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All professional or blended with cottage industry?  RSS feed

 
D. Logan
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As some here will know, I have been pondering the possibility of a permaculture greenhouse/nursery. The business would almost certainly have to be an LLC and would be considered a professional venture. With that in mind, is it wiser to include side ventures into it or to have them as separate 'cottage' industry that happens to sell from the location. For example, a seasonal bakery would be an expensive venture to add to the project. Selling baked goods that were baked at home using the exact same seasonal mentality would require a whole lot less investment and would equal the same basic results. I'm sure there could be legal speedbumps to this, but they might be worth it for the amount of money saved early on. Any thoughts on this?
 
Stewart Hung
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We are looking at a permaculture nursery business model as a means to have shrubs, trees, and perennials already growing for local permaculture designers and gardeners, so that the plants will give them a head start when implementing their designs. We haven't looked into the financial viability yet. It would be helpful if the nursery could cover our expenses at the very least, otherwise it would not be viable.
 
John Wolfram
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To maximize protection for the various ventures, it would probably be better to have each entity as a separate entity. Of course, that being said, at some point the extra expense and hassle of adding another LLC makes it not worthwhile. The state fees per LLC in Ohio are $125 for formation and then $25 every two years after that.
 
Michael Newby
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I would say this is really a question of how much can you stomach doing things that could be considered against the law so you can save money vs. how many hoops can you afford to jump through to get licensing/certification and is that worth the protection and recognition it affords.

If you plan on just being a small rural business that only works by word of mouth then the less regulated 'under-the-table' business would probably work fine but if you want to become anything larger than a one or two person operation or offer your services to a large amount of basically strangers (including commercial and municipal customers) then you'll need everything to be in full compliance with all your applicable business laws.

Really, the way the system is set up (for better or worse, I didn't get to pick it) if you can handle the logistics of it one of the best ways to go, IMHOO (<- that's In My Highly Opinionated Opinion), is to have a separate entity (LLC or Corp) for each mostly unrelated operation (your operating companies) and a holding corporation that legally owns all those different operations. The operating companies do all the actual work that the business does, whether it's sell trees, make widgets, write code, whatever but don't physically own anything. Every physical thing that the entities need to operate (vehicles, office equipment, buildings, equipment) is actually owned by the holding corporation and leased to the operating companies for exactly enough to take whatever profits the operating companies have made. As long as this system is implemented properly and run legally the holding company will keep all the money and have almost zero risk exposure while the operating companies carry all the risk but have practically zero assets for anyone to come after in the case that somebody decided to take legal action against the company.

Here's an example: you either have Nursery B or you have Holding Corp and Nursery B supplying trees to a very large commercial operation. It gets proven that the trees supplied weren't quarantined properly and introduced deadly tree virus that wipes out every specimen tree on their site so they sue for tree value replacement costs of 1 million dollars (please read that in Dr Evil's voice). If you're Nursery A with only $10-20K in capital and another $40K in assets, you file bankruptcy, they sell your stuff and take everything (or you have to try to operate a business with the drain of paying back a large settlement for many years), you probably go bust. If your Holding Corp and Nursery B they sue, Nursery B just gives up and says "take everything we have, we're going out of business" but there's no assets there for the courts to take - the courts can't say "we know that your money from Nursery B went to Holding Corp so Holding Corp has to pay" unless you've been committing some kind of fraud, that's the "corporate veil" that protects your money. Now Nursery B is out of business but Holding Corp just forms Nursery C with all the same equipment and employees that Nursery B was using and is only out the money it cost to organize the new Nursery C legal structure.

Hope I did't confuse anyone too much, it can be a tricky subject and I'm just a small business owner trying to figure this stuff out myself.
 
John Wolfram
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Michael Newby wrote: If your Holding Corp and Nursery B they sue, Nursery B just gives up and says "take everything we have, we're going out of business" but there's no assets there for the courts to take - the courts can't say "we know that your money from Nursery B went to Holding Corp so Holding Corp has to pay" unless you've been committing some kind of fraud, that's the "corporate veil" that protects your money.


With small company, it's important to keep up the formalities in order to maintain the corporate protection. This goes double for single member LLCs. Things like co-mingling of funds, and failure to abide by the company's operating agreement can lead to the company being deemed just an alter ego.

In this article, co-mingling of funds led to an 80% pierce rate.
http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1068&context=bblj
 
Stewart Hung
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Mike, those are some good ideas about the LLC's. We have been looking at some of those ideas to see how to structure each of the nested businesses related to permaculture and value-added products (e.g., fermented foods) because each of us have different skill sets but we could use an umbrella corp (no, not like Resident Evil) for the marketing, sales, and distribution. That is thinking way too ahead because we hope that we have enough to satisfy the local customers.

(Also, I love the projects that you have got going on! Thanks for the pics!)
 
Michael Newby
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Hey Stuart! I thought that was you but had to check out your profile and see the website to be sure. Hope business is going good. Must not be too bad if you're worried about having enough to supply your current demand. The more diversified you get the more it will make sense to break everything up into a holding corp and it's subsidiaries. One of the nice things about breaking the business up like that is it allows each part to be focused on what they need to focus on while the holding corp is what focuses on the big picture of how everything interacts together.

John Wolfram wrote:With small company, it's important to keep up the formalities in order to maintain the corporate protection. This goes double for single member LLCs. Things like co-mingling of funds, and failure to abide by the company's operating agreement can lead to the company being deemed just an alter ego.


I totally agree. In fact I would have to say that for me this is the hardest part of operating a business. My company is corporation wholly owned and run by me and my wife so there's a lot of potential for fraud in the IRS's eyes and keeping up with all the reporting requirements as well as making sure that all the financials are perfect is the hardest part of the job for me - I'd rather go up a 150' pine with a chainsaw any day!
 
R Thomason
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D.X.
Based on my experience with LLC's I would recommend that you shop for a lawyer and work out the operating agreement on a professional basis if you have any uncertainty about the best path to take. One thing that works well is to e-mail a description of your basic business idea and relevant information about how you would use your resources. The lawyer should be able to combine the boilerplate language related to LLC's with provisions which speak directly to your specific concerns. A face-to-face meeting along with some e-mail editing exchanges would finalize the work. A good operating agreement should give you corporate protection, address tax concerns and outline who is responsible for what.

If you ever find new members of the LLC who would contribute capital, the operating agreement is critical, and it would be good to have an established relationship with a lawyer who understands your situation. Your local friends should be able to direct you to a lawyer who will be suitable for you. It's an extra expense, I know, but it will give you a good foundation to build on.

Based on your original question, it sounds as if a single LLC would cover the type of complimentary products or side services you mention. But that would be a good question for the lawyer
 
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