Should I Start an LLC for My Energy Drink Business?

Starting a limited liability company (LLC) for your energy drink 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 an energy drink business, lawsuits can arise from things like product liability claims, false advertising allegations, and trademark disputes.

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

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

Do I Need an LLC for an Energy Drink Business?

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 an Energy Drink Business

By starting an LLC for your energy drink 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.

Energy drink businesses will benefit from liability protection because food and beverage businesses, including energy drink businesses, face the risk of product liability, trademark infringement, financial data breaches, and even workplace accidents.

Example 1: One of your customers says that the health benefits listed in your latest marketing campaign are false and sues you for false advertising. Any settlements you’d have to pay could not be taken from your personal assets as the owner since being an LLC gives you limited liability.

Example 2: While navigating your facility, an inspector trips over some furniture and breaks their leg. They demand you pay for their medical bills. Your personal assets could not be used to pay since they are protected with limited liability being an LLC.

Example 3: A competitor claims that your advertising slanders them and is threatening legal action against you. Being an LLC, limited liability keeps your personal assets from being used in the settlement should you be ruled in the wrong.

Example 4: One of your customers says that the health benefits listed in your latest marketing campaign are false and sues you for false advertising.

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 an Energy Drink 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 an energy drink 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.

For questions about tax solutions for your energy drink business, we recommend scheduling a free tax consultation.

Credibility and Consumer Trust

Energy drink 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 dependable 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?

All LLCs need insurance because limited liability offered by an LLC structure only protects the owner’s personal assets, not the business’s assets. For a business in the food and beverage industry, these assets may prove costly (e.g., equipment, inventory, etc.).

Common Situations Business Insurance May Cover for an Energy Drink Business

Example 1: While visiting your manufacturing facility, a potential investor trips over a box of supplies, breaks an arm, and decides to sue your business. General liability insurance would cover your legal defense costs and any required settlement.

Example 2: Another energy drink business sues your company for libel. While you’re uncertain why this competitor believes you libeled his business, you want to hire an attorney to protect your interests. General liability insurance would pay for your legal defense.

Example 3: As an employee loads a pallet of product onto a truck in the parking lot, he accidentally hits a luxury sedan. General liability insurance would cover the vehicle repair costs.

Other Types of Coverage Energy Drink 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 energy drink 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.

Product Liability Insurance

While you label your products accurately to ensure customers use them responsibly, there’s always a chance someone might claim your product caused them harm. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured but also sufficient protection for any business materials you carry in your vehicle.

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.

Read our Energy Drink Business Insurance article for more info.

The costs involved in opening an energy drink business are estimated at $100,000 or more It may cost another $25,000 to get the raw ingredients and other materials necessary to begin production, including the labels and packaging. Depending on how many units you are producing, prototyping and packaging, and advertising could cost up to $50,000.

Visit our How to Start an Energy Drink Business guide to learn more about the costs of starting and maintaining this business.

Operating expenses for an energy drink business include the costs of producing and shipping your product, payroll, and rent.

Learn more about running an energy drink business.

An energy drink business makes money by producing and selling energy drinks.

Learn more about starting an energy drink business.

The energy drink market brings in tens of billions of dollars each year. This competition for customers and the high startup costs for the business can make it difficult to turn a profit. But with a quality product and a strong marketing campaign, it is possible to stand out from the crowd.

Learn more about starting an energy drink business.