My husband wants us to be protected by an LLC but I was told that since it is just me and relatively small I should be a Sole Proprietorship. Cottage food law states I can sell up to 55k from home. So what do you think I should register as? And how do I become an LLC?

Go to your accountant or your lawyer and let them explain the differences to you and let them file the papers with your state.

It all depends upon how much assets you have. I wanted my business totally separate from my personal finances and we went with a corporation.

AHow much does an LLC cost in your state? In most cases it is worth the relatively small cost, considering selling food could potentially expose you to significant liability. You'll also need business liability insurance regardless of whether or not you go with an LLC.

Starting an LLC is pretty simple, but if you need more help you can pay a company like Legalzoom to take care of the specifics.

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FYI, homeowner's insurance policies typically exclude liability from commercial activity.

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Interesting...who provides your HOI policy, what are the general liability and property loss limits, and how much is your premium? Did you need an additional rider to cover commercial activity, and if not has your insurer confirmed that losses due to commercial activity are covered? This might be a good alternative for separate business coverage.

USAA, is our insurance provider. We have an umbrella plan that is offered to USAA members jointly with The Hartford that covers my home based business. There are a bunch of different plans that are pretty easy to get and can be very affordable. My monthly payment, with my USAA discount is $25/mo for $750,000 of coverage. USAA is awesome, but even if you cannot use USAA (for direct family members of veterans) business insurance is easy to get and a lot of times more affordable than paying the LLC filing and reporting fees. OP just needs to check with an accountant and see how much her fees would be. It can be pretty pricey in some areas and not worth the cost of the LLC if she isn't doing a lot of business yet.

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Umbrella insurance is meant to provide coverage over and above existing policies. $300/year is about right for the cost of an umbrella policy, but the umbrella by itself won't do anything if you have a loss that is not covered by the base policy. For example, if you had a business liability policy with $1M in coverage, the separate umbrella policy would provide an additional $500K as long as you also maintain the aforementioned business liability policy. I doubt $300/year pays for a HOI policy that covers commercial activity as well as umbrella coverage.

More info: http://www.sb.thehartford.com/usaa/redesign/USAA/HTML/Umbrella_101.aspx

AYour right, it's not an umbrella, it is business liability insurance. Wrong name, right coverage. You're wrong about what my rate covers. Yes, the $25/mo is what I pay for my business liability insurance. AGAIN, talk to an accountant to weigh the pros & cons of LLC & sole proprietorship.

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OK...so just to confirm, the policy you are talking about is a business liability insurance policy that's separate from your homeowner's insurance?

AIf you pick an llc do you have to keep it in your business name?

ANo, Jason, it is under USAA (the bill comes from USAA) that they offer as a partnership through The Hartford at a special rate BECAUSE we have home, auto and life through them. It's a "bundled" policy for lack of a better word. Make sense?

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Yes, here is a list of what you have to do start an LLC: http://www.sba.gov/content/limited-liability-company-llc

And some more general info on running an LLC (note the exceptions to liability protections, especially the part about not separating personal and business affairs): http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html

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Yes, I just wanted to clarify if the $300/year premium covers the business liability component of the bundled policy or the entire policy.

As someone who started as a sole prop then converted to an LLC, you should go the LLC route to begin with. If you start as a sole prop and convert you'll have to redo all the paperwork witht he state and the IRS, and it's just a pain in the butt. You might as well do the LLC to begin with.

I started as an LLC but my attorney told me it was a waste of the $800.00/year (which is what it costs in California) because it would be easy for any attorney who wants to sue to breach the separation if you are really just a one person operation.  (There were legally two of us to start but only I was invested financially and now it is just me)   After 3 years of keeping the personal and business finances totally separate, I was pretty tired of paying the $800.00 minimum tax "just because"  so I spoke to another attorney who  also told me an LLC is a waste of money because unless I have regular board of directors meetings and keep minutes, I will not be protected as an LLC. She again said it would be easy for any attorney to breach the separation even if finances are kept meticulously separate.  Since I have no one to have board meetings with, I am going to dissolve the LLC in the next two months and save the $800.00 from 2014 onward.  I do not believe I will owe taxes as my profit is still quite small.  My accountant also thinks this is the correct way to go.

