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I agree. Part of the attraction of going into business for yourself is that you get to call the shots and determine the scope of the business. The legal/financial issues sound like a huge, expensive mess.

Maybe you can figure out a way to make your business unique from hers by offering a service in addition to products, offering a wider range of products or a narrower and more specialized range, focusing more on the online side of things where local contacts wouldn't be as important, etc.
 
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