I was reading this year old post today, because I just opened my Etsy shop. Etsy shops do not need a business license, but do you recommend still getting insurance if I’m just selling on Etsy? I’m kind of overwhelmed with this insurance stuff, I didn’t realize people would sue over soap! Ingredients are there and sometimes skin has reactions to new products...any who, any advice is appreciate. I don’t even know where to start on getting the insurance.A lot of people think that the first thing they need to protect themselves is an LLC. As an attorney, I can assure you that is not correct. An LLC may protect you from having to pay a final judgment out of your personal assets, but even that is not a given if you don't strictly follow all the rules about keeping your business and personal assets separated (different bank accounts, no commingling of funds or supplies, etc.).
More importantly, an LLC does nothing to help you pay for the lawyer needed to defend yourself against any lawsuit that is filed. Believe me, the lawyer bills will bankrupt you just like any court judgment, and often much sooner in the process. In contrast, good insurance will pay for the cost of a lawyer to defend you, so you are not out of pocket during the course of the lawsuit. And good insurance will also pay the cost of the judgment, thereby protecting your personal assets up to the policy limits.
Another issue with LLCs is that some states have minimum taxes for an LLC. For instance, an LLC in California must pay a minimum annual tax of $800, even if the LLC doesn't generate one dime of income. That's more than some people make from their soap business. Most other states don't charge as much, but in many of them, opening an LLC will generate ongoing costs that far exceed the small cost of establishing it.
For all of those reasons, I try hard to educate people that the FIRST thing to spend on in your soap business is insurance, along with a paid consultation with your tax advisor or legal advisor to ensure that you are following all the local, state, and federal business laws and regulations, including collection and remittance of sales tax, filing of sales tax returns, etc. Your personal financial picture is not like anyone else's, especially if you don't live in the same place as another soaper who wants to give you advice about this. If you are seriously considering selling soap or other body care products, or anything for that matter, you will save yourself a lot of grief by paying for a consultation to ensure that you are doing things properly. That may not have been true in years past, but I can assure you, it is true now.
Hi Katie, I think insurance is wise if you plan to sell. You can check with HSCG or Hiscox, both of which provide insurance for handmade goods including soaps.I was reading this year old post today, because I just opened my Etsy shop. Etsy shops do not need a business license, but do you recommend still getting insurance if I’m just selling on Etsy? I’m kind of overwhelmed with this insurance stuff, I didn’t realize people would sue over soap! Ingredients are there and sometimes skin has reactions to new products...any who, any advice is appreciate. I don’t even know where to start on getting the insurance.
The main issue is product liability. If someone has a bad reaction to your product, that person can sue you for damages.This question may be dumb, but, why do a soap maker need insurance? Is it like insuring home just in case of disastors like fire, cyclone etc.?