Do I need a LLC to protect myself from torts?

February 22, 2009 12:28 PM

I am preparing for my first business. Its a pedal-powered smoothie stand for my local farmers market. I'd like to allow customers to pedal their own smoothies while protecting myself from lawsuits (ex: customer sprains ankle while stepping off bike, or has a heart attack).

Question 1: At first I thought I could just be a sole proprietor. I'm 20 years old and have less than $5,000 of assets someone could take, BUT I'm still claimed as a dependent on my mother's taxes. Does my dependent status allow a prosecutor to go after her assets as well?

Question 2: How would an LLC protect me in this situation? I understand an LLC is a separate entity from me, could that veil be easily penetrated? Why do personal trainers have fitness insurance and have their clients sign a waver saying that they understand the health risks involved with moving around and sweating? I don't want to have my customers sign a piece of paper before pedaling for 15 seconds.

Question 3: Should I consider having commercial insurance?



My smoothie stand will be in Maryland if that helps adapt your answers.

posted by LC to law & government (24 comments total)

1.) Yes.

2.) No. A full corporation will in many cases. IANAL.

3.) ABSOLUTELY! Commercial insurance is expensive and harder to get than you might think, and any business that involves an activity where customers can get hurt MUST have it, if only to cover your own patoot.

However, you will probably be required to have not only insurance with a million dollar liability to be able to set up anywhere legally, but if you are selling food products, you need a license for that and have to pass inspection requirements. (Your State May Vary.)
posted by dejah420 at 12:39 PM on February 22

posted by dejah420 at 12:39 PM on February 22 [+] [!]

Dejah420, you say "IANAL," so could you post your credentials/expertise for answering this question? It's kind of hard to evaluate whether any credence should be given to answers without understanding what you bring to the table.

I say this because your answers (1) and (2) are setting my bullshit detectors off, big-time.
posted by jayder at 1:15 PM on February 22

Any library should have a small-business section that will have introductory books that will answer all these sorts of questions. The Nolo series is pretty popular. An LLC may very well be a good bet. But honestly, I wouldn't worry about tort liability too much for what you are doing. A person can't just get hurt, hire a lawyer, and own your family's house, despite what it may seem like from the media. The burden would be on them to prove you operated your machine negligently and caused their injury. Just take basic safety precautions and you should be all set.
posted by norabarnacl3 at 1:31 PM on February 22

@jayder

IANAL means "I am not a lawyer."
posted by LC at 1:31 PM on February 22

@jayder

IANAL means "I am not a lawyer."

I think jayder's point is that if Dejah isn't a lawyer, what expertise do they have for answering this question?
posted by EndsOfInvention at 1:41 PM on February 22

@norabarnacl3

I am interested in more details about "The burden would be on them to prove you operated your machine negligently and caused their injury. Just take basic safety precautions and you should be all set." I believe that even if I have done everything properly, it is still my bike the customer is stepping on which would still make me liable.

I have one of Nolo's LLC books, but regarding the specifics of this issue it says to speak with a lawyer. I may eventually speak with a lawyer, but for now, I'd like to do as much of this as possible on my own.
posted by LC at 1:42 PM on February 22

Have you thought about contacting your state/province university's agricultural extension programs? The one I used to work with had ag/food lawyers that consulted for free or for very cheap and also had free seminars.
posted by melissam at 2:11 PM on February 22

Could you better explain what your business is? It sounds to me like a bicycle that someone rides that powers a machine that makes them a smoothie that they pay you for. Is that correct? If so, I'm a smoothie loving, bike loving person... and there's no way in hell I would pay for this privilege. Am I misunderstanding the business?
posted by You Should See the Other Guy at 2:20 PM on February 22 [1 favorite has favorites]

A local chocolate importer has something similar - a pedal-powered cocao nib grinder. But it's more of a conversation piece. Forcing customers to pedal sounds like a logistical nightmare. If you just want to blend drinks without electricity - look for a hand cranked blender. I've seen these at outdoor events and they look like an off-the-shelf product.

