Talk with others about the cottage food industry in California
Can you expand answer on LLC?
- May 22, 2014 at 9:16 pm #5861
My wife wants to start a business, and hopes it will grow big enough to grow out of our home (that we own).
You stated that having an LLC doesn’t protect you as much as they claim, I was wondering what you meant by that?
She was planning on starting an LLC, but if that really doesn’t protect her, then I’m wondering what the point of having an LLC would be?
Could you name specifc instances of where an LLC wouldn’t cover your home residence or liability? Could we lose our home if someone sues us? Under what conditions could that happen?
JoseMay 23, 2014 at 1:24 am #5862
I did research on it awhile ago, and I recall experts saying that having an LLC doesn’t completely eliminate the owner’s liability. I’m not sure what that refers to, however. I know that an LLC protects the owners much more than a DBA, but the bigger question is whether or not protection is really necessary. If you follow all of the rules, on what legal ground would someone have to sue you?
What I have seen with CFOs is that some have a tendency to overplan their business because they’d like it to eventually go big. And some have definitely gotten big already, but the business structure usually has nothing to do with the success. The whole point of choosing a corporation over a DBA is to minimize risk, but in most cases, I see an LLC in CA as more risky than a DBA. That’s because the likelihood of financial risk is much greater than the legal risk of getting sued. I say that because I’ve never heard of one CFO in the US getting sued, but I have talked to CFOs that wish they never got an LLC in the first place.
One CFO I talked to in Berkeley started their business with much more money than most due to a successful Kickstarter campaign. They got an LLC and spent hundreds of dollars of marketing and product design. They did everything the “right” way and everything they did looked and tasted great. They do sell a fair amount of product but it hasn’t taken off like they had hoped, and their business expenses are eating up a good chunk of their profits. They now see that an LLC wasn’t really necessary until they got big enough for someone to have the incentive to sue them.
Obviously this isn’t legal advice and is just my opinion after talking with a lot of people in the food industry. I’m not trying to say that a corporation is never the right choice, and hopefully it helps you make the best decision for your business.
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