Starting a knife making buisness

dmackey

Active Member
#1
I'm sure this is most likely posted here some where but I couldn't find it.
What kind of business have some of you opened up for making knives.
Sole proprietorship, LLC, LP or what?
I'd like to start one when I feel I'm ready.

Thanks
David
 

Akritz

Active Member
#2
Dave,
I'm not a lawyer but this is what I learned when researching. From what I have seen it is all about risk. Since liability insurance for a knife business is next to impossible to afford you carry the risk of someone getting hurt and filling a lawsuit. It doesn't mater if they win or loose, you loose either way. When setting up a business you need to think through how you are going to respond to getting sued and what you have to loose. If you set up as a sole proprietorship the only choice you have is to fight with lawyers to the full value of your assets. If you set up as an LLC you have a choice, you can either bankrupt the LLC or pour personal assets in to fight the lawsuit. If you bankrupt the LLC you loose your shop and tools but to keep your house and other assets. There is a chance a lawyer can get the judge to come after your personal assets but if you follow some rules this is unlikely.

The other side of the story is, if you have no assets lawyers will not take the case. If a lawyer is taking a case on contingency they generally get about 30% and they have to use that to cover their time and fees. They are generally not going to take a case that is not going to get them a judgment of $1M. So if you don't have assets of $500k they most likely are not going to bother with you. Also I did some research and could not find any cases of a custom low volume knife maker getting sued.

Based on this I set up my company as a Sole Proprietorship. If I start to make it big, I can always close it on Friday and reopen on Monday as an LLC.

As far as tax advantages, there are not any. Just pay the man.

Hope this helps.
 

WY_Not

Well-Known Member
#3
Even the tools, shop, and other meaningful assets can be protected. (IANAL but I've seen this model used at a few places I've worked.)

Set up a second LLC/Corp. That LLC/Corp owns all tools, real estate, other assets of any meaningful value and leases them to the knife making LLC/Corp you've set up.

Creates a lot of accounting and legal work/expense though. But, if the knifemaking LLC/Corp owns nothing, there is nothing to be lost to a judgement or lien.
 

Sleestack

Well-Known Member
#4
Even the tools, shop, and other meaningful assets can be protected. (IANAL but I've seen this model used at a few places I've worked.)

Set up a second LLC/Corp. That LLC/Corp owns all tools, real estate, other assets of any meaningful value and leases them to the knife making LLC/Corp you've set up.

Creates a lot of accounting and legal work/expense though. But, if the knifemaking LLC/Corp owns nothing, there is nothing to be lost to a judgement or lien.

This.

There are ways to protect everything but you have to follow the rules of an LLC which can be cumbersome especially if you're setting up multiple LLC's. But it works.

Leasing equipment from another LLC within the same corporate umbrella is very common.

If you look on the side of a commercial vehicle many will say something like, "Leased from xxxx". This is what they're doing. It's one company leasing the truck to anther company but both companies are owned by the same person or corporation.
 
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