Should I Start an LLC for My Carpet Store?

Starting a limited liability company (LLC) for your carpet store 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 carpet store, lawsuits can arise from things like vendor-related disputes or employee and customer injuries within your store’s premises.

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

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

Do I Need an LLC for a Carpet Store?

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 Carpet Store

By starting an LLC for your carpet store, 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.

Carpet stores will benefit from liability protection because carpet retailers face a number of risks, including product liability, workplace injuries, financial data breaches, and trademark infringement.

Example 1: A customer trips and falls on a poorly secured carpet sample in your store, breaking their arm. The customer decides to sue your carpet store for their medical expenses. If found liable, the compensation would only be imposed on your company’s assets and not your personal assets.

Example 2: An employee of the carpet store is working on a ladder and accidentally drops a heavy tool, causing damage to a customer's car parked below. The customer decides to sue the store for the damages to their car. Limited liability protection will ensure that your personal assets are protected from the lawsuit.

Example 3: An employee slips on a wet floor and suffers a severe injury. The employee sues your store for medical expenses and lost wages. If a court finds your company is at fault, limited liability will ensure that your personal assets are protected.

Example 4: A customer’s carpet catches fire, and an investigation reveals the carpet you sold did not meet legal requirements. You’re found at fault and must pay damages to the customer.

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 Carpet Store

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 carpet store 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

Carpet stores 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 trusted 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?

Yes, LLCs need insurance to protect their assets against potential risks and liabilities that may arise in the course of business operations. These risks can include property damage, injuries to employees or customers, and legal claims. Insurance can help cover the costs associated with these risks and provide financial protection for the LLC and its owners.

Common Situations Business Insurance May Cover for a Carpet Store

Example 1: As a customer wanders through your store, one of your employees accidentally runs into her. The customer falls to the ground, breaks an arm, and decides to sue your business. General liability insurance would cover your legal defense costs.

Example 2: While entering your restroom, a customer slips on some wet flooring, breaks a wrist, and asks you to pay for his medical treatment. General liability insurance would cover his medical bills.

Example 3: A competitor files a lawsuit against your business, claiming you libeled her company in your latest marketing efforts. You disagree with the claim but want to hire an attorney immediately. General liability insurance would cover your legal defense costs.

Other Types of Coverage Carpet Stores 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 carpet stores should obtain.

Product Liability Insurance

While you hope it never happens, there’s always a chance one of your customers might claim your carpeting caused them injury. In the event of a lawsuit, product liability insurance would cover your legal defense fees and any required settlement.

Commercial Property Insurance

You made a major investment in your carpet stock and various equipment and supplies. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building as well as the business materials you store there.

Workers' Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a work-related accident.

Read more about workers’ compensation insurance.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

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.

Starting a carpet store can be a costly venture. You have to consider the cost of renting or purchasing a storefront, inventory acquisition, marketing/advertising expenses, hiring employees, and obtaining necessary business licenses and insurance coverage. Other potential costs include utilities and maintenance fees.

Visit our How to Open a Carpet Store guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses of running a carpet store will include rent, employee wages, insurance, and, possibly, vehicle costs for delivering the carpets.

Learn more about running a carpet store.

Carpet stores make money mainly by selling carpets and rugs to customers.

Learn more about starting a carpet store.

A carpet store purchases its rug and carpet stock from carpet mills and large wholesalers and sells them to homeowners and renters.

Profit margins in the carpet retailing sector are generally quite low. One study found that the average net profit margin in the furniture and home furnishings sector, which includes carpets and rugs, was just 5.15%.

Learn more about starting a carpet store.