I'm gonna have to go with the rare few who say "don't bother with the LLC".

Google "piercing the corporate veil".

In a nutshell, while incorporation protects the SHAREHOLDERS of a company, it does not always protect the directors. If a director can be shown to be a "managing mind" of the corporation, and their actions are negligent, then the director can be personally sued.

If Cathy Caker incorporates her business, she is not only a shareholder, she is a director, likely the ONLY director. Therefore she is the managing mind of the corporation and can be personally sued if her actions were negligent.

Now, in the case that was mentioned before - you get hit by a bus and have to shut down, no, you probably won't get sued - it would be a hard sell to say you were negligent. BUT, if your cake makes someone sick, and you can't demonstrate that you followed good manufacturing processes, then yes, you could be found negligent.

Which is why you have insurance. Lots and lots of insurance. Incorporated OR sole proprietor.

I agree with Indydebi, run from that accountant. It is so wrong and criminal of him to tell you that. (speaking as a retired criminal prosecutor).
As for insurance, I pay almost $600 a year for the same as you mentioned. That is the going rate here. To start an LLC in my state cost $125 with a yearly fee to maintain of $50. I did it all on my state's website. Very easy. I don't think it is worth it to hire an attorney to do it for you and legalzoom is also not worth it. (and I say that as a licensed attorney in my state).
As far as taxes, why do you want to mess with the IRS????? File and pay your taxes on your earnings, which may be no taxes the first few years and could actually be a write off due to your start up costs etc.
If you think all this is unnecessary or overwhelming, maybe you are not ready yet. There is more to this business than making beautiful cakes. Good luck.

I did my LLC using Legalzoom, and it wasn't that expensive. You have to assume that you'll have expenses when you have a business. Remember that those costs are tax-deductible, too.

My husband did my LLC as he has done it before got other companies we have had. We actually did it as an LLC with another couple as she will be my business partner and California is a community property state. so spouses are included. We didn't need an attorney.

In California, there is an $800.00 yearly tax on the LLC, whether you make any money or not.

Insurance this year was $1000.00 because we were moving from a rental place where we paid $500.00/year to our own space, so we had to pay for both spaces. I'm expecting it to be more than $500.00 next year because we are insuring more equipment and the space itself, but less than $1000.00 because it is just one place. There is additional insurance for fire and such in my commercial condo fees each month, so $530 seems pretty normal for an at home business to me.

There was an attorney on the radio this week who agreed with my attorney that it is usually pretty easy to "pierce the corporate veil" on an LLC. If nothing else, he said it would be costly to fight the claim and you wouldn't come out any better than without the LLC. It may be different in each state, so it is probably worthwhile to consult an attorney about how it works in your state.

I actually do, in fact, feel that I'm too new in this, to be starting a "true" business, as I don't want to be "overwhelmed" in making cakes just starting out to supplement the expenses I would incur in starting a business.

My ideal would be making maybe a wedding cake once a month, and a cupcake bouquet or special occasion cake here and there, perhaps more-so over the holidays.

I guess my question is, how do you go from baking cakes for friends/family, to getting paid a commission for these cakes, still, while doing it legally, yet not forming an entire business? I'm having trouble transitioning from the free friends/family cakes, to actually getting paid by word of mouth customers. I'm petrified of getting paid for a cake, and delivering to a venue without having protection from potential lawsuits for my personal assets.

Due to the lawsuit happy society we live in, to me, it seems like you either do cakes for free for close friends/family members, OR, you jump right into a full-fledged business of getting paid for your services. There doesn't seem like any middle ground to me, which is why I felt like I had to look into the business license, insurance, and LLC.

I love baking cakes, and seeing people's smiling expressions of gratitude and happiness when they see my cake for the first time, and this has held me over for a long time, but it would also make me feel accomplished and proud if I could also get paid for my work.

Please advise if I'm missing something here. I truly want to start out incredibly small with a cake here and there....I work full-time right now so this is more like a hobby to me...a hobby I wouldn't mind getting compensated for every now and then

Someday, when I'm more experienced, I would like to make it a profitable business, but I don't really feel like I'm anywhere near that point yet, but like I said before, I don't see a way to do this part time, get paid for an occasional cake here and there, and not protect myself from a lawsuit. Maybe I'm just being paranoid, but the fear of getting sued, and desire to protect myself, is making me throw myself into this as a business, much more prematurely than I'd like, because I feel like if I'm going to put this kind of money out to protect my assets, than I might as well try to make more cakes to pay for these expenses.
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Thank you all!

Susan

I'll throw S corp into the mix for consideration. That's what I am and it's easy to file. Profits/losses flow thru to your personal taxes. In this world today, I can't imagine selling food to the public without being legal. You my not get caught or sued, but the risk if sued is enormous. You're betting everything you have - your bank account, car, house, kids college fund, etc. It's not worth it. Get legal.

I agree with Leah. You need to get legal, it is just not worth the stress not to be. Even if you only want to sell 1 cake a month, you are now in business which means insurance, incorporating etc. There really is no in between, you are either in business or not.

Thank you so much Pattycakes and everyone for your responses. I completely agree, as much as it's costly and a pain in the butt, it's so much better for peace of mind to get legal. I think with every cake I delivered, that I would be a complete wreck, fearing for my personal assets every day.

I can't believe how expensive it is in MA, compared to other states, to obtain and keep active an LLC, as well as insurance. I wonder how the S-corp compares as far as protection, etc. I have an appt with a lawyer next week (the one who's charging $1200). She offers a free consultation, so I thought I would go and learn, consider her price, or even call around to see if I might be able to get an even better deal.

Either way, I know I'll feel incredibly better with the peace of mind though, so thank you all for your insight and comments!

Susan

My liability ins is $250 a year thru State Farm.

Cost to incorporate was $under $60 because my state's sec of state website is very biz friendly and has the forms online. You can pull basic "boilerplate" Articles of Incorp off the web.

The HD fee is $220 a year, but I maintain dual licensing (food service and catering).

Heck, the 3 compartment sink I had to install cost more than the legal paperwork.

Wow, that's amazing Leah! They don't call it Taxachusetts for nothing I guess! What a great state I live in!!

I don't even believe that they allow State Farm Ins in this state...they have the market all sewn up with only a few insurance companies allowed. I feel I live in a communistic society here! It's crazy!

YOUR Sec of State website has a simple Articles of Incorp fill in the blank document. It costs $275 to file it. Easy.

Another suggestion for all of you who are just starting out is the organization called SCORE. It's a group of retired business people who volunteer their knowledge and expertise for people who have small businesses. I haven't met with them yet but I have a meeting scheduled for next week with a gentleman. You might want to look into it, especially since it's free. Their website is www.score.org

Do the article of incorp for the LLC also include securing the business name, or does that need to be done seperately?

And you're right, State Farm does not market in your state.

Looks like the name is separate, but call your Sec of State office to make sure. Since they are in the biz of helping establish bizes, they are usually quite helpful.

OK, I know bizes isn't a word.

Thank you!

susychpstk,
You might consider turning your hobby into a business in baby steps. Get your insurance first. You should be charging for your cakes even if they are for friends and family. Unless it is a gift ofcourse.

I have used SCORE...I was lucky to have a caterer as my counselor. You should be able to find small business friendly resourses for your city/state.

Good Luck!

There is a considerable amount of information in this thread that is HIGHLY subjective. My strongest, strongest, strongest recommendation is to make certain you talk to an attorney licensed to practice IN YOUR STATE for advice, and even that advice is subjective, but remember none of your CC buddies is going to stand next to you in court if you DO get sued.