22 replies to this topic

[clrob11]

Something that is puzzeling me as I get nearer to opening my store is do I need any form of liability insurance? At the moment the only employee is myself, I have no premmises like a retail store and my busniees is entierly web based and run from home ( I am not interested in home insurance side of things).

The reason I ask is that If I did have retail premisses I would indeed need public liability and indemnity insurance. But I am not sure for a web store.

Any one any thoughts on this?

[Andrew Yuen]

Instead of thinking about liability insurance, I would consider looking into forming either a Limited Liability Company (LLC) or incorporation (INC) to protect your personal assets of someone does decide to sue.

[fredy123]

Andrew Yuen, on Oct 19 2007, 12:56 AM, said:

Instead of thinking about liability insurance, I would consider looking into forming either a Limited Liability Company (LLC) or incorporation (INC) to protect your personal assets of someone does decide to sue.

I, too, it is very interesting that, does no one have no ideas on the subject?

Edited by fredy123, 24 October 2007, 17:03.

[willandjenny]

fredy123, on Oct 24 2007, 01:01 PM, said:

I, too, it is very interesting that, does no one have no ideas on the subject?

I am in my final year of law school and prior to opening up my site or doing anything, I extensively researched the various asset protection laws and options offered by different states. First you need to understand the problem, whether someone will win is only half the problem when you get sued. How much of your time it will take, how much it will cost you to mount a defense to the plaintiff's claim(s), and where you live are just as, if not much more, important as the "strength" of the plaintiff's substantive claim.

This is not legal advice; I am merely telling you what I chose to do after much research. I formed an LLC in Wyoming - I downloaded the appropriate form from the Wyoming Secretary of State's (SoS's) website. It is called the "Articles of Organization." It cost me $100 to file with the Wyoming Secretary of State (Oct. '07). Next, because I do not live in Wyoming, I called nearly every registered agent listed on the SoS's site and found that Bailey, Stock & Harmon was by far the cheapest. I retained them as my registered agent--it cost me $50--and then filled out the form.

Next, I searched for an "Operational Agreement." If you have more than one Member in your LLC, you need an agreement to state how you split the profits, whether the business survives if you die, whether a partner may sell their interest in the LLC without your approval, thus sticking you with a new Member. This is not a form, but I found sufficient examples that allowed me to cut, paste, and modify without much of a problem.

Now, I live in the southeast and now had formed an LLC in Wyoming. In order to do business in the state where I live (and most other I am sure), I had to register with my resident state's SoS as a foreign LLC. I did so. I went down to my resident state's Dept. of Revenue and got a tax exemption reseller ID (state laws vary on these requirements); and dropped by the local county probate office to get my business license. All done. No one can sue me for acts that I do in the name of the business. The only asset I own that anyone can sue for business-related events, whether my fault or not, is my equity in the business itself.

Like I said, its not legal advice. I am just telling you my story so consider the info as you please. Hope this was enlightening.

[fredy123]

willandjenny, on Oct 24 2007, 06:11 PM, said:

I am in my final year of law school and prior to opening up my site or doing anything, I extensively researched the various asset protection laws and options offered by different states. First you need to understand the problem, whether someone will win is only half the problem when you get sued. How much of your time it will take, how much it will cost you to mount a defense to the plaintiff's claim(s), and where you live are just as, if not much more, important as the "strength" of the plaintiff's substantive claim.

This is not legal advice; I am merely telling you what I chose to do after much research. I formed an LLC in Wyoming - I downloaded the appropriate form from the Wyoming Secretary of State's (SoS's) website. It is called the "Articles of Organization." It cost me $100 to file with the Wyoming Secretary of State (Oct. '07). Next, because I do not live in Wyoming, I called nearly every registered agent listed on the SoS's site and found that Bailey, Stock & Harmon was by far the cheapest. I retained them as my registered agent--it cost me $50--and then filled out the form.

Next, I searched for an "Operational Agreement." If you have more than one Member in your LLC, you need an agreement to state how you split the profits, whether the business survives if you die, whether a partner may sell their interest in the LLC without your approval, thus sticking you with a new Member. This is not a form, but I found sufficient examples that allowed me to cut, paste, and modify without much of a problem.

Now, I live in the southeast and now had formed an LLC in Wyoming. In order to do business in the state where I live (and most other I am sure), I had to register with my resident state's SoS as a foreign LLC. I did so. I went down to my resident state's Dept. of Revenue and got a tax exemption reseller ID (state laws vary on these requirements); and dropped by the local county probate office to get my business license. All done. No one can sue me for acts that I do in the name of the business. The only asset I own that anyone can sue for business-related events, whether my fault or not, is my equity in the business itself.

