Should I Start an LLC for My Bar?

Starting a limited liability company (LLC) for your bar 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 bar business, lawsuits can arise from things like bar fights, alcohol poisoning, and negligence allegations.

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

Interested in getting started? More than 84% of our readers form their LLC through a specialized LLC formation service in order to save time and avoid potential penalties.

Tailor Brands ($0 + State Fees)

Do I Need an LLC for a Bar?

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 a Bar

By starting an LLC for your bar, 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.

Bars will benefit from liability protection because of the risks that come along with selling alcohol. Bars can potentially be held liable for accidents their customers have after drinking at the bar, which could be very costly.

Additionally, there is the risk of product liability, workplace accidents, trademark infringement, and financial data breaches.

Example 1: A fight breaks out at your bar, seriously injuring a number of people who weren’t involved in it. One of these injured customers sues your bar for negligence, arguing that you failed in your obligation to provide safe conditions. If such a claim was successful, any liabilities you would have to pay could only be levied against your business assets, never you personally.

Example 2: The logo you decided to use for you bar is extremely similar to that of a local competitor that is very popular. Upon realizing this, your competitor sues your bar for copyright infringement on the basis that you are using their property without their permission. Limited liability protects your personal assets from any business liabilities being levied against them.

Example 3: You selected a residential area for your bar because of the property’s low cost. As a result, you often get complaints from neighbors about the disruptive behavior of your customers after they leave your bar. Eventually, one sues your bar, arguing the disruption is a statutory nuisance that interferes with his right to enjoy his property. If your business has to pay the plaintiff damages, this compensation cannot be imposed on your private assets.

Example 4: After you mop the floors at your establishment, a customer walks by and slips on the wet surface. The customer falls and breaks their arm. They claim you did not have a sign to warn them about the wet floor and sue you in order to cover their medical bills.

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 Bar

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 bar 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

Bars 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.

Launch Your LLC With Tailor Brands

More than 84% of our readers form their LLC through a specialized LLC formation service like Tailor Brands in order to save time and avoid potential penalties.

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 must possess insurance. This is what provides protection to the assets your business owns from the many liabilities it is exposed to each and every day.

This is separate from the protection provided by limited liability, which guards your personal assets from being used to repay your business’s liabilities.

Common Situations Business Insurance May Cover for a Bar

Example 1: As your weekly liquor delivery comes in, the loading dock door malfunctions and crushes the back-end of the delivery truck. Your general liability insurance policy will likely cover the damages to the truck and pay to replace the broken items as well.

Example 2: Your bar features dancing lessons on Wednesday nights for college students. During your first event, one of the dancers slips on some broken glass and falls, seriously injuring her shoulder and elbow. General liability insurance will likely cover her medical bills and any associated legal costs in a lawsuit.

Example 3: While putting away some stage equipment after a live performance, an employee loses control of a large cart. The cart crashes into a group of customers and seriously injures several people in the process. General liability insurance will likely cover their medical costs and any payouts if you settle their complaints out of court.

Other Types of Coverage Bars 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 bars should obtain.

Workers’ Compensation Insurance

If an employee is injured on the job or falls seriously ill after a work-related incident, workers’ compensation insurance will pay for their medical bills. Additionally, if they are unable to return to work, they may be eligible to receive disability benefits.

Commercial Property Insurance

To keep your bar running smoothly, you rely on a lot of specialty equipment, furniture, tools, computer systems, and inventory. If these items were destroyed in a fire or other incident like a burglary, you could be left to cover the cost of replacing them. However, commercial property insurance will help to pay for these repairs and replacements.

Business Interruption Insurance

Certain incidents may make it necessary to shut your doors while repairs are made. For example, if a fire breaks out in your bar and destroys the dance floor, you’ll need to close operations down for a couple of weeks. Business interruption insurance can help to cover some of your lost revenue during this downtime.

Commercial Umbrella Insurance

Sometimes a legal claim or accident can exhaust your primary coverage limits. If this happens, you could be stuck having to pay for the additional fees out-of-pocket. Commercial umbrella insurance covers expenses when your primary coverage is exhausted.

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 workers’ compensation insurance.

Read our Business Insurance for Bars article for more info.

Despite varying according to your bar’s size and location, the startup costs for a bar and still relatively high. Leasing costs can range from anywhere between $110,000 to $550,000.

Prospective bar owners seeking a cheaper method can seek out bars that are currently for sale, which can be sold for as little as $25,000.

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

Some of the main operating expenses for a bar include rent, payroll, inventory, licensing, and insurance.

Learn more about running a bar.

Bars make money by selling drinks — and sometimes food — to customers.

Learn more about starting a bar.

A bar’s profitability can vary considerably, depending on its location and how many customers it can attract. But, bars do have the potential to earn tens of thousands of dollars per week in sales.

The potential for high profits makes the bar industry very competitive. Most bars fail within five years, so success often hinges on having a strong business plan and a concept that attracts customers. Efficiency also plays an important role because even popular bars can lose money if they don’t keep their expenses in check.

Learn more about starting a bar.