may be overlooking or not understanding the phrasing, hasn't listed that as part of the insurance.

It depends on the laws where you live, but usually you can be liable for damages even from donated products.

When I looked at the insurance policies available from the Soap Guild, they did cover the cost of legal defense. It isn't always stated that directly, but the coverage is there.

 

[paradisi]

Thanks for the responses. Honestly I get overwhelmed with all the legal jargon when it comes to business.

When donating soap, are you still liable for it? Can someone still sue if you didn't sell it to them?

I think on one of alioops posts she said that even if you had product liability insurance it's the cost of defence that will bankrupt you first. From the insurances that I have looked at far, I may be overlooking or not understanding the phrasing, hasn't listed that as part of the insurance.

Yes, they can.

 

[BritS]

I have an LLC, insurance, and a DBA. Certain states will assume that a DBA registered without an LLC means that you are a sole proprietorship. The LLC protects your personal assets from from financial issues with your business, whereas a sole proprietorship doesn’t. The cost (to me) of having an LLC is worth it. Also, the location where I’m opening a retail location requires an LLC for the lease. Sole proprietorships work out great for some people, though. Take some time to compare and contrast to see what the best option is for you.

 

[AliOop]

The LLC protects your personal assets from from financial issues with your business, whereas a sole proprietorship doesn’t.

That's actually a huge overstatement and quite often untrue. Regardless of your state of residence, an LLC doesn't necessarily protect your personal assets, for a couple of reasons.

First, to claim the protections, you must scrupulously avoid any commingling of personal and business assets. Do you claim a business deduction for a vehicle that is used for both personal travel and business travel, without keeping detailed mileage records? Do you ever use any business assets to benefit yourself personally in any way, e.g., take bars of soap (or pencils, or notepads) for personal use without paying for them? Do you use your soaping room for any other activity outside the LLC's business purpose, such as personal crafting, or day job work?

Any small thing like that could be deemed "commingling," which would allow anyone who sues your LLC to "pierce the veil" and get a money judgment against your personal assets.

Second, even if you've never commingled a single thing, people can still name you personally in a lawsuit, along with your LLC. While you may eventually get the personal claim dismissed, you still have to pay all of the legal costs to obtain that dismissal.

I'm not knocking LLCs for the right situations. But if you are a home crafter, especially one who lives in a pro-lawsuit state, or one with high LLC costs (ex: California on both accounts), an LLC 100% isn't worth the cost. Any "peace of mind" is pretty much illusional. One could spend far less to get the very best insurance policy, and not have the hassle of the extra accounting rules, extra tax returns, etc.

Certain states will assume that a DBA registered without an LLC means that you are a sole proprietorship.

That's a given, actually, and not pertinent at all to the issue of asset protection. DBAs were never intended to, and never do create a separate legal entity or asset protection of any kind.

The purpose of filing a DBA is to legally use a particular business name instead of the legal name of the individual or the legal entity that files for the DBA.

So if the DBA is filed by an individual who operates as a sole proprietor, that individual remains a sole proprietor. If the DBA is filed by an LLC or general corporation, those entities remain unchanged, as well.

Also, the location where I’m opening a retail location requires an LLC for the lease.

That's may be the case, but the great majority of landlords also require a personal guarantee from the individual behind the LLC, unless the LLC is very well-established and well-funded. If you've given that personal guarantee, the LLC is no protection against a lawsuit brought by the landlord for unpaid rent, damages to the building, etc,

Take some time to compare and contrast to see what the best option is for you.

This is actually great advice - assuming you consult with a knowledgeable professional who doesn't just take your money to create an LLC, rather than advising you on the realities of cost v. benefit.

 

[Bubz]

Thanks for everyone's insight on this! Definitely food for thought. People around me think the LLC bulletproof for protecting personal assets but I've had my doubts.