Like I said, its not legal advice. I am just telling you my story so consider the info as you please. Hope this was enlightening.

Thanks

Edited by fredy123, 27 October 2007, 13:25.

[jhande]

Ok, you have me puzzled now!

Are we talking selling new cars, medical care, home remodeling or what? Ok, ok... I realize each State is different but can they be that different?

I live in New Hampshire and checked with two lawyers and a CPA and my accountant. I was told it doesn't matter that I am selling hobby supplies (online), I can only get sued for items not being delivered. Since the cost of my items are relatively low, it would not make sense for anyone to hire a lawyer, only recourse is charge backs. Fix for the lost during delivery = send with shipping insurance through the carrier and it then becomes the carriers responsibility not mine. For my store front, that's a different story.

In my state all I needed was a business ID# whether I am running an online store only and/or a store front (which by the way can be from my home or on my property, no zoning in Town). The business ID (Trade Name) cost me $50.00 for 5 years operating as a Sole Proprietor. New Hampshire has no sales tax so I don't need to worry about that. I don't have to pay any State tax on the money earned unless it's over $50,000. a year (Business Profits Tax?). If I do claim the income it is claimed to the IRS as part of my 1040 Schedule C, and I leave that up to my accountant.

I wonder how much insurance my paperboy carriers?
At 4:30 am he is dodging logging trucks, bears, moose, coyotes...
Probably none, he's gustsy and I know his parents.

-- EDIT --
OOP's forgot
I was advised if I start making $50,000. a year or more I should consider going INC or LLC for tax purposes.

Edited by jhande, 30 October 2007, 06:22.

[bobg7]

I carry Libality Insurance on the advice of an attorney since I offer a product that if not used properly and the user in injured I'm covered for it. It's only costs me a few hundred dollars a year for the coverage.

Edited by bobg7, 30 October 2007, 11:26.

[jhande]

Do you manufacture the product Bob?

If you are only reselling the product then the liability can/will fall on the manufacturer... Simply post a warning message on your site. Look at different products around your home, heck check the product in question. Doesn't manufacturers put warning messages on products pertaining to mis-use and injuries?

Believe it or not but some of my modeling supplies are dangerous if caution and/or adult supervision is not used. Take for example: X-Acto knives with their nice razor blades, oop's sorry about that finger little Billy. Modeling cement/glue and enamel/lacquer paints must be used in a well ventalated area. Remember the old glue sniffing days of the late 60's early 70's? Or what about spraying that neat little model car and the volatile fumes ignite as Mom is cooking dinner. :-

All of such products I sell have a warning from the manufacturer.

Besides, it's kind of tough to pursue such a case in the court system.
Let's see, I bought a new steak knife from Wal*Mart, my hands were greasy and I cut off a finger tip. AHHH me suing Wal*Mart.
I bought a new lawnmower from John Deere a week ago. It was red hot but I still filled it with gas. Oop's some flamage toasted my face. I'll sue the lawnmower shop that sold it to me and then go after John Deere. Oh wait, those days of easy lawsuits are over.

[DevinTheDude]

jhande, on Dec 2 2007, 08:59 AM, said:

Do you manufacture the product Bob?

If you are only reselling the product then the liability can/will fall on the manufacturer... Simply post a warning message on your site. Look at different products around your home, heck check the product in question. Doesn't manufacturers put warning messages on products pertaining to mis-use and injuries?

Believe it or not but some of my modeling supplies are dangerous if caution and/or adult supervision is not used. Take for example: X-Acto knives with their nice razor blades, oop's sorry about that finger little Billy. Modeling cement/glue and enamel/lacquer paints must be used in a well ventalated area. Remember the old glue sniffing days of the late 60's early 70's? Or what about spraying that neat little model car and the volatile fumes ignite as Mom is cooking dinner. :-

All of such products I sell have a warning from the manufacturer.

Besides, it's kind of tough to pursue such a case in the court system.
Let's see, I bought a new steak knife from Wal*Mart, my hands were greasy and I cut off a finger tip. AHHH me suing Wal*Mart.
I bought a new lawnmower from John Deere a week ago. It was red hot but I still filled it with gas. Oop's some flamage toasted my face. I'll sue the lawnmower shop that sold it to me and then go after John Deere. Oh wait, those days of easy lawsuits are over.

