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Structuring a small business to sell my designs

jhov

Aluminum
Joined
Jun 5, 2020
I have a few designs that I'm in the process of prototyping in my home shop that I'd like to be able to manufacture and sell at some point. I've done enough research to suggest that starting an LLC is probably the best choice for starting a business for this purpose, but I'm still not decided how to structure things. Currently, all the shop and all equipment is my personal property and I'm considering a few different business structures:

  1. Continue to hold the shop and all equipment personally and lease it to the LLC.
  2. Create a holding LLC and subsidiary LLCs for each business purpose (manufacturing, engineering, etc..), and have the holding LLC hold the shop and all equipment.
  3. The same as the above but lease the shop and all equipment to the holding LLC.

If the business fails, I want to ensure the shop and equipment remain my personal property as it is all located in my garage. I don't plan to leverage any credit, so my risk of defaulting on loans is zero and I plan to carry liability insurance for any lawsuits that come my way. Given these facts, a holding LLC seems excessive and also a paperwork burden. Have any of you done something similar? If so, how did you structure things?
 

gustafson

Diamond
Joined
Sep 4, 2002
Location
People's Republic
Remain a sole prop until size requires you to go S Corp.

If you own the house homestead it, no one suing wants your machines they want your house. Once that is protected you are practically 'lawsuit proof' until you actually start making money
 

p-moon

Plastic
Joined
Apr 2, 2005
Location
indiana
Do a subchapter S to protect yourself from all lawsuits, and make sure to carry plenty of liability insurance. I would hold all assets personally and lease to the company if you want, but remember that you will need to pay taxes on those payments if they are more than $600 for the year.
 

DDoug

Diamond
Joined
Oct 18, 2005
Location
NW Pa
My lawyer tells me that an LLC, with only one owner (or "Member") is not very "Lawsuit Proof".
 

jhov

Aluminum
Joined
Jun 5, 2020
I don't think Ohio has much in the way of Homesteading laws. At a glance, it can only be applied to 25k of value and only if you are a senior or disabled veteran. My wife and I would be equal owners and I would likely employ another family member if it were to become profitable. Sole proprietor doesn't sound like it offers much protection. I'll look into an S corp though.
 

gustafson

Diamond
Joined
Sep 4, 2002
Location
People's Republic
It might be cheaper to deal with the house, as you are more likely to get sued if someone trips on your walk and gets bitten by your dog for lying on the lawn than anything business related

All this renting back and forth is overthinking IMHO
 

Scruffy887

Titanium
Joined
Dec 17, 2012
Location
Se Ma USA
All advice given here is at best a starting point. And worth every penny you pay for it. Start with a CPA. Get a good insurance agent involved too. Shop around as well. CPAs offers a service. Insurance agent sells a product. Best to know the difference.
 

Doug

Diamond
Joined
Dec 16, 2002
Location
Pacific NW
My advice is don't worry so much about the business structure. When and if the money starts flowing it'll become more obvious what direction to go. Whether the money will ever start flowing is the big "IF".

What you're proposing doing is a difficult route to go. Ideas are a dime a dozen. Getting ideas to a marketable state is the problem, it can take big bucks.

If you do good work you can make decent money prototyping other people's ideas. It can take a while to make contacts and referrals. And you need to be in an area where there are lots of startups needing prototypes.
 

Bobw

Diamond
Joined
Feb 8, 2005
Location
Hatch, NM Chile capital of the WORLD
I plan to carry liability insurance for any lawsuits that come my way.

Product liability? Let me re-phrase your words up there for you.. "I plan to carry liability insurance
to encourage lawsuits".

You only get sued when you have something of value to take. Can't get blood from a stone.

General liability, different thing. For when a rafter crashes down and crushes the UPS guy.


If you are making a product that you plan on getting sued, there is no F'n way I would
be making that stuff out of a shop at my house, and I would bury it so deep in multiple
layers of corporations and LLC's that nobody would ever find me.
 

Doug

Diamond
Joined
Dec 16, 2002
Location
Pacific NW
Unless there's major negligence the danger of a lawsuit that wipes out a business isn't likely. Stay away from work related to certain areas, guns, auto, aircraft, etc, etc. The first time you get sued it's scary, then you begin to realize anybody can sue anybody for any reason. If you do get sued hire an older experienced lawyer who will be more likely to negotiate rather than an aggressive young one who may want to get to court.

I was sued three times, no merit to any of the suits, but you still have to defend yourself. First was when the guy claimed I defrauded him by failing to disclose the taxes on a piece of property I purchased and resold sold to him were historically low because the owner before me got an old age tax reduction. Lawsuit was dismissed after tax assessor intervened on my behalf.

Second was when customer "A" sold his profitable shop to new owner "B". A's customers didn't want to deal with B. A's customers came to me directly. B claimed A and I conspired to break A's non-compete clause. A and I threatened to counter sue. B dropped lawsuit. B lost the shop when it was auctioned after a year of his ownership.

Third lawsuit was other party accused me of skimming money off in a joint venture. Accusation was proven untrue, but he persisted so I paid him $10K to go away. Hs spent approx $50K in lawyer fees to get that $10K. There was some satisfaction for me in that.
 

Mcgyver

Diamond
Joined
Aug 5, 2005
Location
Toronto
I was sued three times, no merit to any of the suits, but you still have to defend yourself.

The examples you gave weren't product liability which is what mentioned insurance covers (if I'm correctly following the bouncing ball). It's a different kettle of fish, potentially big US jury style awards, sleazy contingency fee litigators and easy to go after you personally. (and win if there was negligence).
 








 
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