Should I Start an LLC for My Custom Doll Business?

Starting a limited liability company (LLC) for your custom doll business 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 custom doll business, lawsuits can arise from things like inauthenticity claims or from general trademark and copyright infringements.

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

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

Do I Need an LLC for a Custom Doll Business?

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

You should start 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 Custom Doll Business

By starting an LLC for your custom doll business, 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.

Custom doll businesses will benefit from liability protection because of general business risks like trademark infringement, libel, and even workplace accidents.

Example 1: A customer buys a doll from your custom doll business that contains a needle one of your employees forgot to remove from the item. Without noticing this, the customer gives the doll to their toddler, who seriously injured herself while playing with the doll. As a result, the customer brought a negligence lawsuit against your business, alleging blame for her child’s injury. In this situation, your personal assets would be protected from any liability to pay compensation imposed upon your business.

Example 2: An employee was let go from your custom doll business for numerous instances of negligence. However, they disputed this, arguing that they had been dismissed in a manner that breached their contract and thus sued your business for wrongful dismissal. In the ensuing court case, limited liability would ensure that any requirement to pay damages is limited insofar as the assets owned by the business.

Example 3: In order to inject some initial capital into your custom doll business, you take out a business loan. However, after your business underperforms consistently, you begin to realize you will not be able to repay the debt on time. Consequently, the creditor decides to sue your business for defaulting on this debt. Any liability levied against your business to pay damages for this default cannot extend to your personal assets.

Example 4: A customer asks you to repaint an old doll. While working on the doll, you trip and drop it, breaking the customer’s valued possession. They sue you for damages.

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 Custom Doll Business

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 custom doll business 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

Custom doll businesses 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 dependable 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?

Just like all other businesses, LLCs need insurance. For custom doll businesses, insurance is necessary in order to protect their valuable assets (e.g., inventory, equipment, etc.).

Businesses are faced with liabilities every day. Insurance protects a business’s assets from these liabilities, whereas limited liability protects the personal assets of LLC owners.

Common Situations Business Insurance May Cover for a Custom Doll Business

Example 1: You ship a doll to a customer across state lines, and the package arrives with an invasive insect inside. The insect escapes and infests the customer’s house. General liability insurance would cover your legal costs if the customer decides to sue for damages.

Example 2: Your business logo is similar to another custom doll company’s logo. If the other doll company chooses to sue, general liability insurance would cover your legal costs and any resulting payout.

Example 3: During a tour of your facility, a customer trips on a box left in the middle of a walkway. General liability insurance would cover the customer’s medical bills related to the accident.

Other Types of Coverage Custom Doll Businesses 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 tow truck companies should obtain.

Commercial Property Insurance

If you own the building in which you operate, commercial property insurance helps protect your business-related property in the event of a fire, burglary, or natural disaster. It covers the cost of repairing any structural damage to your building or grounds as well as replacing any business materials lost in an accident.

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.

Product Liability Insurance

Product liability insurance covers any injuries or damages caused by defective or otherwise unsafe products. If a customer accuses you of using toxic paint on a doll’s face, for example, this insurance would help you cover the cost of fighting or settling a related lawsuit.

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.

Home-Based Business Insurance

If you operate a workshop on your home property, you may need home-based business insurance to safeguard your commercial equipment and space in your home devoted to your business. A typical homeowners insurance policy may only cover certain expenses if you don’t disclose you use your home for business purposes.

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.

Read our Business Insurance for Custom Doll Businesses article for more info.

Very little initial capital may be required in order to get your custom doll business off the ground. For those who do not want to take out a loan, it is very straightforward to get started since rag dolls can be created for only a few dollars.

Visit our How to Start a Custom Doll Business guide to learn more about the costs of starting and maintaining this business.

Some of the main ongoing expenses will include the cost of rent, utilities, and the cost of purchasing the tools and supplies to make dolls.

Learn more about running a custom doll business.

A custom doll business makes a profit by selling dolls to customers. Some also sell doll clothing and accessories.

Learn more about starting a custom doll business.

Custom doll businesses primarily create dolls customized to individual client preferences. They can also provide repair and refinishing services for clients’ existing dolls.

Profit for custom doll businesses will vary based on the number of dolls made in a year and the cost charged to customers for the dolls.

Learn more about starting a custom doll business.