Also, a bit of meta business advice: focus on the core of your business. Is the customer pedaling themselves crucial or just a nice to have? Is there and easier way to get a similar impact. Corollary: Take care not to get sidetracked with fun side projects. (something I keep telling myself...)
posted by kamelhoecker at 2:42 PM on February 22

@You Should See the Other Guy
You understand the business model correctly. However, I've told many people the concept and I've gotten "that would be a hit" and "awesome" for typical responses. Not "there's no way in hell I'd pay for that." There are many other pedal-powered smoothie stands in the US some of which charge a buck less if the customer pedals. Would this make more sense to you?

@kamelhoecker
I have considered having an employee dedicated to bicycling all the smoothies. It would speed up the smoothie making process and take care of most of my legal questions (which, btw, I'm still looking for answers to). However, based upon my own experience having run my stand at a fair once and speaking to other pedal-powered smoothie stand owners, the customers WANTS to be part of the process. They actually like to pedal the bike; and It isn't some sort of inconvenience like "You Should See the Other Guy" thinks it is.
posted by LC at 3:12 PM on February 22

Keep in mind that the customer participation will significantly slow down the transaction. This means less sales per hour, if you're in a spot that is busy enough to keep you hustling full-time. If you find that your major sales happen during a 2-hour window, for instance, you will quickly find yourself and the other customers getting impatient with the ostensibly "fun" process.

I've seen and worked next to these kind of setups in several places, and they're always more of a novelty (or sponsored) attraction rather than a serious (i.e. money-making) endeavour.

YMMV. Best of luck!
posted by Aquaman at 3:49 PM on February 22

IANACyclist and I wouldn't want to pedal my own smoothie, either, but I can see that other people would. The easy solution is one employee powered smoothie machine for my lazy bones and another pedal powered machine for the rubes.

IANAL, either, so I would ask some of the existing farmer's marketers for advice on insurance and so on.
posted by notyou at 4:32 PM on February 22

Depending on Local, County, or State laws, and regulations, be prepared to spend some money. It's a cool idea, but it isn't as simple as building a pedal-powered blender, and taking a cooler full of fruit and ice out on the street. Many Health Departments require commercial kitchens for food prep, and have stringent policies for food storage. They might relax their stance if it is for a non-profit, but if you are in it for the money, not so much. A call to your local Health Dept. could answer many of these questions.
posted by lobstah at 4:44 PM on February 22

As a former small businessperson, I'd say that dejah420 has a very good answer.

However, the people you should go to for state specific answers to your questions are your local small business development office or even the local chapter of SCORE. These people love to help people like you, even for the stupid little stuff.
posted by kuujjuarapik at 5:17 PM on February 22

FWIW there was a pedal-powered smoothie operation at my local farmers' market last summer and it was a hit. They were doing it for free to raise awareness for Maker Faire.
posted by spikeleemajortomdickandharryconnickjrmints at 6:28 PM on February 22

Jaydar, I have owned both LLC, partnerships and incorporated businesses. My mother is an executive chef who ran a catering business for the majority of my life. I'm familiar with how food regulation is structured.

When I started my first company as a teenager, selling baked goods at an open air market, our attorney made it clear that my parent's assets could be at risk if I poisoned people. We made the decision to umbrella my business under my mother's business so as to enjoy both the insurance and liability protection.

I have for the last 6 years owned a personal products manufacturing company, which requires product liability and personal liability protection, and the attorneys who gave me my advice are Thompson and Knight, who know a little bit about setting up companies and how to protect assets.

And for the record, what are your qualifications to call bullshit on my original answer?
posted by dejah420 at 7:42 PM on February 22 [3 favorites has favorites]

IAAL, IANYL.

To the OP, IANYStart-upAdvisor, but I think that you should just pedal yourself to avoid that kind of liability. You are going to be busy enough with all the food regulatory issues.

With respect to question 1, the answer is state-specific (and OP declines to mention his/hers). In most states, absent some kind of investment, advice or control, it would be difficult to tie liability arising out of a adult child's business to a parent, even if they live at the same address, but the child still being a dependent probably helps that analysis along in some states. A parent's homeowners insurance may cover certain personal liability of a child, especially if living at the parent's address or below a certain age.

