Should I Start an LLC for My Sock Shop?

Starting a limited liability company (LLC) for your sock 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 sock shop, lawsuits can arise from things like a customer accidentally getting injured during work (e.g., as a result of a slippery floor or a loose shelf, etc.), as well as from trademark disputes or data breaches.

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

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

Do I Need an LLC for a Sock Shop?

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 Sock Shop

By starting an LLC for your sock 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.

Sock shops will benefit from liability protection because of the risk of being sued for libel, trademark infringement, product liability, and personal injuries.

Example 1: One of your employees is stocking the shelves at your shop when a customer comes in, trips on a loose floorboard, and injures themselves. They file a lawsuit against you for negligence or poor maintenance of the premises. With limited liability protection, only your business assets will be liable for these damages, protecting your personal finances from any losses.

Example 2: A customer purchases a pair of custom socks from your shop but later discovers that the stitching is coming undone. They file a claim against you for damages, claiming negligence, or poor quality services. With limited liability protection, your business would be responsible for addressing this issue and any associated legal costs, protecting your personal assets in the process.

Example 3: You experience a data breach at your sock shop, resulting in the theft of financial information and customer data. As a result, you are facing significant legal and financial penalties as well as potential lawsuits from customers who were affected by the breach. With liability protection in place, your business would be solely responsible for these costs, preventing your personal assets from being impacted by any legal action.

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 Sock 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 sock 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

Sock 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.

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 Small Business Insurance article for more info.

To start a sock shop, you will need to budget for retail space, inventory, employee wages, infrastructure, insurance, and a website for your business. Ongoing expenses include the cost of inventory, employee salaries and benefits, rent/mortgage, and the cost of maintaining your website.

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

Inventory, payroll, and insurance are the primary ongoing expenses.

Learn more about running a sock shop.

A sock shop sells socks for a profit.

Learn more about starting a sock shop.

A sock shop sells a wide variety of socks to a variety of audiences. Some come up with their own designs, while other may provide the chance to customize designs.

Net profits depend on sales volume and overhead costs.

Learn more about starting a sock shop.