Thanks for the info

[Java Roasters]

Andrew Yuen, on Oct 18 2007, 08:56 PM, said:

Instead of thinking about liability insurance, I would consider looking into forming either a Limited Liability Company (LLC) or incorporation (INC) to protect your personal assets of someone does decide to sue.

Having a Limited company does not protect you from being sued. most likely they will sue your company and you personally. Having a LLC only protects you if you have done everything you could to protect the customer. If you are personally found liable or negligent most likely your company insurance won't cover it and you will personally liable.

[lindsayanng]

An LLC does not protect your personal assets, an LLC combines your personal and business financials, meaning if you have a second job and make $75,000 a year and your little online store which is an LLC REALLY makes only $25,000 a year, your actual LLC is worth $100,000 a year. We just took our company (not my website) from an LLC to an Incorporated for that reason. with an INC. everything is separate and when your business gets sued, it is strictly confined to your business financials, but an LLC or Sole Proprietor is all rolling into the same financials. personal and business..

[MrPhil]

lindsayanng, on Jun 20 2008, 11:19 PM, said:

An LLC does not protect your personal assets,

It may vary a bit from state to state, but in mine (NY) a single member LLC is like a sole proprietorship (for tax purposes) combined with some protection of your personal assets. The veil of protection can be pierced if it can be shown that you knowingly acted improperly, but otherwise your personal assets are protected from lawsuit awards. A multiple member LLC is like a partnership (for tax purposes), but to some degree protects the members' personal assets (unless there is personal misconduct).

Unfortunately, liability insurance is vital for any product or service (at least, in the US) as people will sue for anything. Unless you're in a high-risk business, the rates should be quite reasonable.

[lindsayanng]

i guess SOME protection is more accurate than it will protect you - either way, you are a little less protected than a corporation.. The other thing is if you have a member (not called partners in LLCs) and one goes bankrupt or dies, the LLC is forced to dissolve because it is based on the individual.

In my other company, we have workman;s comp and liability.. you dont need workmans comp if you dont have employees (if you do, its a LAW to have it) but the liability is pretty cheap and everyone should have it..

[charagg]

While I haven't read all of the posts to this question, let me first start by saying that I am a Property/Casualty insurance agent licensed in the State of California. I also own a web/graphic design firm that I started about long before I got into the insurance industry. I'm actually very lucky, as I can sell an e-commerce site (along with all the services) and offer the liability insurance that would go along with an E-Commerce business.

First of all, let me start by saying that there aren't any laws that requires a business owner to carry liability insurance. Unless, you're in an industry that is regulated, say by the Federal Department of Transportation (i.e. transportation companies, airlines, etc.) Liability insurance is just that, it is coverage for the business owner, corporation, organization, etc. that will protect them in the event of a law suit. To think of insurance in simple terms, the insured (party being insured) agrees to pay a small amount of premium (less deductible) in exchange for a large amount of protection.

For example, you might pay an annual premium of $3000 for $1,000,000.00 dollars of liability coverage for a given policy period. In the event of a claim, let's say another party is injured (all liability insurance is coverage for injury to a 3rd party, not the insured themselves), the insurance company will pay the claim up to the limits of the policy (ie. 1,000,000.00) and depending on the company may include additional coverage for legal costs.

In the case of websites, here's the scoop. As a web designer/firm, you can purchase liabilty insurance for your business (as little as $700/year) and depending on your company's guidlines, you may have liabilty coverage extended to your online operations. Not all carriers offer this. If you are strictly an online operation (ie. no store), you can also buy a policy. However, these are not cheap as the risk for a claim drastically increases when you are conducting business online. Imagine your server is hacked and the names, contact info, and credit card info is stolen. How long do you think it will be before one of your customers opens a lawsuit for identity theft (biggest liability of online businesses). A claim of this sort can go into 100's of 1000's of dollars. One of the biggest protections you want, especially if you're running an online store that is profitable, is the liability coverage to protect against hacks and id theft.

If you're offering advise or consulting services online, you're going to want to get some Errors and Ommissions coverage - this is basically if someone sues you for giving them advise which resulted in some sort of loss, be it monetary or physical.

I can go on and on about the reasons why you would want insurance for your online store (moreso than just a brochure site), but the main thing is that if you're collecting people's credit card and personal info, you are opening yourself to a potentially crippling id theft lawsuit. However, having said that, there is still not a law that says you have to buy the insurance.