The correct answer to question 2 depends on a variety of related issues; you should have professional advice on these points, and it should probably involve your insurance options.

I have for the last 6 years owned a personal products manufacturing company, which requires product liability and personal liability protection, and the attorneys who gave me my advice are Thompson and Knight, who know a little bit about setting up companies and how to protect assets.

I'll concede that they know a little bit, but it's unclear how them knowing a little bit gives you the expertise to generalize the situational advice some other unnamed guy gave to you into universal advice. And it certainly doesn't afford you the kind of weight to be able to be indignant about being called out on your poor advice and lack of expertise.
posted by iknowizbirfmark at 9:35 PM on February 22

My smoothie stand will be in Maryland if that helps adapt your answers.

Sorry, I missed this. Local resources (free or not) familiar with local (including city and municipal) law are your next step.
posted by iknowizbirfmark at 9:37 PM on February 22

Are you an attorney in MD? Because according to a quick Lexus Nexus search of tort law in regards to a minor where it concerns personal liability, provides the following info:

"A parent may be liable for a minor's torts. Generally, there are two groups that the parent may fall under, either the parent failed to exercise proper control over the minor or the parent permitted the minor to have access to instrumentalities that were a source of danger due to the minor's age or lack of experience."

So...how, exactly, is my answer wrong? Or wrong enough that I'm not justified in being offended when someone is rude? If I'm wrong, fine...say I'm wrong, but don't just get all "I call bullshit, you're a liar!", when I wasn't doing anything other than saying it was

a) possible for a good lawyer to sue try to attach his mother's assets.
b.) that incorporation is generally the best way to avoid personal liability
c.) that insurance is an absolute necessity for doing business in a country as litigious as America.

And yes, I do think I have the right to get indignant when people are rude. I'm willing to accept that my answer may not be right, and it was a quick toss off to an obviously equally tossed off AskMe question, but Jayden's comment didn't add anything to the discussion, he didn't offer any cites for how I was wrong, and as far as that goes...neither did you.
posted by dejah420 at 10:39 PM on February 22

The ones I've seen have been at bike-y events, like races, charity rides and swap meets. It might be a hit at a farmer's market, or the novelty might wear off quickly. I like the idea of having two machines, one for customer use, and offering a dollar discount for those willing and/or able to pedal. As deja420 correctly noted, you may be at larger risk from giving someone food poisining than you are from someone spraining an ankle getting on and off your blender. I'm married to an exec chef in food service industry, BTW.
posted by fixedgear at 5:12 AM on February 23

@ dejah420

I am NOT a minor. In maryland (and I think the rest of the US?) anyone over 18 is legally an adult. But FWIW, I am a dependent on my mother's taxes b/c I live @home and meet other criteria.

---------

I like the idea of two different bikes for two different prices/types of people. It would move things at a faster clip like posters have said. Thanks for the idea! Now I have two follow-up questions:

1. If I create an LLC, do I need commercial insurance (for my nearly asset-less company) as well?

2. If customers are getting on the bike and blending should I have them sign a waver in addition to my commercial insurance or LLC status?



I'm really trying to cover my ass here from all angles for a couple reasons. As I write there is a lawsuit going on against a stand in the farmers market I'm applying to be in. And the first time I had my bike operation going the customer pedaling became short of breath and had to lie down on the ground. It could have been worse. 1000 people can blend 1000 smoothies with no problem; all it takes is one person to f it all up!
posted by LC at 6:42 AM on February 23

This question is a great example of how legal questions don't work well here.
posted by iknowizbirfmark at 7:49 AM on February 23 [2 favorites has favorites]

FWIW, after all the huffing and puffing dejah420 made about calling BS on his answers, I've confirmed with a lawyer that all three of his original answers to my post are incorrect.
posted by LC at 10:21 AM on April 16

Hey LC, I don't know any other way to contact you to ask this question but...

I read your question a while back about reading jobs. That’s exactly what I need. Any other study job’s you’ve discovered since? Any advice you could give?
posted by ben1796 at 10:35 PM on August 15