Should I Start an LLC for My Educational Toy Store?

Starting a limited liability company (LLC) for your educational toy 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 an educational toy store, lawsuits can arise from things like trademark infringement allegations, contract disputes with your landlord (if you rent), or defective toy claims.

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

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

Do I Need an LLC for an Educational Toy Store?

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 an Educational Toy Store

By starting an LLC for your educational toy 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.

Educational toy stores will benefit from liability protection because of the risk of being sued for personal injuries, property damage, libel, and trademark infringement.

Example 1: A competing store sues you, claiming that you made false statements about their business in a recent advertising campaign. Limited liability from your business’ status as an LLC would protect your assets as the owner from being used to pay for any settlements.

Example 2: While browsing, a customer trips over a display and breaks their arm. They are asking that you pay for their medical bill. As the owner, your personal assets are protected from being used to pay since limited liability from being an LLC covers them.

Example 3: Overnight, an electrical fire breaks out in your store and spreads to an adjoining storefront. The owners of the business demand you pay for the fire damage. Your personal assets can not be used to pay the damage since limited liability covers them, but the business’ assets can be used.

Example 4: A competing store sues you, claiming that you made false statements about their business in a recent advertising campaign.

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 an Educational Toy 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 an educational toy 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

Educational toy 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 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?

Your business’s assets are not protected as an LLC, as limited liability only protects the owner’s assets. Educational toy stores need insurance because of the unexpected problems that can come from having customers in your store. To protect your business’s assets and the well-being of your customers, insurance is a must.

Common Situations Business Insurance May Cover for an Educational Toy Store

Example 1: While running through your store, a customer’s child falls and breaks an arm. The child’s mother asks your business to pay for the girl’s medical treatment. General liability insurance would cover the child’s medical bills.

Example 2: As an employee moves several boxes of toys to a customer’s car, she loses control of the handcart, and it hits the side of the car. General liability insurance would cover the customer’s vehicle repair costs.

Example 3: While entering your store from the parking lot, a customer trips over some broken pavement, breaks an ankle, and decides to sue your business. General liability insurance would cover your legal fees.

Other Types of Coverage Educational Toy 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 educational toy stores should obtain.

Product Liability Insurance

While you strive to sell products that enrich the lives of the children who play with them, there’s always a chance someone might claim one of your products caused them harm. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the inventory, equipment, supplies, and real estate needed to establish your toy store. 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 and the business materials stored 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.

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, product liability insurance, and commercial property insurance.

Read our Educational Toy Store Insurance article for more info.

The high-end estimate of the initial costs you’ll need is $384,000; the low-end estimate is $194,500. If you choose to develop your own toys and sell them online, you will only spend the cost of the materials to build them, plus any advertising costs you may have.

Visit our How to Start an Educational Toy Store guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses for an educational toy store may include materials (if you make your own toys), inventory, marketing, payroll, rent, insurance, and website maintenance.

Learn more about running an educational toy store.

An educational toy store sells toys at a markup to cover overhead costs and make a profit.

Learn more about starting an educational toy store.

An educational toy store sells toys and games that are designed to teach children something and/or stimulate their creativity. Some stores make their own educational toys, but most sell toys from a variety of companies.

The profits of an educational toy store are often low at first, and profits eventually will depend on the price of the toys you sell and your overall sales volume.

Learn more about starting an educational toy store.