Liability and Sole Proprietorship

[CBate]

Hello all,

I am starting an internet retailer which will sell skateboarding related items. However, I am just a high school student and am working on a severely limited budget. A "sole proprietorship" is the easiest and cheapest to start; incorporating would really push my budget and make things a lot more complicated.

However, my dad is concerned (as am I) about liability issues. What if someone sues me because they got hurt using a product I sold them? Obviously, insurance is beyond my budget.

Can I protect myself using a well thought out "Terms and Conditions" that the customer must agree to before purchasing an item at my storefront? For example, "The buyer understands that skateboarding is dangerous, and undertakes skateboarding at his or her own risk. _____.com and its owner are not liable for any injuries incurred while using _____.com's product..."

Or are there other ways to protect myself? Or should I just suck it up and incorporate?

Thank you!

[akula]

hi, welcome
i have a law degree and have the experience to answer your question
yes, you ought to incorporate...although...incorporation helps more with financing, tax, suppliers, hiring employees, succession and exits...as far as negligence and product liability goes, however, the corporate veil is about as useful as exclusion/indemnity clauses i.e. not very

the only reasonable defense against product liability claims for retailers is documented quality control, supplier benchmarking, warning labels, money for lawyers, insurance and plenty of good luck

overall, look...the tort of negligence is very complex....so for all intensive purposes, yes, incorporate and put the damn stickers on, but does that alone discharge your duty of care under all circumstances and indemnifies your venture against all possible future negligence claims? not by a long shot. the only way to achieve that sort of outcome is to mothball the whole project from the beginning. oh the irony

Hello all,

I am starting an internet retailer which will sell skateboarding related items. However, I am just a high school student and am working on a severely limited budget. A "sole proprietorship" is the easiest and cheapest to start; incorporating would really push my budget and make things a lot more complicated.

However, my dad is concerned (as am I) about liability issues. What if someone sues me because they got hurt using a product I sold them? Obviously, insurance is beyond my budget.

Can I protect myself using a well thought out "Terms and Conditions" that the customer must agree to before purchasing an item at my storefront? For example, "The buyer understands that skateboarding is dangerous, and undertakes skateboarding at his or her own risk. _____.com and its owner are not liable for any injuries incurred while using _____.com's product..."

Or are there other ways to protect myself? Or should I just suck it up and incorporate?

Thank you!

[BusinessAdviser]

hi, welcome
i have a law degree and have the experience to answer your question
yes, you ought to incorporate...although...incorporation helps more with financing, tax, suppliers, hiring employees, succession and exits...as far as negligence and product liability goes, however, the corporate veil is about as useful as exclusion/indemnity clauses i.e. not very

the only reasonable defense against product liability claims for retailers is documented quality control, supplier benchmarking, warning labels, money for lawyers, insurance and plenty of good luck

overall, look...the tort of negligence is very complex....so for all intensive purposes, yes, incorporate and put the damn stickers on, but does that alone discharge your duty of care under all circumstances and indemnifies your venture against all possible future negligence claims? not by a long shot. the only way to achieve that sort of outcome is to mothball the whole project from the beginning. oh the irony

I also have a law degree and have the experience to answer your question.

But I disagree.

For starters, limited liability can be obtained in ways other than simply incorporating. As an example, the use of an LLC is often simpler than a corporation and offers the same protection from liability that a corporation does. Which is best for you? I don't know because it's based on a number of factors. But to advise you simply to "incorporate" or file your articles for an LLC without knowing more would not be very prudent.

As for liability protection, I think that the above poster minimizes the importance of this. As long as you do your part in not comingling personal and business things, you have much more protection than presented above. But that's the important part. Don't comingle.

So you're off to a good start: Create a limited liability entity, operate the business through it, don't comingle, and use some common sense when it comes to ethical business practices.

Good luck.

[CBate]

OK, so filing for an LLC would be the most wise thing to do. I can do that.

If my supplier can dropship the items directly to my customer, would that be ethical? Does it increase or decrease my liability? I wouldn't be able to actually inspect the items myself.

[David.J]

I own and operate a roofing/snow removal business. I have no experience in the field of law as the gentlemen above do, but.... I have experience with liability issues. I have had workers "fall" off of roofs and people accidently on purpose "slip" after I've done my job. The legal system will most likely be on your side. Roofing is dangerous and accidents happen, winter has slippery conditions and with the economy being the way it is people are looking for an easy way out. Skateboarding is a dangerous sport, people fall and hurt themselves all the time.

People who work in the legal system are smart, they have many years of training and would most likey tell someone who hurt themselves on your equipment that it was their own stupid fault. Just make sure you have disclaimers stating that it is dangerous and make sure your equipment is up to par.

[Scoffman]

When I first started my business I did the exact thing your thinking of doing right now. An probally have alot more of experiance in this industry compared to the users who have posted before me. Not disregarding there invaulable info in the legal area of biz.
I have to agree skateboarding is a dangerous sport, but the kids know this and don't bother themselselves with lawsuites neither do there parents normaly. An the biggest problem people have buying from online stores is a return policy if the products don't perform how they deem they should.
This doesn't mean you shouldn't take on being an LLC. Just a industry point of view I wanted to give you. If you were larger then I would worry but starting off no one will bother you except for maybe the occasional local haters.
...
The largest lawsuite ever in skateboard history was for $50,000 over some skater sueing a property manager for a obstacle he was skating.

[bking]

In addition to the above, know that most states require you to be 18 in order to form a limited liability business entity. Such a business also needs a registered agent who must be 18. The registered agent isn't exposed to lawsuit, but the person forming the entity is, as he or she is the "real" person behind the entity.