Business part of knife making

G

Grizzly Bear

Well-Known Member
I thought I posted this last night but I didn't see it on the forum today. I guess I hit the wrong button.

My question was: Do you guys incorporate or become a sole proprietorship?

Also do you guys buy liability insurance and how much?

Thanks

Grizzly Bear
 
You did post it - still showing just a few threads down at this moment. In answer to your question, I started as a sole proprietor - to be honest mainly because I really had nothing to lose. Hard work, good decisions, awesome loyal customers and an awesome, capable wife turned that around. Risk of personal loss wasn't all though. There are tax advantages as well. I'm sure the details are different in the US than here in Canada, but the general principles apply.

As for insurance, the turning point was largely the same. We have enough inventory that a fire or major theft loss would be catastrophic. Liability insurance becomes an issue because if a customer is at your place to purchase product, your home owners policy won't cover the slip on the sidewalk or the cut. If your knife snaps inside a moose and causes an injury - or gets used in the commission of an offence or....

In Canada, our insurers don't allow US sales in most policies. They describe the USA as the most litigious society on the planet. We could get permission for up to 5% US sales, but it quadruples our premiums from 1600 to 6400 per year. Of course, you don't have those restrictions, but you may want to consider whether the comment about litigation is fair comment.

What have you got that you're willing to lose?

Rob!
 
Rob thanks for the input.

I am going to incorporate to protect my personal possessions and get additional replacement insurance to cover my shop and equipment which is getting very expensive with more to come.

I just don't have any idea as to how much personal injury insurance (to customers buying and using my knives) to purchase. Have you or anyone else out there had any incidences of sue happy lawsuits for personnel injury due to your knives? There are always some people who want to sue for some free money, even if the failure of the knife was due to their abuse of the knife!

One scenario that I am thinking of is where a customer orders a super hard blade of M2 so that they can have maximum hardness for the sharpest blade possible and thus sacrificing toughness. Tell me if I am wrong but isn't there a danger with the super hard blade that it could break during use and injure someone as you alluded to with your Moose example? I am sure you explain to your customers the properties of the steel, heat treatment, tempering and the RHC value and what it means for the knife requested. So they should not be ignorant of how the blade will react when mistreated, etc.. Do you think this disclaimer about the steel and it's processing for a knife might help in a law suit?

Thanks for your continued input.

Grizzly Bear

P.S. : As you can see I am getting more than a little nervous the closer it comes time to sell knives instead of giving them away to family for Christmas presents!

P.P.S: Way to go Canadian Soccer team! I watched all the games; they gave it a great go! I am sure all Canada is proud of them.

Of course we are very proud our American Women's team!!! For those of you that don't follow soccer, the National Women's Soccer team won the
World Cup this year. Also the National Men's Soccer team is at this moment winning the Gold Cup. Go USA!
 
The issue you may have is actually finding an insurace company that will insure a knife business. Personally, our home, property, and autos are insured through State Farm, but they flat refused to provide coverage for anything related to the knife business. Liability insurance for a knife business is like finding hen's teeth, and if you can find a company to provide it, the priemiums are simply cost prohibitive. I searched all over the U.S., and only found two companies that were even willing to discuss liability.....and both wanted way more money then I could afford.

When it came to my shops, the ONLY way I could get coverage was to join ABANA, and then purchase insurance through them, via The Hartford.
If you're really concerned, I think the most logical way is to look into making your knife business an LLC.
 
It would be nice if a lawyer could jump in here with some input. I'm pretty sure that - corporation or not - you can be held personally liable if negligence can be proven. Of course, that negligence doesn't have to be reasonable. It just has to appeal to the sympathies of the judge.

"So you told my client that the M2 Blade at that hardness may fail catastrophically - but you sold it to him anyway."
"Please explain your quality control procedures."
"What method do you use for detection of microfractures that might be unseen by an unsuspecting client?"
"Are you trained and certified in NDT? Metallurgy?"
"Please show the court the safety section of your users manual".

With these types out there, you can't blame insurance companies for the onerous restrictions and the huge premiums.

I'm switching color here in the hope that people will at least read this part. Civil litigation reminds me of other threats we face. No, I'm not saying lawyers are terrorists. Civil litigation is a real, persistent, and often evil threat which demands vigilance and preparation. It will not prevent me from the pursuit of those things I hold dear.


Rob!
 
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Ed you and Rob have confirmed my concerns about trying to get insurance for my knife making. I had no idea that it would be so hard to do. I knew you could help me out on this. It sounds like I am going to have to consult a lawyer to be as sure as possible that I cover all the bases that I can before I start selling.

Thanks

Grizzly Bear
 
Consulting a lawyer is fine but, keep in mind that they are naysayers. Their job is to protect their clients and their interests. They will always advise against risk. Do some serious research for yourself and weigh all the information. My research showed me that knife-related litigation is actually very rare in this country. I could only find one case pertaining to a failure-related issue and it was obviously user error. I would guess that the manufacturer would have won the case but it settled out of court.

Business structures are a strange subject. I was taught in all my business classes that you needed to incorporate to protect your personal assets. Problem is, anyone can be named in a lawsuit and naming a corporation and its' individual officers is standard practice these days. If you are the sole stockholder, you will have no protection.

There are tax advantages depending on the structure you choose and again, you need to do a lot of research. Before I started making knives, I built custom handmade choppers. My company was incorporated and I was the sole stock holder. It was a struggling company in a bad economy and I wasn't making much money. At the end of the year I would have my taxes prepared and I would not owe anything...except the $700 preparation fee to my accountant. That was a hard pill to swallow each year. I now make knives as a sole proprietorship.

Bob

A little eye candy from days gone by.

IMG_2316 by Bob, on Flickr
 
WOW Bob - that's a NICE ride. Back in the early '70's when I was building "choppers" they were not nearly so impressive. LOTS of work there - did you do the paint?

Ken H>
 
Bob thanks for the very thoughtful advise. My Dad may have been smarter than I thought. He stuck to being a sole proprietorship instead of incorporating. I guess Dad's are usually right no matter how old the son gets - I'm 63!

My wife and I are going to take a good long look at this before we commit.

Thanks again,

Grizzly Bear
 
I talked to a lawyer the other day and he advised me to form a Limited Liability Company (LLC). He said not to buy insurance. If someone sues you big time
file for bankruptcy and start all over again.

I hope this is helpful.

Grizzly Bear
 
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