Each of the attorneys who gave me this advice is well-respected as a corporate business attorney. They are in separate parts of California.  Note that I have a $2,000,000.00 business liability insurance policy and will continue to have that whether or not I am an LLC.  Note that I am in California. Each state is different.

I would urge anyone who is thinking about this to discuss it with a tax or corporate attorney and an accountant. It probably isn't worth trusting what you read on a cake website and you don't want to get this wrong as it could be expensive. 

And what costumeczar said is correct.  You might as well do it correctly from the outset.  I'm not looking forward to changing the paperwork, but I will enjoy saving the money.  I should have listened to my attorney originally, instead of a bunch of bakers...

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Some of the information you were given does not seem correct. It's my understanding that member-owned LLCs do not require you to hold regular meetings or record minutes, the whole point of LLCs in the first place is to simplify operations and remove these types of requirements. It's true that if you are not careful about maintaining the LLC as a separate entity you can lose liability protection, but it's really not that hard to do.

That being said, given the high LLC cost in California if your business liability exposure will be relatively small and the amount of personal assets that require protection are limited then an LLC is probably not worth it. LLC costs in most other states are much lower.

Source: http://www.nolo.com/legal-encyclopedia/llc-record-keeping-rules.html

FYI, if you are the only shareholder in your company and meeting minutes are required (e.g. for an S-Corp or C-Corp), you can just record the minutes yourself and have the meeting in your head.

Jason, it may be true that I could have board meetings in my head, or that I may not need them at all, however, since two high-priced attorneys have now told me that any good lawyer will be able to prove that my business is really just me and I'm wasting my money, it just seems reasonable to believe them.  I doubted the first attorney partly due to what was being said here at CC though he is very well-respected and has worked with my family for two generations now.  I then asked someone who went to law school more recently and  was hired by a high end law firm because she is up on the latest stuff.  She gave me basically the same answer.

I know you are pretty with it with respect to business law, but I think I'll trust the attorneys, thank you.

I believe you are correct that there is no state requirement for minutes, but  I think the point was that the lack of them may help an opposing attorney to prove that there is no real separation between the person and the LLC  See: http://www.myllc.com/single-member-llc.aspx

I usually do think your advice is quite sound, but in this case I was just trying to illustrate that there are different opinions about this and the only real way to know what is right for your business is to ask an attorney or two. And, of course, you are correct, in a state where the tax is much lower, this might not be an issue at all.

By the way, my personal assets would not be considered small and both attorneys are well aware of that and took it into consideration.

AMy issue with the advice from these attorneys is that it essentially renders LLCs obsolete...why would anyone use them if they are so easy to defeat? I agree that a single-member LLC is more likely to slip up in following the rules and lose liability protection, but to say that the corporate veil can be easily pierced if you do everything right really doesn't make sense.

There's also the fact that they told you board meetings are required for LLCs, which as far as I know is not the case. If I were you I would go back to the attorney who told you that and find out where it states this requirement in the law. It's possible these attorneys deal mostly with larger clients and don't have too much experience with LLCs.

More info: http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html

Here in MA an LLC is expensive and since I have no intention of growing my business beyond what it is now, I opted to get normal insurance.  I also have USAA and they are insuring my business through RLI for $100,000,000.  The cost is $300 annually.

Just my two cents...I would go with an LLC.  I had to make this decision not too long ago, and LLC truly is the best decision for me.  I am a home-based business and this type of entity protects me the best.  I would always recommend for you to get advice from your lawyer though.

HI there, i am in cali and looking to start a home based business, so this is great to read since i didn't know if i should be a llc or sole...its going to just be me. Who do you have as your business insurance provider? I read on the irs that you dont have to file if you make less than $400 a year in profit. Any advice would be fantastic. I"m in so. cali. thanks!

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Considering an LLC in California is $800/year, if you have a low volume business it may not be worth it. FLIP offers business liability insurance for $300/year: http://www.fliprogram.com/

Re the $400/year rule, if you have less than $400/year in profit from your business and no other income you may not have to file a tax return, but hopefully you will not find yourself in that situation. http://www.irs.gov/publications/p334/ch01.html#en_US_2012_publink100025033

The other thing to look at is that if you are planning on earning less than $400/year in profit (that's $33/month) you may want to go back to your business plan to cut your costs and/or increase your prices, or reconsider starting a business in the first place.