Should I Start an LLC for My Self Storage Business?

Starting a limited liability company (LLC) for your self-storage 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 self-storage business, lawsuits can arise from things like a breach of customer privacy by accidentally disclosing the contents of a storage unit or injuries customers suffer on your premises.

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

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

Do I Need an LLC for a Self Storage 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 Self Storage Business

By starting an LLC for your self storage 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.

Self storage businesses will benefit from liability protection because of the risks relating to the housing of other individuals’ personal belongings on property. Other risks include the safety of individuals while on the business premises.

Example 1: A client thinks one of your employees has disclosed the contents of his storage space to a third party and has sued for breach of privacy. If the court finds you guilty and levies a fine against you, liability protection will limit the effect of the damages to only your business assets.

Example 2: Your company's truck had an accident and caused severe injuries to many people. If the court orders you to pay compensation fines to affected people, an LLC will protect your personal assets from the financial fallout of the lawsuit.

Example 3: A client slipped and sustained a head injury while inspecting his property in your facility. He is angry and has sued you for damages for neglecting to put up a slippery floor sign. In the event of a guilty verdict, liability protection will protect your personal finances during payment.

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 Self Storage 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 self storage 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

Self storage 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.

Self-storage businesses need insurance to protect their customers' properties from theft or damage and against legal or liability claims.

Common Situations Business Insurance May Cover for a Self-Storage Business

Example 1: The arm to the gate at the front of your property malfunctions, closing as the customer is still driving through. General liability insurance should cover the damage done to the customer’s vehicle.

Example 2: As part of the extra goods and services offered, your facility sells padlocks to customers. One of the models sold is proven to be defective, causing several of your customers’ storage contents to be stolen. Your general liability insurance will cover the loss of those items, as well as any legal defense fees associated with this loss.

Example 3: A customer slips and falls in a puddle of water near their storage unit, causing a back injury. General liability insurance will cover their medical treatment bills, as well as any required follow-up rehabilitation care associated with the injury.

Other Types of Coverage Self-Storage 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 self-storage companies should obtain:

Workers’ Compensation Insurance

Your state will likely require you to carry workers’ compensation insurance for each full and part-time employee. This policy covers the cost of treating injuries sustained while on the job and also lost wages if an employee is unable to work for a period of time because of the injury.

Commercial Property Insurance

To run a self-storage company, you will need to own a building with expensive specialized build-outs. Commercial property insurance will cover the repair or replacement of the building in the event of something like a fire or severe storm. It will also cover the cost of repairing or replacing any business property located on the premises.

Commercial Umbrella Liability Insurance

As a self-storage company, hundreds of visitors will frequent the facility each week, significantly increasing your liability exposure. A commercial umbrella liability policy offers additional liability protection above and beyond what the standard policy covers.

Business Interruption Insurance

If a major destructive event, such as a fire, occurs on the premises, it could take months to get the business back up and running again. Business interruption insurance will help replace some of the revenue lost while your business is out of commission.

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 Self Storage Companies article for more info.

For a new self-storage facility to be established, the owner behind it needs deep pockets or the backing of investors to pay for the land and building. Typical projects require funding of $2 to $3 million, with a 10% to 20% down payment.

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

Monthly ongoing expenses will include loan debt service, staff expenses, maintenance, marketing, utilities, security, and insurance.

Learn more about running a self storage business.

The main source of income will stem from renting out storage units. You will also receive income from the proceeds of storage unit auctions for past-due accounts as well as any additional services your location may offer such as moving equipment.

Learn more about starting a self storage business.

Self storage services are a great option for individuals looking to clear out clutter from their homes. It’s also an option for businesses that need space to hold inventory and supplies that they don’t want or need to keep on-site.

Profitability will largely depend on the size of your units as well as the number of units being rented. Some self storage businesses can see profits well into six figures for the year.

Learn more about starting a self storage business.