to form and entity or not?

[nixbecky]

California

My husband and I have been working under my husband's sole proprietorship as illustrators and selling each piece individually. The liability is quite low. However, we are developing a t-shirt line to be sold over the internet and to retailers. We are using blank t-shirts from a manufacturer and only applying our own graphics to be sold. We have considered forming a business entity based on this addition to the company, but we aren't sure if it is really necessary for us to do this.

1. The primary reason for forming an entity would be to avoid liability, however, is there really that much liability that we couldn't cover under a general insurance policy?

2. If it's recommended to form one, what type of entity would be best? We have considered an LLC and 'S' Corp.

3. Should we keep the illustration business under a sole proprietorship and separate from the t-shirt business or combine the two under the same company? Ideally, we would like to keep it in the same company, but for liability reasons or other reasons, does this really make sense?

Any direction or advice would be greatly appreciated.

Thank you,
becky

 

[clueless3]

1. Yes, you can simply have an umbrella insurance policy, but in general it's best to have an entity (not a sole proprietorship).

2. If you think that you could incur big losses, go with an S Corp. Otherwise an LLC is great.

3. You can have one LLC operating 2 DBAs, one for each line of businesses that you're doing. That way, you can have 2 separate business names to market to customers.