Do I Need an LLC for My Coffee Roasting Business?

Starting a limited liability company (LLC) for your coffee roasting 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 coffee roasting business, lawsuits can arise from things like medical damages (e.g., an employee developing respiratory issues due to a chemical released while roasting and packaging coffee, etc.).

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

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

Should I Start an LLC for a Coffee Roasting 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 Coffee Roasting Business

By starting an LLC for your coffee roasting 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.

Coffee roasting businesses will benefit from liability protection because of the risk of product liability, trademark infringement, financial data breaches, and workplace accidents.

Example 1: After buying a coffee from your coffee roasting business, a customer was driving home when the drink spilled over them and caused serious burns. This led the customer to bring a lawsuit against your business, alleging that the bodily harm she suffered is the fault of your business for brewing “dangerously hot” coffee. If the court awards the plaintiff damages, limited liability protects your personal assets from this requirement.

Example 2: Expecting to meet certain sales targets, you enter into a contract with a coffee farmer to be supplied with a monthly quota of coffee beans. However, quickly realizing that these targets could not be met, the company abandoned the contract. As a result, the coffee farmer sued your business for breach of contract. In this example, any liability to pay damages for this breach can only be imposed insofar as the assets belonging to your business.

Example 3: An ex-employee of your coffee roasting business feels that they were fired in a way that breached their contract and thus sued your business for wrongful dismissal. Limited liability would limit any responsibility to pay the plaintiff damages for this supposed wrongful dismissal to only the assets of your business.

Example 4: Your new logo turns out to be similar to that of a trademarked logo. The trademarked owner sues your business for infringement.

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 Coffee Roasting 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 coffee roasting 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

Coffee roasting 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 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?

An LLC needs to own insurance. Coffee businesses need it because they own particularly expensive assets (such as coffee roasters) that need to be protected.

Just as limited liability protects the personal assets of the owners of LLCs, insurance protects the assets belonging to a business.

Common Situations Business Insurance May Cover for a Coffee Roasting Business

Example 1: While visiting your roastery, a child suddenly reaches into the cooling area. They suffer bad burns on their hand and require extensive medical treatment. General liability insurance would likely cover the incident.

Example 2: A delivery driver trips over some empty coffee sacks while dropping off more green beans, and they fracture their elbow in the fall. General liability insurance would probably cover any claim or lawsuit they filed over the incident.

Example 3: During an interview, a profile roaster makes false claims about a competitor that are eventually published. The competitor files a defamation lawsuit, which would likely be covered by general liability insurance.

Other Types of Coverage Coffee Roasting 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 coffee roasting businesses should obtain.

Commercial Property Insurance

Commercial property insurance is used to insure the physical assets that businesses own. This can include buildings, equipment, supplies, inventory, and other assets.

Coffee roasters often have substantial build-outs, for most commercial roasters require special gas, electric, and exhaust lines. Additionally, roasters and packaging equipment cost a fair amount. Make sure the commercial property insurance you select provides enough coverage for your business’s build-out, roaster, and other equipment.

This coverage can be purchased within a business owner’s policy (BOP).

Product Liability Insurance

Product liability insurance shields businesses from product-related risks. For example, this insurance may cover claims arising from injuries or property damage caused by a business’s products.

Lots of green coffee beans sometimes contain debris, which makes this an especially important coverage for coffee roasters. Should a chicken bone, a bit of tire, or a small stone end up in packaged coffee, it could destroy an expensive commercial grinder or fracture a person’s tooth (if the beans are used for chocolate-covered coffee beans). Product liability insurance would likely cover any such incident.

This insurance is available by itself or as part of a package policy.

Commercial Auto Insurance

If your coffee roastery uses a business-owned vehicle to make deliveries, commercial auto insurance is needed. Businesses that have commercial vehicles are required to insure them with this coverage.

Commercial auto insurance is available by itself or as part of a package policy.

Workers’ Compensation Insurance

If your business has employees, it needs to carry workers’ compensation insurance. This insurance covers job-related illnesses and injuries, and most states require employers to carry it.

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 Coffee Roaster Business Insurance article for more info.

The startup costs of a coffee roasting business are fairly significant. You can expect startup costs to reach around $30,000.

This sum will cover a coffee roaster, packaging supplies, green coffee, a heat sealer, and a coffee grinder. Businesses can cut this startup cost by purchasing lower-priced coffee roasters, which form the main part of this sum.

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

Operating expenses for a coffee roasting business include rent, utilities, purchasing green coffee beans, equipment maintenance, and payroll.

Learn more about running a coffee roasting business.

Coffee roasting businesses make money by roasting coffee beans and selling them to wholesalers, retailers, or individual customers.

Learn more about starting a coffee roasting business.

With all the different coffee preferences, there are numerous opportunities for new coffee roasting businesses. There is a lot of competition but also enough demand to support new high-quality coffee products.

Potential profit for a coffee roasting business depends on how popular and widespread your coffee becomes. Profits in the six figures or more are possible for large, successful companies, but most companies make less than this.

Learn more about starting a coffee roasting business.