LLC or Sole Proprietorship?

[RonObvious]

Wondering how most of you have incorporated your wineries? As sole proprietorships or LLCs? I know an LLC is probably preferred, but they are expensive ($500/year here in MA) and I'm musing whether it's absolutely necessary for a really small mom & pop winery like we hope to be, producing only a few dozen cases per year?

Are you an LLC or sole? Thanks in advance.

 

[Ajmassa]

That's a good question. I'm interested to hear how people respond. And it sounds like a great way to keep busy later in life.
Common sense tells me the answer would be ObviousRon.
As long as you stay small then sole proprietorship sounds like the best option. You could always LLC later on if you had to. I would think as soon as more money and actual employees are needed then LLC is the way to go,if not necessary. If investing more and more it comes down to protecting personal assets.

 

[Johnd]

Regardless of the business, wine or other, do some research in your state to see what the laws are. In general, the protections afforded by an LLC are worth the costs associated with the designation. The liability of a sole proprietorship, at least where I live, would keep me up at night..........Here's a little info about the comparison:

Advantages of an LLC Compared to a Sole Proprietorship and a Partnership

Owners are Not Personally Responsible for Company Debts

This is the most important attribute of an LLC. In a sole proprietorship and partnership, the owners are personally responsible for business debts. If the assets of the sole proprietorship or partnership cannot satisfy the debt, creditors can go after each owner's personal bank account, house, etc., to make up the difference. By contrast, if an LLC runs out of funds, the owners are usually not liable.

Please note that under certain circumstances, an individual member may be liable for the debts of an LLC. These circumstances include:

• If a member personally guarantees a debt.
• If personal funds are intermingled with LLC funds.
• If the LLC has minimal capitalization or insurance.
• If the LLC fails to pay state taxes or otherwise violates state law (like defrauding consumers).

Easier for An LLC to Raise Money

An LLC has many avenues to raise capital. It can admit new members by selling membership interests, and it can create new classes of membership interests with different voting or profit characteristics. Plus, investors will be assured that they are not personally liable for company debts.


Ease of Ownership Transfer

Ownership interests in a limited liability company may generally be sold to third parties without disturbing the continued operation of the business. The business of a sole proprietorship or partnership, on the other hand, cannot be sold whole. Instead, each of its assets, licenses and permits must be individually transferred. New bank accounts and tax identification numbers are also required.

Disadvantages of an LLC Compared to a Sole Proprietorship and a Partnership

Cost of Set Up

It costs more to start an LLC and run it than a sole proprietorship or partnership. For example, there are the initial formation fees, filing fees and annual state fees. These costs are partially offset by lower insurance costs.

Formal Organization

Although an LLC requires fewer formalities than a corporation, there is still more paperwork involved than a sole proprietorship or partnership. A sole proprietorship or partnership can open and operate without any formal organizing procedures - not even a handwritten agreement.

Separate Records

In order to maintain the separate form of the LLC and maintain the liability protection of its members, LLC owners must carefully maintain separate records and keep personal affairs separate from the LLC's business. Even more importantly, the LLC's money should never be intermingled with personal money.

LegalZoom can help you start a partnership or an LLC. Also, if you’re going to do business as a sole proprietorship, we can help you apply for an official business name (called a DBA). Get started by answering questions about your business in our questionnaire, we check your answers for completeness and consistency, and then file the paperwork with the appropriate government agency on your behalf.

 

[PandemoniumWines]

My business, which is not a wine business, is registered as an LLC. If something horrible happens, I can only lose the value of the business, and not my house!

 

[balatonwine]

Advantages of an LLC Compared to a Sole Proprietorship and a Partnership

Owners are Not Personally Responsible for Company Debts

Actually, it is not that simple. Under certain circumstances, a creditor can actually breach the "company veil" and make the owners of the LLC liable. This is not just me talking. This is advice from a $300 an hour attorney I consulted.

But generally, if you are selling to the public, some type of limited liability company, or personal company insurance is really a must. If you are just doing non-retail actives (i.e. a few cases a year), then no company structure is needed beyond sole proprietor.

 

[dcbrown73]

In my IT consulting on the side, I was sole proprietorship for a long time. I was consulting for hourly rates, but once I started being asked to architect, buy and, build their Internet Infrastructure. I switched to an LLC for personal liability protection.

