Should I Start an LLC for My Party Rental Business?

Starting a limited liability company (LLC) for your party rental 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 party rental business, lawsuits can arise from things like customers injuring themselves on a faulty bounce house or an employee accidentally damaging a customer’s property while setting up rental equipment.

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

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

Do I Need an LLC for a Party Rental 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 a Party Rental Business

By starting an LLC for your party rental 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.

Party rental businesses will benefit from liability protection because of the risks associated with guests using their rental equipment, as well as the safety of guests when setting up and taking down equipment.

Example 1: An inflatable bounce house that an employee rented to a customer had a small hole in it that caused it to slowly deflate over the course of the day. While being used for the customer’s son’s birthday, a child broke their arm on the hard ground due to the lack of support offered by the bouncy house after it had deflated. This pushed the customer to sue your business, claiming its negligence caused this bodily harm. If your business is required to pay the plaintiff damages, this can only be levied against your business’s assets.

Example 2: While browsing the selection at your party rental business, a customer slipped on a roll of wrapping paper that had been left on the floor and broke the expensive laptop they were carrying during their fall. Claiming this property damage was caused by your business, the customer decided to sue. Limited liability would protect you from being held personally liable.

Example 3: In a recent piece of marketing material released by your party rental business, one of your employees is heard making a joke about a local competitor. The competitor claimed that this comment was tantamount to slander as their reputation had been severely negatively impacted. In the following lawsuit, your personal assets would be safe from any liability levied against your business to pay damages to your competitor.

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 Party Rental 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 party rental 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

Party rental 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 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.

Since party rental businesses own such valuable assets (such as inflatable equipment), it is even more important to own insurance.

Common Situations Business Insurance May Cover for a Party Rental Business

Example 1: An obese adult who’s over the weight limit tries to use an inflatable slide, falling from the top and fracturing their wrist. While the lawsuit they filed against your company is settled in your company’s favor because there are warnings against such use, the suit results in substantial legal fees. General liability insurance would probably cover those fees.

Example 2: While picking up party supplies at your company’s warehouse, a customer trips over a ball on the floor. They fall on the concrete floor and sustain a concussion. General liability insurance would likely cover medical expenses related to the incident.

Example 3: Most major venues will only rent equipment from a party rental business that has general liability insurance.

Other Types of Coverage Party Rental 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 party rental businesses should obtain.

Commercial Property Insurance

Party rental businesses need commercial property insurance both for any building they own and for the equipment that they rent out. Commercial property policies can be adapted to insure either or both types of property. Commercial property insurance is widely available through business owner’s policies (BOPs).

Commercial Auto Insurance

Many party rental businesses bring rental equipment to and from customer locations using company vehicles. Any vehicles that are used for this purpose need to be insured with commercial auto insurance. Commercial auto insurance is available by itself or as part of a package policy.

Commercial Umbrella Insurance

Commercial umbrella insurance provides a secondary level of liability protection for especially expensive claims. Once underlying policies’ limits are reached, this insurance may offer additional protection.

The extra protection that commercial umbrella insurance affords is especially important when renting party equipment. Accidents involving certain rented equipment can result in catastrophic injury or even death, and the lawsuits resulting from such accidents are often costly. This insurance offers an affordable way to protect your business against potential lawsuits like these.

Business Interruption Insurance

Recovering from a disaster or other incident can be a lengthy process, and revenue may drop during that process. Business interruption insurance provides supplemental income for businesses during covered disaster recoveries. If your party rental business doesn’t have substantial cash reserves, this coverage could help the business survive a prolonged disaster recovery.

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 auto insurance, and commercial property insurance.

Read our Business Insurance for Party Rental Businesses article for more info.

The startup cost of a party rental business can easily reach tens of thousands of dollars. This is due to the fact that all the equipment needs to be bought, in addition to a location to store it. While a retail space isn’t necessary, it certainly raises your business’s credibility in the eyes of your customers. Naturally, this will further increase the total startup cost.

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

Party rental businesses can expect to incur a variety of ongoing expenses including equipment replacement and maintenance, rent and storage fees, employee payroll, and advertising costs.

Learn more about running a party rental business.

Party rental businesses make money by renting out, at fixed rates, party equipment that was purchased at wholesale costs.

Learn more about starting a party rental business.

Party rental businesses provide a variety of solutions for their clients’ events including birthday parties, fundraisers and charity events, weddings, and any other special event that might require the rental of special equipment.

How much your party rental business profits will depend on how much equipment you have on hand to rent out, as well as how frequently you’ll need to replace your equipment.

Learn more about starting a party rental business.