Structuring Your Art and Craft Business

Congratulations! You’ve made the decision to start your own art and craft business. Your dreams of supplying your community with beautiful, high-quality work are about to come true. Before getting started, however, there are a few questions you will need to ask yourself. How much will you be charging for your goods or services? Will you sell the products online, in-person, or both? Are art and craft fairs really worth it? While somewhat cumbersome, you need to keep answers to these questions in your back pocket. After all, you want to start on the right foot on your path to success. 

One of the most critical questions when it comes to your new business is: How are you going to structure your business? Like some of the best craft pieces, a successful art and craft business comes with a solid and well-executed foundation. If you’re planning on applying for Artists, Crafters, and Tradesman (ACT) liability insurance, one of the application questions will ask your business type. Will you be checking Sole Proprietorship/Individual, a Corporation, an LLC (Limited Liability Company), or a joint venture or partnership? Understanding the distinctions, pros, and cons of each business structure will not only help you fill out a form, it will help you choose the structure best suited for your business in the long run. 

Sole Proprietorship/Individual

The Sole Proprietorship/Individual is the simplest type of business structure: you are the business, and the business is you! In the US, sole proprietors can own and manage any kind of business, from making and selling art from home to creating and selling from a retail establishment. One of the best advantages sole proprietors enjoy is that of all the profits. This type of business structure is also usually very simple to set up, and the cost—if any—tends to be minimal. Sole proprietorships are also very flexible. As the owner, almost any decision under the sun is yours: you decide how much time to put in, how much to charge, when to go on vacation, and so on. This structure is the epitome of “being your own boss.”  

There can be challenges when it comes to owning this type of business. Banks and financial institutions tend to want to see a history of making money before offering you a loan; if you don’t have such a history, you may have to use your own funds to get your business off the ground, making earning potential especially difficult in the beginning. One of the biggest advantages—access to all profits—can also serve as one of the biggest disadvantages. As you have unlimited potential for profit, you also have unlimited potential for liability. While you can enjoy all the profits to yourself, you also have to take on all the risk. Debtors can go after your business assets, as well as personal assets, such as your car or even your house.  

Corporation

A corporation is another business structure you may want to consider. Unlike a sole proprietorship, a corporation is treated as a separate entity (legally, a “person”). Because forming a corporation tends to be complicated, it is highly recommended you seek an attorney or other legal counsel before starting one. A great advantage to starting a corporation is that because the corporation is considered a separate entity, the owner is not held responsible for the corporation’s debts. The corporation also pays taxes separately from the owner, and because banks and financial institutions are much more willing to offer loans and other resources to corporations, raising money to start this type of business would not be difficult. 

A corporation can come with a variety of disadvantages. While the tax and debt perks are great, there are many rules required to follow in order to maintain these perks. In fact, there are many, many rules required in order to maintain a corporation’s status, including tax codes, required meetings, a mandatory board of directors, and more. Setting up a corporation can also be extremely expensive, even with a bank’s help: if you hire an attorney to help you start, you will likely be required to pay hefty fees to start. It is critical to remember that unlike the profits of a sole proprietorship, the money earned by a corporation is not your money, and legally you are treated as an employee of a corporation, not an owner. Taking the corporation’s profits and putting them into your bank account is known as embezzlement, and can send you to jail. 

Limited Liability Company (LLC) 

An LLC is a business structure that is governed by state laws, meaning the specific laws governing them depend on where you reside. This is a relatively new kind of organization that, like a corporation, treats you and your business as separate entities. This makes it so that unlike in a sole proprietorship, in the event that you are sued or faced with debts, the amount you owe is limited to your original investment. In some cases, you may even choose how to be taxed, making it so you have options when it comes to running your business. 

One of the disadvantages to an LLC is that because laws vary depending on where you live, moving can be challenging. If you need to move from one state to another, it would be nearly impossible to do so without reorganizing and/or incurring fees, so you need to familiarize yourself with the laws of the state in which you plan to move. Another legal disadvantage is that an LLC is much a newer structure type than a corporation, meaning the laws governing them are generally interpreted in many more ways, possibly leaving you at a disadvantage in court. It is in your best interest to learn as much as you can about LLCs and the laws that govern your state before proceeding with creating one. 

Partnership or Joint Venture

When two or more people choose to do business as partners, a partnership is formed. Similarly, a joint venture also involves two or more entities, but only for a limited time. In both cases, both partners have their own rights and responsibilities that come with the business structure. One of the most apparent advantages to having a partner is not having to “go it alone” in your business: you always have someone you can count on to help you run the business. The business also comes with flexibility not present in other structures, and profits are distributed equally to each partner; potential losses can also be split.

Like in a sole proprietorship, one of the biggest disadvantages is that you (and your partner) are the business, so you assume as much risk as you do profit. You must be very careful of who you choose to partner with. For example, if your partner goes into debt, even without your knowledge, you will be held equally responsible for liabilities. Again, these liabilities can include any asset, including your house or car. In a partnership, you also won’t always be able to run the business in exactly the way you like, so you must be prepared to sacrifice some of the say in your business. 

About Sak Lakay 

Artisans, no matter what business structure you decide on, you should do your best to familiarize yourself with each one in order to make the most sound business decisions. And, no matter what business structure you end up choosing for your business, Sak Lakay is here to help. Based out of the cultural hub of South Florida, Sak Lakay is a Haitian-American woman-owned brand founded in 2021 by Valerie Sajous. Valerie was always enamored by Haitian art depicting pastoral scenes and marchandes, female street vendors who brave precarious conditions in order to provide for their families. Sak Lakay was founded in order to integrate her love of handbags and her reverence for these Haitian women who are oftentimes referred to as the poto mitans (pillars) of their communities. Sak Lakay aims to put traditional Haitian beauty in the mainstream and empower the women who don its accessories. We work tirelessly with local artisans, crafters, and suppliers as part of our mission to help create a successfully self-sufficient Haitian community.