Do I Need an LLC for My Cell Phone Repair Business?

Starting a limited liability company (LLC) for your cell phone repair 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 cell phone repair business, lawsuits can arise from things like accidentally damaging a customer’s cell phone while attempting to repair it.

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

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

Should I Start an LLC for My Cell Phone Repair 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 Cell Phone Repair Business

By starting an LLC for your cell phone repair 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.

Cell phone repair businesses will benefit from liability protection because of the risk of damaging customers’ products, which can leave them worse off than when they started. There are also general risks associated with customers coming to your business location.

Example 1: A client sues you because he believes you accessed the data on his mobile phone. Even if the court decides to levy a significant fine against you, having an LLC ensures that none of your personal assets are jeopardized.

Example 2: An employee accidentally damages a customer’s phone during the repair process, and the customer sues your business for negligence. Limited liability protection limits the lawsuit damages to only your business assets.

Example 3: A dissatisfied ex-employee of your cell phone repair business sues your business for wrongful termination. If the court deems your business at fault, limited liability protection will protect your personal assets from the fines imposed on your business.

Example 4: You improperly replace a cell phone screen, causing it to malfunction. The customer asks you to cover the cost of a replacement phone.

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 Cell Phone Repair 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 cell phone repair 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

Cell phone repair 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).

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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?

Yes, all businesses require insurance to safeguard their assets against unforeseen circumstances. Cell phone repair businesses require insurance to appropriately protect their commercial assets and revenue in the event of the loss, theft, or misplacement of client cell phones.

Common Situations Business Insurance May Cover for a Cell Phone Repair Business

Example 1: As an employee shows a customer the pressure points on their phone to help them avoid breaking the glass again, the customer stumbles and falls into a glass counter. The impact seriously injures the customer, who demands repayment of their medical costs. General liability insurance would cover the customer’s medical bills and your business’s legal fees in the event of a lawsuit.

Example 2: While moving inventory from a storage facility to your main sales floor, you lose control of the cart, and it hits a customer’s car. The impact seriously damages the car, and the customer cannot drive it home. Your business’s general liability policy would cover the customer’s vehicle repair costs.

Example 3: When a friend slips on spilled soda while walking to your restroom, they break an arm and hit their head. The company’s general liability insurance would cover your friend’s medical bills.

Other Types of Coverage Cell Phone Repair 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 cell phone repair businesses 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 company’s specialized equipment and tools. 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 other business tools after an accident so you can recover quickly.

Product Liability Insurance

When you sell products to the public, there’s always a chance a customer may file a lawsuit if they believe one of your products injured them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in a settlement.

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 and commercial property insurance.

Read our Business Insurance for Cell Phone Repair Businesses article for more info.

Since fixing cell phones requires more expertise than expensive equipment, you can get started with a relatively small investment. To cut down on expenses, you can launch a phone repair business from your home with just a few fundamental tools and the help of online and social media advertising.

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

Most ongoing costs will be generated by the cost associated with purchasing parts used to repair cell phones. You will also need to pay rent, utilities, advertising expenses, and payroll costs associated with hiring additional employees.

Learn more about running a cell phone repair business.

Revenue comes from the fees charged to customers for fixing or upgrading their cell phone or mobile device.

Learn more about starting a cell phone repair business.

Cell phone repair shops provide services to individuals seeking to repair their cell phones outside of brand locations.

Since increased phone capabilities have led to an increase in their cost, phone repair has become an important service for everyday cell phone problems that users face like shattered device screens.

The average cell phone repair business might see profit ranging anywhere from $50,000 to $65,000 a year with larger potential earnings for well-established businesses.

Learn more about starting a cell phone repair business.