Should I Start an LLC for My Rage Room?

Starting a limited liability company (LLC) for your rage room 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 rage room, lawsuits can arise from things like customers sustaining injury due to insufficient protective gear or financial difficulties preventing your business from being able to repay creditors.

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

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

Do I Need an LLC for a Rage Room?

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 Rage Room

By starting an LLC for your rage room, 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.

Rage rooms will benefit from liability protection because of the risk of trademark infringement, workplace accidents, and even customer injuries.

Example 1: A client was severely injured while smashing objects in your rage room. He blames you for the lack of adequate protective materials and has sued you for damages. In situations like this, liability protection will ensure you don't lose your private assets while paying for damages.

Example 2: You borrowed money to expand your rage room business but ran into financial difficulties and could not repay the debt by the due date. If your rage room was established as a limited liability company, your private assets would be safe from creditors as long as you did not personally guarantee the loan.

Example 3: While delivering supplies to your rage room, your truck driver's accident resulted in severe injuries and loss of people's property. You are now getting multiple lawsuits from the victims demanding sums for damages. If you have liability protection, the effect of the incident will only affect your business assets

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 Rage Room

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 rage room 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

Rage rooms 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 rage room may need insurance to protect the business financially in the event of business-ending incidents like severe customer injuries or natural disasters.

Common Situations Business Insurance May Cover for a Rage Room

Example 1: Despite using the proper safety gear, a customer is injured by flying debris during their session. General liability insurance would likely cover any medical care that the injury requires.

Example 2: An employee fails to thoroughly clean a room after a session, and the next customer cuts their arm on some glass. The cut is deep and requires stitches. General liability insurance would cover injuries that occurred if the customer filed a lawsuit or claim.

Example 3: A customer trips over an object during a session and fractures their arm in the fall. While your rage room might be ultimately exonerated because the customer assumed certain risks by participating, the customers could still file a suit that requires expensive legal representation. General liability insurance would cover the legal fees (and any settlement).

Other Types of Coverage Rage Rooms 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 rage rooms should obtain:

Commercial Property Insurance

If your rage room business owns the space that it uses, you’ll likely want commercial property insurance for the building. Property insurance policies normally insure commercial buildings and the equipment kept inside them. When selecting property insurance limits, make sure your rage room’s equipment is properly covered. There’s little reason to consider items that get destroyed since they often have little or no fair-market value. You will, however, want to consider the value of computers, permanent furniture, and safety gear that your business has.

This coverage is widely available through a business owner’s policy (BOP).

Workers’ Compensation Insurance

If your rage room 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.

Business Interruption Insurance

Natural disasters and other incidents can leave your business unable to open and bring in revenue. Business interruption insurance may provide supplemental revenue during times like these. If your rage room doesn’t have a cash reserve, you may want business interruption insurance to help with lease, mortgage, and other payments following a covered disaster.

Business interruption insurance is often available through a business owner’s policy (BOP).

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 and commercial property insurance.

Read our Business Insurance for Rage Rooms article for more info.

The basic cost to set up a rage room is estimated to be about $5,000. First, you'll need to rent a space and then shop for breakable items and protective supplies. Also, you'll have to allocate funds for things like marketing and personnel payment. However, you can easily cut costs by recruiting volunteers rather than paying workers.

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

Operating expenses for a rage room include rent, the cost of acquiring items to break, and insurance.

Learn more about running a rage room business.

Rage rooms make money by charging customers to break items. The price can be on a per-item basis or based on a particular amount of time.

Learn more about starting a rage room business.

One key to running a successful rage room business is to have a steady source of cheap breakable items. Keeping this expense to a minimum will help increase profits, which is especially important in the beginning as you are building a customer base.

The average profit margin for a rage room varies considerably depending on how much your rent is and how many customers you can attract.

Learn more about starting a rage room business.