Should I Start an LLC for My Arcade?

Starting a limited liability company (LLC) for your arcade 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 arcade business, lawsuits can arise from things like workplace accidents and false advertisements.

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

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

Do I Need an LLC for an Arcade?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form 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 Arcade

By starting an LLC for your arcade, 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.

Arcades will benefit from liability protection because of the risk of customer injuries while playing your games, along with trademark infringement and libel.

Example 1: During the removal of an old machine by an employee at your arcade, the worker becomes distracted and the heavy machine collapses onto a customer and breaks their leg. If your business was found liable to pay damages to this customer in a lawsuit, the compensation would only be levied against the business’s assets, rather than your personal ones.

Example 2: Your arcade falsely advertises one of the machines as a game of skill, when it is instead rigged against players and is pure chance. A customer decides to sue your business for this misrepresentation. Any damages your business is found liable to pay as compensation are prevented from being imposed upon your personal assets by limited liability.

Example 3: While carrying out an errand for work, an employee at your arcade gets into a serious car accident with a customer in the parking lot, who then sues for the bodily injury he suffered as a result. If your business is found responsible to pay the customer’s medical bills, only the business’s assets will be considered in the judgment.

Example 4: A customer playing a dance game trips, falls, and hits their head on the machine. They go to the hospital and later sue your business for damages.

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 Arcade

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 arcade 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

Arcades 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?

Yes, all LLCs require business insurance as this is what provides protection to the assets owned by the business.

This is often confused with limited liability protection, an innate feature of LLCs, which provides protection for the personal assets of the owners.

Common Situations Business Insurance May Cover for an Arcade

Example 1: The most common type of accident to take place in an arcade is a trip and fall incident. If one of your customers becomes injured during a game of laser tag or as they race from one game to another, you could be found liable for damages. With the help of general liability coverage, you can protect your customers in the event of an accident involving your specialized arcade equipment.

Example 2: While many business owners don’t consider their parking lot to be a particularly important area, it is actually a very common accident site. As visitors try to maneuver around other vehicles, bikes, and pedestrians, there's great potential for an accident to take place. And if the accident is a result of poor maintenance, general liability insurance can help to cover the cost of damages.

Example 3: Arcades are a great hangout for people of all ages. But it’s important to keep in mind that some gamers can be extremely competitive and may become angry or frustrated when things don’t go their way. In an arcade, there is an increased risk of customers hurting themselves and others when rattling a machine or losing their temper.

Other Types of Coverage Arcades 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 arcades should obtain.

Business Interruption Insurance

Arcades are not only a place for fun and games, but they are also home to many different pieces of valuable specialty equipment. If this equipment becomes damaged or destroyed in an incident, the business income that you rely on could be lost. With the help of business interruption insurance, you can help to cover the loss of business income that you will incur as you suspend operations to repair or replace your equipment.

Workers’ Compensation

Workers’ compensation insurance is another important insurance coverage that will help to protect your team. In fact, workers’ compensation coverage is required in many states for any business that has part-time and full-time employees. This type of insurance coverage is designed to cover your employees’ wages and medical expenses if they get sick or become injured on the job.

Commercial Umbrella Coverage

In the modern world, even small businesses are at risk of accidents and actions that could result in large liability judgments against them. And while your general liability coverage will protect against most of these cases, an umbrella policy provides you with an extra layer of protection that goes above any other policies you may have in place. This is especially helpful in situations where damages related to an incident exceed your primary policy limits.

Data Breach Insurance

Many arcades have return customers who like to keep important payment information on file. If you have a loyalty club or keep important customer information in your computer system, your customers’ personal and financial information could be at risk of a cyber attack. With the help of data breach insurance, you can protect your business and customers from a system breach that results in stolen data.

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, workers’ compensation insurance, and commercial property insurance.

Read our Business Insurance for Arcades article for more info.

Startup costs for an arcade are reasonably high. While your arcade could be started from home, it will likely be infeasible due to the sheer amount of square footage needed to do so.

As such, rent adds a large sum to the already high startup cost, which includes the amounts you will have to pay for your machines, promotional material, and website.

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

Rent and machine upkeep are the primary ongoing expenses for arcades. Utilities are another factor to consider, with a large amount of electricity use associated with machine operation.

Learn more about running an arcade.

Arcades primarily make money by charging visitors to play arcade games. While some arcades operate by charging guests for a certain amount of game time, others utilize tokens or swipe cards to purchase game credits.

Learn more about starting an arcade.

Arcades provide a space for visitors to primarily play arcade video games, but most arcades also offer entertainment like pinball, air hockey, and even claw machines.

The profitability of your arcade may depend on its size, but some of the more large and successful arcades make well into six figures each year.

Learn more about starting an arcade.