Should I Start an LLC for My Deli?
Starting a limited liability company (LLC) for your deli 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 deli, lawsuits can arise from things like noncompliance with required ADA regulations or customers getting seriously ill after purchasing food from your deli.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your deli seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Deli?
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 Deli
By starting an LLC for your deli, 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.
Delis will benefit from liability protection because of the risk of lawsuits for personal injuries to customers, trademark infringement, and libel.
Example 1: After an employee contracts COVID-19 and develops a serious respiratory infection, his family files a lawsuit against your deli, claiming that you should have taken more adequate safety precautions. Regardless of the validity of the claim, limited liability will ensure that you cannot be held personally liable for compensating the claimant as long as it wasn’t your personal negligence that directly caused him harm.
Example 2: After being hit with an Americans with Disabilities Act (ADA) compliance lawsuit, you begin to worry about whether your business’s debts will carry over to you. Since your deli is registered as an LLC, your personal assets will remain protected from all creditors, regardless of what happens to your business in the future.
Example 3: After contracting a severe salmonella infection as a result of visiting your deli, a customer files a medical damages lawsuit against your business. Assuming that it wasn’t your own negligent actions that caused the salmonella outbreak in your store, limited liability will protect you from having to personally compensate the claimant.
Example 4: A customer sues your business, claiming that some of the cold cuts you sold them gave their family food poisoning.
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 Deli
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 deli 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
Delis 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).
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
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
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?
LLCs need insurance in order to protect their business assets. For a deli, such assets may include a storefront (if purchased), equipment, and any company vehicles.
Keep in mind that the limited liability offered by an LLC protects its owners’ personal assets only, not the business’s. Moreover, limited liability cannot protect the owners’ assets from tortious or negligent claims brought against them.
Common Situations Business Insurance May Cover for a Deli
Example 1: When an employee sneaks a friend behind the counter to use the deli slicer, the friend cuts her hand and decides to sue. General liability insurance would pay for your legal fees and any damages awarded in a settlement.
Example 2: An employee accidentally spills hot coffee on a customer, who demands repayment for the treatment of the resulting burns. General liability insurance would cover the customer’s medical bills.
Example 3: An employee writes a blog post about why your deli is better than the competition, leading a rival business to file a defamation lawsuit against you. General liability insurance would cover your legal fees and any damages awarded in a settlement.
Other Types of Coverage Delis 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 delis should obtain:
Commercial Property Insurance
You’ve made major investments in your deli equipment and inventory. 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 or other natural disaster. Commercial property insurance would cover the cost of replacing your equipment and inventory 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 harmed them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in the event of a lawsuit.
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 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, and commercial property insurance.
Read our Business Insurance for Delis article for more info.
You should be able to start a moderately sized deli in a relatively small city for less than $50,000. Your largest cost will likely be leasing or purchasing a storefront in a good location, as well as purchasing all the preparation equipment that you will need.
When it comes to maintenance, you will need to factor in the cost of labor, rent and utilities, insurance, and marketing.
Visit our How to Start a Deli guide to learn more about the costs of starting and maintaining this business.
Ongoing expenses for a deli include labor, stock, rent, and utilities.
Learn more about running a deli.
A deli earns money by selling food at a profit. This can include prepared items as well as sliced meat and cheese sold by weight.
Learn more about starting a deli.
Delis sell a wide variety of foods, often including prepackaged foods and cold cuts. A well-run deli can earn a net profit of around 15%.
Learn more about starting a deli.
