Sitting in the office today I looked at the calendar and realized we are already a week into October. I cannot imagine where the rest of the year is gone, but I do love fall and of course I love Halloween. My mother has always been a very talented seamstress, so as a kid I had very intricate and impressive costumes that few other children could even hope to replicate. Those days are long gone now, but thanks to the internet I can still commission intricate costumes from the talented hands of craftsmen on websites like Etsy or EBay.
Scrolling through Etsy I find hundreds of people offering thousands of costumes for sale, ranging from relatively inexpensive to thousands of dollars depending on your desire for authenticity and quality. Landing on one item I like, I see that it is being sold by “Costumes by Kim,” a little blurb tells me she has sewn for over 20 years and does this on the side as a passion. Despite Kim doing this work “on the side” she offers over 50 costumes, including a rather intricate “assassins” costume from a videogame with real working spring blades. The unfortunate thing about being an attorney is you can see ‘red lights’ flashing everywhere, and when I read “real working spring blades” I don’t think “Awesome!” I think “Liability!”
Now going back to Kim’s business name it’s just “Costumes by Kim” no LLC or Corp. or Incorporated, which is required by law should a company be any of these types of entities, so to give notice to everyone who’s dealing with them that they’re dealing with a company that has limited liability. Without any of these indications it is safe to assume Costumes by Kim is a sole proprietorship or a general partnership if Kim is working with partners. Those kind of business entities are created simply by opening up shop and selling stuff, no paperwork or filing needed; but obviously there can be a problem with that.
Going back to the ‘real working spring blades,’ I’m sure that Kim is a very talented seamstress, and may even be very talented at making these spring blades, but without going into the specifics of product liability, Kim could be in serious trouble should anything happen and she got sued because of it. By just having a sole proprietorship Kim’s liability is limitless, if someone sued her for $500,000 and won, they could get her house, her car, her bank accounts, basically anything and everything she owned personally to settle that $500,000; her hobby and passion could cost her everything. But if Kim had spent $500-$1000 hiring an attorney to help her form an LLC (Limited Liability Company) her liability would be limited.
The LLC, which only truly came into usage in the United States around the 1990’s, was created with companies like Kim’s in mind, who are small and don’t have the money or time to follow all S-Corp or C-Corp requirements, but deserve to have their personal assets protected. Most state requirements for LLCs are an initial formation and filing which an attorney can help you with, and a simple annual filing after that, which most people can handle on their own. If Kim did this and followed some pro forma rules for running an LLC (such as keeping a separate bank account for your business), all her personal assets would be protected, and the only things at risk would be her business assets, which in Kim’s case would be any money in her business account, and any supplies and equipment she used to manufacture the costumes.
Many people say their business is too small to worry about things like forming an LLC, but you’re never too small for the law, and like buying insurance you hope you’ll never have to use it, but you’ll be glad you bought it if you do.
Warning: This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with appropriate legal advisers in your own jurisdiction. It may not be current as laws are subject to change.
