Author Topic: Opinions on how to structure a business that is at risk of liability from injury  (Read 4240 times)

StartingEarly

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I am getting into ammunition resales and by the very nature of the business it opens me up to liability if I get a bad round from one of my manufacturers that blows off half of someone's face when the gun explodes from a double charge. I am planning on doing maybe 100,000 in sales the first year with a profit of about 30,000. I don't feel a sole proprietorship is in my best interest due to liability and having over 100k that is outside of the business at present. I would be doing business face to face and only within the state of Wisconsin. I will have an EIN and a merchant tax license. Any advice would be greatly appreciated, my current thoughts are S Corp but I would love to hear yours.

Thanks,

TY

FiftyIsTheNewTwenty

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I've had the same issue with a different type of business - we could easily break stuff, cause a trip/fall hazard, or drop things on people.  (Except for a few tiny breakages, we never did.)  I went from a sole proprietorship (young guy, no assets to sue for, time to recover) to an S-corp, then to an LLC when that became available. 

I'm not sure an S-corp provides any better protection than an LLC, which is a lot less trouble and cost.  Lawyers, please chime in.

I do think you should try to establish business credit separate from your own, ASAP.

StartingEarly

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I don't require credit, all funding is through personal assets, it's a small enough operation I can float it on a shoestring. Younger me would say how the hell is 10k a shoestring ;) I talked to an accountant after posting this and they said an s corp doesn't shield me from liability I cause, only that of my employees, same goes for an llc, they recommended a large insurance policy.

Stoic on FIRE

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Definitely talk to a lawyer or your local small business administration office on advice for which entity to use for incorporation. I don't know enough to answer your question, but I do know enough that your accountant doesn't know enough. The whole point of corporations is to limit personal liability. That is, unless you fail to file the appropriate paperwork to maintain the business entity, then it's game on for personal lawsuits.

Then again, I'm not a lawyer.

anotherAlias

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I am getting into ammunition resales and by the very nature of the business it opens me up to liability if I get a bad round from one of my manufacturers that blows off half of someone's face when the gun explodes from a double charge. I am planning on doing maybe 100,000 in sales the first year with a profit of about 30,000. I don't feel a sole proprietorship is in my best interest due to liability and having over 100k that is outside of the business at present. I would be doing business face to face and only within the state of Wisconsin. I will have an EIN and a merchant tax license. Any advice would be greatly appreciated, my current thoughts are S Corp but I would love to hear yours.

Thanks,

TY

I can't really speak to how you should structure your business but I will agree with your accountant that you need to look at insurance for your business.  I would suggest talking to a few agents that deal in business policies and work with multiple insurance companies to see what your best options are.

former player

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Agree you need expert advice and that a good insurance policy is essential.

The other thing I would say is that you would need to keep meticulous records, so that if a bad round does cause problems you can trace it back to your supplier and provide evidence in defence of any claim of where it came from.  As long as your supplier was a reputable business (and I would hope you would only be buying from reputable businesses) that will provide a degree of protection in any claim against you (less likely to be an award of exemplary damages against you, perhaps).  Provided your supplier is still in business and solvent if you have watertight evidence of the chain of supply you would be able to join the supplier as a defendant in any legal claim against you, and potentially they could be liable for most or all of the damages.   But none of that means you don't need full insurance coverage.

Proud Foot

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I am getting into ammunition resales and by the very nature of the business it opens me up to liability if I get a bad round from one of my manufacturers that blows off half of someone's face when the gun explodes from a double charge. I am planning on doing maybe 100,000 in sales the first year with a profit of about 30,000. I don't feel a sole proprietorship is in my best interest due to liability and having over 100k that is outside of the business at present. I would be doing business face to face and only within the state of Wisconsin. I will have an EIN and a merchant tax license. Any advice would be greatly appreciated, my current thoughts are S Corp but I would love to hear yours.

Thanks,

TY

I would talk with a lawyer.  They would be able set you up with the legal structure to best shield yourself and then a good corporate insurance agent could help you with the the necessary insurance.  An S-Corp is more of a tax structure than a legal structure. In my opinion (not a lawyer) documenting your supply chain and only reselling from reputable manufacturers will be the biggest thing to protect yourself from any legal claims due to selling bad product.

Incandenza

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I'm a lawyer but I litigate and don't deal with corporate structures, so I am not an expert.  I would absolutely consult an expert before making any final decisions. 

However, I can say an LLC is a standard legal mechanism to limit personal liabilities.  This should be the most likely option for you to further investigate.  You should be able to find quite a bit online about how LLC's work and if it's a good fit for you, although, again, consult a lawyer who works in this area before making any final decisions. 

One word of caution--if you do form an LLC, it's vital that you strictly separate your personal and corporate finances.  Don't commingle funds or use the corporation as your personal piggy bank.  These types of actions would allow creditors to bypass corporate protections and come after you personally.  Do some research about "piercing the corporate veil" to familiarize yourself with how you need to run the corporation to ensure you maintain personal protection.       
« Last Edit: May 24, 2017, 09:50:05 AM by TPGW »

 

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