Should I Start an LLC for My Motorcycle Shop?

Starting a limited liability company (LLC) for your motorcycle shop 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 motorcycle shop, lawsuits can arise from things like not honoring the warranty a customer holds for their motorcycle or not appropriately disposing of hazardous maintenance materials.

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

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

Do I Need an LLC for a Motorcycle Shop?

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 a Motorcycle Shop

By starting an LLC for your motorcycle shop, 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.

Motorcycle shops will benefit from liability protection because automobile service shops, including motorcycle shops, face a number of risks in regard to the use and handling of heavy equipment as well as risks associated with customers coming to your business location.

Example 1: When you display one vendor's products, another demands payment for product shipped to your motorcycle shop, contrary to the agreement for consignment sales. When you refuse, the first vendor sues. If the court rules against you, the claim can only be satisfied from business assets. Your personal assets would be protected from the judgment.

Example 2: Your motorcycle shop is taken to court by the bank after you miss several installments. Although the bank may be able to obtain a writ of garnishment against your business bank account, it cannot do the same to your personal bank account. Your personal assets are protected from legal action against the business.

Example 3: After your landlord informs you he will not renew your lease, you make the decision to close up shop. Regrettably, the business assets will not be enough to satisfy all creditors. Nonetheless, no creditor can go after your personal assets, because they are protected by the limited liability shield of your LLC.

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 Motorcycle Shop

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 motorcycle shop 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

Motorcycle shops 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?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

A motorcycle shop may sustain damage to its stock or buildings. There's also the possibility that a customer or employee may be injured. General liability insurance will cover such situations and many other risks.

Common Situations Business Insurance May Cover for a Motorcycle Shop

Example 1: During a test drive with a customer, one of your salespeople accidentally backs the motorcycle into the customer’s car causing extensive damages. General liability insurance would cover repairs to the customer’s vehicle and any legal costs if the event of a lawsuit.

Example 2: As a customer discusses a repair job with a mechanic in your service bay, a replacement part falls off the hydraulic lift and hits his head and shoulder. Your general liability insurance would cover the customer’s medical bills and any other damages if he sues.

Example 3: As you explore franchise options, you realize you must carry a minimum amount of general liability insurance to join your top choice. Investing in comprehensive general liability coverage will enable you to join your preferred franchise while also protecting your business from a wide range of risks.

Other Types of Coverage Motorcycle Shops 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 motorcycle shops should obtain.

Commercial Auto Insurance

Since you will be driving your business vehicle on public roadways, you are mandated by the state to carry a commercial auto policy. Auto insurance protects not only your vehicle but any liability you may have in an accident. Your personal car insurance will not cover you if you are driving the business vehicle, even if you are off duty.

Commercial Property Insurance

If you own your location instead of renting, you need commercial property insurance to protect the building. If your business is based out of your home, your homeowners' insurance will not cover the home when it is being used for commercial purposes. Property insurance also covers items owned by your business.

Motorcycle shops invest heavily in the equipment that is used to operate. Be sure that you have enough coverage to replace all of your equipment in case of loss. This coverage is generally offered in a Business Owner Policy (BOP).

In addition to the policies outlined above, there are a few other types of coverage your motorcycle shop may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.

Workers' Compensation Insurance

If your motorcycle shop has any employees (full-time or part-time), you are legally required to carry workers’ compensation insurance. This type of coverage will help compensate your employees in the case that they get injured on the job.

Read more about workers’ compensation insurance.

Business Interruption Insurance

In the event of a fire, flood, or other catastrophes, there is a good chance your business operations will be halted for some time. Business interruption coverage is designed to help you recoup a portion of the revenue your business would lose due to the inability to operate.

This type of insurance is typically included in a business owner’s policy.

Commercial Umbrella Insurance

Umbrella coverage allows you to extend above and beyond the standard limits of your other business insurance policies. If you are faced with a large lawsuit or other claim situation, there’s a possibility that the coverage limits of your standard policies will be insufficient. In this case, your umbrella policy will allow you to surpass these limits.

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, commercial property insurance, and commercial auto insurance.

Read our Business Insurance for Motorcycle Shops article for more info.

A ballpark figure to start a motorcycle shop is $55,000. This will be spent mostly on inventory and displays. Recurring expenses will include rent, utilities, salaries, and liability insurance.

Visit our How to Start a Motorcycle Shop guide to learn more about the costs of starting and maintaining this business.

Other than standard ongoing costs such as rent and utilities, some other ongoing costs might include payroll, marketing, inventory, and insurance.

Learn more about running a motorcycle shop.

Shop income will depend on the various products or services your shop offers. While some shops may only operate locally, some have an established online presence that can expand their services to a much broader audience.

Learn more about starting a motorcycle shop.

Whether it’s selling new or used parts or repairing and rebuilding, a motorcycle shop is a necessary destination for individuals who want new motorcycles or require maintenance.

While it may take a little bit of time for your motorcycle shop to grow, most shops see positive profits in their first year. Depending on the different services or products your shop offers, well-established shop owners can see profits anywhere from $35,000 to $64,000 a year or more.

Learn more about starting a motorcycle shop.