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Business entity, insurance, etc.

Discussion in 'Asset Protection/Taxes/Legal' started by brianm4289, Mar 3, 2010.

  1. brianm4289
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    brianm4289 New Contributor Read Millionaire Fastlane

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    ok, i will make this as short as I can and get to the point... a while back I tried to start an e-commerce website selling automotive parts working with dropshippers. It seemed so great at first, selling what I love and never having to stock an inventory because it was being dropshipped. BUT of course I started doubting everything and thinking wayyyy to much into things by thinking "what if the company dropships the wrong product and I have no way to return it" "What if somebody hacks into my site and I get sued for somebody else stealing credit card numbers" "What if the item is in terrible shape and I can't check for quality". Now those things were the first batch of negatives that came to my mind but then I started doubting my entity selection of a Sole Proprietor due to my personal credit and assets being on the line in the case of a law suit. I really dont see a law suit happening from running a retail store online but ya never know. So here is my question to everybody... if you were running an e-commerce site would you go as a sole proprietor? have business insurance? or what type of entity would you use? what is your opinion of dropshippers? basically if any of you run an online business I would love to hear any input and advice you have thanks everybody
     
  2. GlobalWealth
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    GlobalWealth Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    I cannot comment on the issues you face with dropshippers, but I can provide some insight about the asset protection aspect of your question. First of all, I would never recommend a sole proprietorship. There is just way too much risk here. As you alluded, you just never know what is going to happen and your customers can be anyone or anywhere. When you run a sole proprietorship, your personal assets are at risk; your house, your cars, bank accounts, other investments, everything. You should certainly get some product liability insurance at a minimum. It usually isn't that costly and will protect you in most cases. As far as how to structure your entity, that depends. For some of my clients, we set them up with an offshore entity because it is possible in some circumstances to defer taxation. This doesn't work in every case, but if you earn enough income from teh site, and you meet the other requirements, this can be a huge benefit. for those that don't meet this requirement, we set them up with an LLC. I am glad to see someone thinking about asset protection before they need it. A proper asset protection structure is like insurance. But you don't buy health insurance after you have been diagnosed wiht cancer, it won't do you much good. The same holds true here. I had a call yesterday from a doctor who wanted to set up an asset protection structure. but he had already been sued for $2.8m and his insurance only cover $1.3m. the court had already issued a judgment. at this point, it was too late.
     
  3. LondonLife
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    LondonLife Contributor

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    Every single one of my investments is set up as a separate Ltd Company (Very similar to an LLC in the US).

    Should something go terribly wrong the company can only be sued to it's worth, and should it go bankrupt your private assets are safe. There are problems if this happens such as being unable to be a director of other companies, but it is a small hurdle if it were to occur.

    You seem concerned about your personal assets, and this is a very simple process to protect them.
     

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