Insurance is about risk and how much you're willing to take. If you don't get insurance on your e-commerce operation, you're basically saying that you're willing to shell out the $ in the event of a lawsuit. With more and more companies (I work with over 150 companies) adding technology services to their appetites of insurance lines, the options are increasing.

With regards to forming a corporation or LLC, yes these do offer you shelters from lawsuits, in that your personal assets can not be touched in the event that you are sued and lose. The corporation or LLC becomes the business entity and only the assets of that entity can be touched. Having an insurance policy, basically gives you the protection from having to pay on a claim by having the insurance company "foot the bill" per say.

I'd be happy to post more info about this or answer any questions any OSC users may have regaring the topic of insurance and websites. Please feel free to email me at ara@benchmarkdesign.net

Thanks! Hope this helped!

[jhande]

Hey ara,

I am well aware of the benifits and differences between an LLC, Corporation and Sole Proprietor here in New Hampshire. I am also aware of the benifits / processes of insurance.

What I am unclear on is that you state we should have an insurance policy just in case we are faced with an "identity theft" claim.

I have discussed this and insurance in general with my attorney prior to setting up an online business.
His advice - if I am running ONLY an online shop selling items then all I need is the manufacturers product warnings and to post a disclaimer/warning on the site that some products could be hazardous, adult supervision, etc... So that covers me from someone hurting themself with something they bought from my store.

Regarding the identity theft, the only information stored in my osC database is the customers name, address and phone number. The same information you can find in the telephone directory (book) or online. Payments are processed through PayPal's site, acting as my gateway. Both of which are processed through SSL.

My attorney said it would be difficult if not impossible for an individule to prove that their identity was compromised from a transaction from my shop. Adding to that, PayPal is actually handling the credit card transaction which places the responsibilty with them, not me. If I was actually processing the payments at my site or had an actual store front then that is a different matter altogether. In which case adequate insurance is a must for a few things.

I am just curious why my attorney would recommend such a thing, no need for insurance, if in fact I do need it?

[charagg]

jhande, on Aug 25 2008, 03:23 PM, said:

Hey ara,

I am well aware of the benifits and differences between an LLC, Corporation and Sole Proprietor here in New Hampshire. I am also aware of the benifits / processes of insurance.

What I am unclear on is that you state we should have an insurance policy just in case we are faced with an "identity theft" claim.

I have discussed this and insurance in general with my attorney prior to setting up an online business.
His advice - if I am running ONLY an online shop selling items then all I need is the manufacturers product warnings and to post a disclaimer/warning on the site that some products could be hazardous, adult supervision, etc... So that covers me from someone hurting themself with something they bought from my store.

Regarding the identity theft, the only information stored in my osC database is the customers name, address and phone number. The same information you can find in the telephone directory (book) or online. Payments are processed through PayPal's site, acting as my gateway. Both of which are processed through SSL.

My attorney said it would be difficult if not impossible for an individule to prove that their identity was compromised from a transaction from my shop. Adding to that, PayPal is actually handling the credit card transaction which places the responsibilty with them, not me. If I was actually processing the payments at my site or had an actual store front then that is a different matter altogether. In which case adequate insurance is a must for a few things.

I am just curious why my attorney would recommend such a thing, no need for insurance, if in fact I do need it?

Hi Jim,

The info I posted regarding Corporation and LLC benefits was for those who don't know - was not questioning your knowledge. However, the type of coverage or liability you are referring to when you talk about people getting injured using a product you sell is known as Products Liability and Completed Operations coverage. Yes, while this responsibillity does ulitimately fall upon the manufacturer, this does not completely remove responsibility of liability from the reseller.

In the event of a lawsuit, you can better believe that you would most likely be dragged into a lawsuit. A good attorney will try to hold you liable as well. Furthermore, have you checked the scope of coverage for each manufacturer policies? Do you know what they will cover? How far? Not every manufacturer carries the same type of insurance? In many cases, it is even more difficult to bring suit to an overseas manufacturer (ie. China) The party bringing suit may find it easier to go after you.

With regards to identity theft, yes, the "just in case" is exactly what insurance is for. It only takes one lawsuit/claim, to literraly wipe out a small business, or at very least, do some major damage to the insured's bank account. Not to mention, the difficulty they would have in replacing the coverage because of a claim in the event of a non-renewal by the carrier.

I commend you for doing your due diligence in finding out how you can protect yourself. Unfortunately, it does not seem to me that you have spoken to your insurance agent. If you don't have one for your business, I suggest you find one that is well versed in commercial insurance in your state. While attorneys do have a reasonable amount of knowledge in the area of insurance, their advise is not always correct, as this is not their field. You really should talk to an agent.

