Should I Start an LLC for My Craft Store?

Starting a limited liability company (LLC) for your craft 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 craft store, lawsuits can arise from things like false advertising allegations (e.g., if a client suspects that an art supply they purchased is not authentic, etc.).

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

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

A person hot gluing fake flowers together

Do I Need an LLC for a Craft 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 Craft Store

By starting an LLC for your craft 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.

Craft stores will benefit from liability protection because of the risk of being sued for property damage, trademark infringement, or personal injuries.

Example 1: One of your employees accidentally drops a display shelf and breaks several pieces of glassware that were made during a crafting class. The accident causes injury to a customer, who then files a lawsuit against you for negligence on your part. With limited liability protection in place, the financial damages from this lawsuit will only affect your business assets, protecting your personal savings and property from any losses.

Example 2: A customer purchases expensive supplies from your store, but the item is damaged during delivery. They file a compensation lawsuit, claiming that your business was negligent in packaging and shipping their order. With limited liability protection, only your business assets will be on the line if you are found at fault for this incident.

Example 3: You are hacked by individuals who steal private customer data from your store’s computer system. As a result, several customers sue you for damages, claiming that you failed to maintain adequate security and privacy protocols. With limited liability protection in place, only your business assets will be impacted by these lawsuits protecting your personal savings and property from any losses.

Example 4: A company sues you for infringement, claiming that your new logo is too similar to their trademarked design.

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 Craft 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 craft 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

Craft 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?

Operating a business without insurance is extremely risky, as it could result in financial devastation if the business is faced with a lawsuit or other unexpected expenses. As such, LLCs need insurance to protect themselves against these risks.

Common Situations Business Insurance May Cover for a Craft Store

Example 1: While browsing your yarn selection, a customer trips on an unsecured cable and injures their wrist and head. While the fall was an accident, they have a good case if they decide to sue for damages. General liability insurance would pay for the customer’s medical costs and your legal fees in the event of a lawsuit.

Example 2: A local rival claims you’ve libeled them in your television ad campaign and threatens to sue if you don’t stop airing the ads. General liability insurance would cover your legal fees and any payouts if you settle out of court.

Example 3: As you move a big shipment of sewing machines onto the sales floor before the weekend rush, you stumble and lose control of the cart. It hits a customer and seriously injures her. General liability insurance would cover the customer’s medical bills and your legal fees in the event of a lawsuit.

Other Types of Coverage Craft 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 craft stores should obtain:

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.

Commercial Property Insurance

You’ve made major investments in your inventory of craft equipment and supplies. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire, burglary, or natural disaster. Commercial property insurance would cover the cost of repairing or replacing your equipment and inventory after an accident so you can recover quickly.

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.

Business Interruption Insurance

If a fire, tornado, or other major disaster forces you to temporarily close, business interruption insurance would help cover your bills and financial losses until you can reopen. You can usually purchase business interruption insurance as part of a business owner’s policy or BOP.

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.

The cost of starting a craft store business varies depending on whether it is an online or physical location. Online businesses can be started with minimal cost, while physical locations require costs for renting and outfitting a building and a larger initial inventory.

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

Lease payments, equipment maintenance, shipping, wholesale supply purchases, inventory software, and utilities are some of the regular expenses of operating a craft store.

Learn more about running a craft store.

A craft store buys craft supplies at wholesale prices and resells them to customers at a markup.

Learn more about starting a craft store.

Craft stores provide supplies for making handcrafted products. A craft store can have a brick-and-mortar location, it can be entirely online, or it can do both. Some craft stores specialize in a particular niche, while others sell a wide variety of supplies for all kinds of crafts.

A craft store’s profits depend on a variety of factors, including sales volume, pricing, and the cost of materials.

Learn more about starting a craft store.