Forums: Discussions for entrepreneurs and small business.

Hi, I run a small online surf shop. Selling wetsuits, fins, leashes etc. and I operate as a sole proprietor.

My revenue is quite small but growing each month.

My question is: Is there a certain amount of revenue at which I should switch to an LLC from a sole proprietorship?

Am I failing to realize any legal vulnerabilities by operating as a sole proprietor while running this online store? I'm under the impression that since it's a retail store, I'm not as vulnerable to being sued as say, a service provider.

Any insight would be greatly appreciated!

Thanks!

Assuming that you would be operating as a single member LLC, there is no tax advantage in operating as a SMLLC as opposed to a sole proprietor. Operating results for both entities are reported to the IRS on Schedule C. Depending upon the state, there will be various fees, etc. that will need to be paid as a LLC.

As to possible legal liabilities, I trust that you are being named as an additional insured on your vendors’ product liability insurance. Given the litigious nature of many people today, if you sell a product to a customer and they receive a serious injury while using the product, you can be sure that you will be sued (along with just about anyone connected to the product). Will they prevail against you? Maybe not, but why take the chance?

What about if someone falls gets injured in your store as a result of a wet floor? While I am sure your insurance will cover it, you never know. An LLC will help shield your person assets from any judgment. I would suggest that you check with your insurance agent and your attorney to make sure.

Ed Baloga, CPA / MBA
Principal CFO
Baloga Associates
ebaloga@baloga-associates.com
www.twitter.com/edbaloga

Well the main draw back of the sole proprietorship is that you and your company is treated as the same - the company does not have a legal status of its own. Hence just in case there are business liabilities or debts, your personal assets are not safegaurded and will be a party to any claims. With an LLC, at least your personal assets are always safe.