There are many more protections, other than just identity theft that are offered through your insurance. For example, CNA's Net Protect policy (cnapro.com/pdf/NetProtect.pdf) offers Data Recovery, Business Income, Denial of Service, ID theft, professional E&O (Errors and Omissions) and a whole bunch more coverages that may not be available on a standard GL policy. This is one of the best programs that I've come across.

Remember, setting up a corporation or LLC is going to protect your personal assets from being taken in the event of a lawsuit. It will not pay the claim or your defense costs - this is what insurance is for. I'd have second thoughts about an attorney advising against insurance. You might want to get a second opinion or even better yet, get yourself an independent insurance broker that specializes in commercial insurance. The reason I recommend a broker is because a broker will tend to have more markets and companies that they can access than say an agent for State Farm, All State, etc - agents of these companies typically can only quote from that company.

As far as how difficult it is to prove where an individuals identity was compramised, these coverages don't exist just because. Insurance companies have whole departments to research who, what, when, where, and how. Trust me, there are many ways to prove these things.

I hope this helps. Bottom line, if you want advice about your illness, talk to your doctor. If you want advice about insurance, talk to a broker/agent.

Thanks for the feedback - it's good to know someone out there is paying attention.

[jhande]

Hi Ara,

Thank you for the well defined info.

My attorney handles business law amoung other things and I did also talk with an insurance broker. The broker suggested that I wait to see if the business took off before worrying about any kind of policy. Now that I think about it, why would I want to shut the barn door after the horse leaves? It would be like getting car insurance after an accident!

I will certainly take your advice and talk with a few more (hopefully more knowledgeable) insurance brokers and even attorneys.

Again, thank you as I did not realize I was leaving myself open for possible problems.

P.S. I only mentioned business structures so that we wouldn't have to cover that aspect.

Your input is very much appreciated.

[charagg]

jhande, on Aug 25 2008, 06:16 PM, said:

Hi Ara,

Thank you for the well defined info.

My attorney handles business law amoung other things and I did also talk with an insurance broker. The broker suggested that I wait to see if the business took off before worrying about any kind of policy. Now that I think about it, why would I want to shut the barn door after the horse leaves? It would be like getting car insurance after an accident!

I will certainly take your advice and talk with a few more (hopefully more knowledgeable) insurance brokers and even attorneys.

Again, thank you as I did not realize I was leaving myself open for possible problems.

P.S. I only mentioned business structures so that we wouldn't have to cover that aspect.

Your input is very much appreciated.

Hi Jim,

You're welcome. As far as I'm concerned, everybody should have insurance - especially businesses. Unfortunately, it's one of the last things to be obtained and the first thing to be let go when the going gets tough. It seems like you understand the value of insurance, which believe it or not, alot of people don't see any value in paying for an intangible service. Trust me, when the day comes, you will be glad you have the coverage. Just make sure that you read the fine print and ask alot of questions.

What the insurance broker suggested to you was not the advice I would give. If it were me, I would have quoted your business at least so you know how much to expect to pay. Whether you, or anyone trying to obtain insurance, can afford it is a different story. However, with all sorts of premium financing and payment terms, companies try to make it easier for you to pay for the coverage.

Anytime you operate a business, you're open for problems. This world is sue happy. Just read the headlines. Again, my props to you for doing your due diligence. More people should take example from your efforts.

Glad I could help.

Good luck!

Ara

[MrPhil]

I'd just like to reiterate that, although a number of people have said that setting up a Corporation, LLC, LLP, etc. will protect your personal (non-business) assets, this is not 100% true. If someone sues your business entity for some loss, its assets may be seized if there is insufficient insurance. In addition, if the plaintiff can convince judge or jury that personal misconduct, malfeasance, or negligence on your part (as corporate officer or LLC member or LLP partner) contributed to their loss, the "veil of protection" can be pierced. Stockholders are immune, but officers only have protection so long as they did their honest best. The bottom line is that you can't totally relax, secure in the knowledge that no matter what happens, you can't lose your home or bank account -- you can! So long as you can show due diligence and that you tried to do the right thing, such things shouldn't happen to you -- but there are no guarantees in this litigation-happy age. Carry enough insurance!

[jhande]

Thank you Ara

I am already making phone calls so that I can hookup with a few more brokers.

I'll bug the heck out of them until I know for sure my butt will be totally covered!

It was much easier when I needed contractors insurance for both designing homes and building.

Thank you again!

Have a good one and take care.