Should I Start an LLC for My Bagel Shop?

Starting a limited liability company (LLC) for your bagel shop can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a bagel shop, lawsuits can arise from things like a customer contracting food poisoning after consuming your bagels, or from wrongful termination disputes, and accruing debt that your business cannot repay.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your bagel shop seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Bagel Shop?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Bagel Shop

By starting an LLC for your bagel shop, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Bagel shops will benefit from liability protection because of the risk of lawsuits for personal injuries to customers, property damage, trademark infringement, and libel of other businesses.

Example 1: After eating a bagel from your store, one of your customers gets food poisoning, claiming that the dough was moldy and undercooked. Being confident in your bagel shop’s hygiene and cooking practices, you’re confident that the resulting food poisoning must have been from another product the customer consumed. Since your bagel shop is registered as an LLC, your personal assets will be protected if a lawsuit arises.

Example 2: You decide to take up a business loan in hopes of opening a second bagel shop and expanding your brand. Since you did not personally guarantee the loan, your limited liability will safeguard your personal assets if you find it difficult to repay the loan in the future.

Example 3: One of your long-term customers calls and complains that your employee did not deliver her bagels. Since this is not the first time that this has happened, you confront your employee, who does not have a satisfactory response. After letting them go, you receive a wrongful termination lawsuit from their lawyer, claiming this was unwarranted. If you benefit from limited liability, you will not need to personally compensate the claimant, regardless of the outcome or validity of the lawsuit.

Example 4: A customer sues you, claiming that one of your products was incorrectly labeled as being gluten-free and caused them to have a severe reaction.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Bagel Shop

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a bagel shop owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Bagel shops rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

Depending on your industry and size, you may not “need” business insurance as an LLC from a legal point of view.

Having said that, business insurance is required in order to protect your company’s assets. For a bagel shop, such assets might include a delivery truck, a store, and all of your cooking equipment.

Common Situations Business Insurance May Cover for a Bagel Shop

Example 1: A customer purchases a bagel and a large cup of coffee. The coffee cup slips out of her hand and spills, causing burns that require medical care. She decides to take legal action against your business, claiming you were responsible for her injuries. The general liability insurance policy you carry would pay for the cost of your legal defense. It would also pay for the cost of a settlement if you pay to settle out of court.

Example 2: A customer comes in from the parking lot to your bagel shop and slips on a patch of ice, breaking his hip. The customer asks that you pay for his medical treatment. Your general liability insurance policy will likely help to pay for his medical care.

Example 3: A few weeks after implementing a new marketing campaign, you are notified by an attorney that a competitor is suing your business for libel due to your marketing message. You do not have to worry about paying for your legal defense because you have a general liability insurance policy. Your policy will pay for your legal fees as well as a settlement if the case is settled out of court.

Other Types of Coverage Bagel Shops Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all bagel shops should obtain:

Product Liability Insurance

There is always the possibility that a customer will claim that your products caused him or her injury. Your policy will pay for defending yourself legally from such claims, as well as for any payouts or settlements if you settle the case outside of court.

Commercial Property Insurance

The equipment you use to make your bagels and the various supplies you keep on hand to make those bagels would be expensive to replace if damaged or destroyed. To avoid needing to pay these costs out of pocket—which for some businesses is not possible following a disaster—you need commercial property insurance. In the event of a fire or other event covered by your policy, you can file a claim with your insurer and get financial help replacing your equipment and supplies. The sooner you can get everything replaced, the sooner you can start doing business again.

Workers’ Compensation Insurance

Workers’ compensation insurance is a necessity for employers for multiple reasons. First, most states require workers’ comp insurance if you have employees. Second, if an employee is injured performing a job-related task, your workers’ comp policy will pay for treatment for job-related injuries and will help to cover lost wages while the employee recovers from those injuries.

Business Interruption Insurance

If there is a major loss that leads to the shutdown of your business for a period of time, it may be difficult for you to cover your business and personal costs. The loss of revenue can be mitigated by business interruption insurance. Major events like tornadoes, fires, or the destruction of your storefront would be covered by your policy. You would have some financial assistance to determine the gap in your business operations.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, workers’ compensation insurance, and commercial property insurance.

Read our Business Insurance article for more info.

It is generally quite expensive to start a bagel shop. You will need to purchase cooking and preparation equipment, hire employees (depending on the size of your bagel shop), lease a store, and purchase supplies.

Your largest maintenance cost will likely be your employees’ salaries. You will also have to consistently stock up on fresh supplies.

Visit our How to Start a Bagel Shop guide to learn more about the costs of starting and maintaining this business.

Bagel shop owners will primarily have to pay for food supplies, serving supplies, rent, licensing fees, and payroll.

Learn more about running a bagel shop.

Bagel shops make most of their money by selling bagels, other foods, and drinks.

Learn more about starting a bagel shop.

Popular in large cities, bagel shops serve bagels, coffee, and other related food products to customers. Some bagels shops also offer catering services for events.

Location and customer volume will largely determine a bagel shop’s profits.

Learn more about starting a bagel shop.