If I were going to sell my wines. I would likely do the same.

 

[dcbrown73]

Actually, it is not that simple. Under certain circumstances, a creditor can actually breach the "company veil" and make the owners of the LLC liable. This is not just me talking. This is advice from a $300 an hour attorney I consulted.

This depends on how much money your worth in today's financial atmosphere hah. If you're rich enough, you can be the Harvey Weinstein of financial legal issues. I watched it happen in the years I worked in Manhattan's financial district. Though, it looks like Paul Manafort's time has run out similar to Harvey's in this case.

 

[balatonwine]

This depends on how much money your worth in today's financial atmosphere hah.

True. But if you own your winery, vineyards, home, a car, or anything, a creditor can go after it and leave you on the curb. And might even be able to sequester your future income from today until you hit the coffin. Personal bankruptcy may then be your only out.

 

[salcoco]

I think LLC is the best especially if made to be able to cover anything. prime purpose for wine production but also any general business you want to have. It also depends on your personal wealth. I would suggest you pursue your question with you financial advisory and estate attorney.

 

[RonObvious]

OK thanks all, I guess we'll bite the bullet and go with an LLC. I was thinking maybe start with a sole proprietorship and convert it later, but it sounds like I'd have to go through all the permitting again, which would be a pain in the neck to say the least.

 

[Kraffty]

It seems to me from what I've read here in the past that the issue of LLC vs. anything else would be the smallest of issues compared to the cost and time to become legally licensed to make and sell wine in the first place. Especially considering the amount of cases you mentioned. Maybe some of our actual winery guys could chime in?
Mike

 

[rustbucket]

The wine making store I visit whenever I get to Orlando sells wine he makes from kits by the bottle. He has a separate wine & beer license for that and organized that company as an LLC.

To BALATONWINE's point, I can easily see a good lawyer claiming personal liability for negligence on the LLC owner's part for making a wine that caused physical harm to his client.

 

[RonObvious]

I could see them trying, but I wonder if there would be any success? If someone gets drunk on wine (or any other alcohol for that matter) and crashes their car, can the producer be held liable? If that were the case, I would think producers would get sued all the time. Budweiser and others would get sued ten times per day.

 

[Johnd]

I could see them trying, but I wonder if there would be any success? If someone gets drunk on wine (or any other alcohol for that matter) and crashes their car, can the producer be held liable? If that were the case, I would think producers would get sued all the time. Budweiser and others would get sued ten times per day.

There's nothing one can do to prevent being sued, and whether suits are successful or not, the costs associated with defense mount quickly. At least with the LLC, the difficulty in piercing the corporate veil provides a level of discouragement, but not prevention. When a trial gets into the courtroom, there's no telling what a "jury of your peers" may decide on the matter at hand. McDonalds was sued successfully for serving hot coffee..........

 

[ibglowin]

You can certainly be sued for over serving someone on your premises who then goes out back on the road DUI.

 

[Johny99]

Check your local laws. When I consulted an attorney for my rentals, he advised that LLC has protections pointed out above with regards to debt, but not 100%. He cautioned that I could be held personally liable for things I did, even if it was as part of the LLC, like signing for credit I might know the llc couldn’t pay, or fixing a sink. So, if the llc is the winery, but you personally poor the glass that results in accident, I’m not sure the llc would be the best protection. May be different where you are.

 

[jgmann67]

Actually, it is not that simple. Under certain circumstances, a creditor can actually breach the "company veil" and make the owners of the LLC liable. This is not just me talking. This is advice from a $300 an hour attorney I consulted.
.

Thiis is called "piercing the corporate veil" and doing so depends on a whether your LLC is just a sham to avoid liability... if you deal in the company's assets as if they were your own, engage in fraudulent conduct or fail to properly capitalize your business, a court could be willing to reach your personal assets to satisfy a judgment against you.

Keep the worlds separate, maintain good surance coverage and have 'clean hands' in all of your business dealings... your should be fine. Also, have a standing relationship with a good business lawyer that you can go to whenever you have a question.

 

[balatonwine]

Thiis is called "piercing the corporate veil"

Yes, I know.

But I tend not to use that phrase myself to avoid confusion with real corporations, since an LLC is not a corporation in most jurisdictions, but a hybrid business structure. But the LLC can be asked to be treated as a corporation by the IRS for tax purposes.