Should I Start an LLC for My Bike Rental Business?

Starting a limited liability company (LLC) for your bike rental 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 bike rental business, lawsuits can arise from things like renting faulty bike equipment, or a customer experiencing a traffic accident while renting one of your bicycles.

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

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

Do I Need an LLC for a Bike Rental Business?

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 Bike Rental Business

By starting an LLC for your bike rental 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.

Bike rental businesses will benefit from liability protection because of the risk of being sued for property damage or injuries to customers.

Example 1: After renting a bike from your store, one of your customers gets in a traffic accident. Claiming that this was a direct result of your bike’s brakes malfunctioning, they threaten to sue your LLC. If a lawsuit arises, your limited liability will protect your personal assets.

Example 2: After purchasing several premium bikes for your store, you realize that you will struggle to pay some of your employees on time, and end up taking on a small business loan to finance your costs in the short term. If you are unable to pay the loan back, you will not be held personally liable if your business is an LLC.

Example 3: You open a second bike rental business in a nearby neighborhood, which ends up doing very well. As a result of your noisy customers, a nearby neighbor threatens to file a nuisance lawsuit against your LLC. Here, your personal assets will remain protected from all liability, regardless of the legitimacy of the lawsuit.

Example 4: While an employee helps a customer choose a bike, the customer falls over into other bikes and sustains injuries. They decide to sue your business.

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 Bike Rental 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 bike rental 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

Bike rental 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 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.

Do LLCs Need Insurance?

Business insurance is likely not going to be a legal requirement for your business as long as you do not hire any employees.

If you want to protect your business’s assets, however, business insurance is a must, even if you have an LLC. This is because business insurance only protects your business assets. Registering an LLC protects your personal assets.

Common Situations Business Insurance May Cover for a Bike Rental Business

Example 1: A young customer is showing his friend how quickly the chain spins when he cranks the pedal on a bike. In his excitement, he accidentally gets his fingers entangled between the chain and the gears, causing serious injury that requires medical treatment. Your general liability insurance policy will pay for the customer’s medical care.

Example 2: A customer is trying to determine what size bike is best for her by sitting on bikes of different sizes. She tries one that is too tall for her and loses her balance, falling over into other bikes and sustaining injuries. A general liability insurance policy will pay for the treatment of any injuries she sustained in your place of business.

Example 3: One of your employees is transporting multiple bikes on a hand truck through your parking lot when he hits the luxury car of a visitor to your store. The cost of repairing the damage caused to the visitor’s property is covered by your general liability insurance policy.

Other Types of Coverage Bike Rental 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 bike rental businesses should obtain:

Commercial Property Insurance

The bikes you rent to your customers are the foundation of your business. If some of them are damaged by something like fire or vandalism, they will be expensive to replace. And as long as you are without bikes to rent, you are unable to bring in more income. A commercial property insurance policy will help to pay for the replacement of your commercial property, including your bikes and any other property damaged by an unexpected event.

Crime Insurance

If you rent enough bikes, you will most likely have some of them stolen. Crime insurance is designed to cover your business when you are the victim of criminal activity like theft. If someone does steal one or more of your bikes, your crime insurance policy will help to cover the cost of replacing them so you can keep on doing business.

Workers’ Compensation Insurance

Businesses that hire employees need workers’ compensation insurance to protect them and their employees, and bike rental shops are no exception. Workers’ comp coverage pays for medical treatments for job-related injuries and lost wages that result from those injuries. It also ensures that you meet the legal obligation required by your state for employers to carry this coverage if you have employees.

Commercial Umbrella Insurance

In the event that your general liability insurance policy limits are exceeded, a commercial umbrella policy will pick up where the general liability policy leaves off. General liability insurance is sufficient for most situations, but there are times where it is not enough—such as when your company loses a significant legal case and is required to pay extensive damages.

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 Bike Rental Business Insurance article for more info.

How much it costs to start a bike rental business will depend on several factors, including how many bikes you purchase.

For a shop that starts off with 20 rental bikes, you will likely need to pay at least $5,000 for the bikes, as well as another $1,000 to $2,000 on related gear (e.g., bike helmets, etc.).

Your maintenance fees will include the salaries of your staff (depending on the size of your business), as well as the price of bike repairs, rent, and utilities. You will also likely need to get a business website.

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

The major ongoing expenses will involve purchasing and maintaining a fleet of bikes. Employee costs are another expense.

Learn more about running a bike rental business.

Bikes are rented by the hour or for a flat fee, or both. Some also sell related merchandise like mugs and T-shirts, as well as older bikes that are retired from a fleet.

Learn more about starting a bike rental business.

Bike rental businesses rent bicycles to customers, especially tourists. People often rent bikes to explore a new area if they are on vacation. A bike rental business can have its own shop, or it can operate out of a bike store, hotel, or some other business.

A bike rental business’s profit margin depends on factors such as the length of the rental season, rental fees, and what other services are provided (if any).

Learn more about starting a bike rental business.