Recently I have been spending a lot of time talking to tax accountants and insurance brokers, and the reason for that is because I am starting to sell a lot of product online – particularly in the USA. I make special note of the USA, as not only are many of my readers from there, but the USA is the litigation capital of the world, and to be honest, that’s a bit scary to me.
Here in Australia you would have to do something pretty wrong to get hit with a lawsuit, but from what I have researched, it seems like even a minor complaint can end up going through the legal system in the US, so that has kicked me into action regarding setting up a proper PTY LTD company and also when it comes to getting commercial general liability insurance.
Why Start A Company?
You might be wondering why you should start a company, after all, you can always trade as an individual or as a sole trader. The main reason I have decided to operated through a business is twofold.
When it comes to who is liable for damages caused by a product (as an example, you might have been selling those hoverboards that keep catching on fire and burning down peoples homes) then if you operate as an individual or a sole trader – you are liable and any damages that are awarded against you come from your own bank account. This includes assets like your house or car, which are also used to recoup any money to pay outstanding damages.
With a company, you are not personally liable (in most cases – unless you do something illegal) and only the money and the assets tied up in the business are at stake. Things like your house or your car are not able to be used to recoup damages awarded against the company.
The next reason is because the company gets favorable tax treatment here in Australia. The company tax rate is 30%, where as an individuals can go up to almost 50%, so if I want to grow my business faster, this is a great way for me to do so, as I am essentially able to save up to 20% of my profit and reinvest it into the business. It should be noted that this does not impact your personal tax rate, so whenever you decided to pull the profits out of the business and into your bank account, you still need to pay tax at your normal rate minus any franking credits you may have available to you.
Where To Get Commercial General Liability Insurance?
The next thing I have looked into is commercial general liability insurance. The reason why I wanted to get this, is because while my personal assets are safe from anything that should go wrong, my business is still on the hook, and that’s something that I wouldn’t want to give up in a hurry, so spending a small amount on liability insurance is something that’s definitely worthwhile.
The problem for me though, is that because I sell in the USA, almost none of the Australian insurers will insure me for my business dealings in the US. So that means I have had to contact a number of insurance brokers to get the appropriate level of cover, with the only insurance companies willing to insure my company coming from London and the USA itself. The other problem is that many of these companies know that they have you over a barrel, so their prices are sky high. I had one quote at $11,000 a year! Needless to say, I continued looking, but realistically you will be needing to pay at least $1,000 a year.