Structuring Your Cottage Food Business
You should carefully consider how you structure your cottage foods business. Your primary options are: sole proprietor and limited liability company (LLC). If you do nothing, your business will be considered to be a sole proprietorship. Because you will be dealing with food, you might choose to structure your CFO as an LLC, which protects your personal assets if someone were to sue you over your cottage foods; they can only come after the LLC and not after you, your house, and/or your property. To form an LLC, your options include using an attorney, the resources at Nolo Press (http://www.nolo.com/legal-encyclopedia/california-form-llc-31670.html), or an online service, such as LegalZoom.com. LegalZoom.com’s cost varies depending on the services you choose--$99 to set up the business, $85 to file with the Secretary of State, and $10 shipping. A major expense associated with being an LLC is the $800 minimum annual franchise tax.
Remember that the LLC “shield” over your personal assets is not absolute. For example, you wouldn’t be protected if you commit intentional fraud, and you can destroy the limited liability protection if you treat the LLC or corporation bank account as your own personal account.
If your sales “outgrow” the Cottage Food sales maximum of $75,000 (September 2021), you may want to raise equity capital from investors. In this case, you can add the investors as part of an LLC. You also have the option of structuring your food business as a Subchapter S corporation (S Corp). To do so, you should consult an attorney, preferably one who has experience working with food-related businesses. S Corps also protect your personal assets, just like an LLC. There are other ways to raise capital to fund your food business; however they are beyond the scope of this chapter.