Last Updated: May 14, 2024, 12:25 pm by TRUiC Team

Should I Start an LLC for My Bed-and-Breakfast?

Starting a limited liability company (LLC) for your bed and breakfast 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 bed and breakfast, lawsuits can arise from things like property damage, as well as from a  customer allegedly getting food poisoning or claiming that they were unfairly denied service. 

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

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

A selection of breakfast dishes on a table

Do I Need an LLC for a Bed-and-Breakfast?

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 Bed-and-Breakfast

By starting an LLC for your bed-and-breakfast, 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.

Bed-and-breakfasts will benefit from liability protection because of the risk of trademark infringement, financial data breaches, libel and slander allegations, property damage, and workplace accidents. 

Example 1: During his stay, the new guest contracted a serious illness that he alleges was because the surfaces in his room had not been cleaned. He decides to sue your bed and breakfast on the basis that your B&B breached its duty of care and caused his injury. If the plaintiff is awarded damages, limited liability would prevent this from being levied against your personal assets.

Example 2: One day, you receive an email from a business alleging that the logo you are using for your bed and breakfast is too similar to theirs. As such, they are suing for copyright infringement because their property is being used without their consent. Limited liability precludes you from being held personally liable to satisfy any compensation imposed on your business.

Example 3: You realize one day that your bed and breakfast is grossly overbooked for an upcoming holiday, and thus call some guests to inform them they cannot stay with you on this date. One of these guests has made arrangements and stands to suffer significant financial losses through his inability to stay with you. As a result, your business receives a lawsuit for breach of contract. In this case, only your business assets can be used to satisfy damages you may be found liable to pay.

Example 4: A competing local bed-and-breakfast claims that your logo is too similar to their trademarked design. They decide to sue your business for infringement.

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 Bed-and-Breakfast

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 bed-and-breakfast 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

Bed-and-breakfasts 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 loansgrants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

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?

Even if it’s not always legally required, all businesses need insurance, which is no different for LLCs. Your bed and breakfast need insurance in order to protect its assets (such as the building, the furniture, and any equipment you may need).

LLCs provide protection for the personal assets of the owner. Similarly, insurance provides protection for the business’s assets.

Common Situations Business Insurance May Cover for a Bed and Breakfast

Example 1: While a guest wanders through your grounds, she slips and falls in a hole, breaks an ankle, and demands you pay for her medical treatment because you didn’t display a warning sign near the hole. General liability insurance would cover the cost of the guest’s medical care.

Example 2: As a guest runs down the stairs in front of your business, he slips and suffers a concussion as well as a broken arm. He decides to sue your business, claiming your stairs are unsafe. General liability insurance would cover your legal costs.

Example 3: While mopping a hallway floor, an employee accidentally spills water on a guest’s bag. The water ruins some valuable manuscripts inside the bag, and the guest demands compensation. General liability insurance would cover the guest’s damaged property.

Other Types of Coverage Bed-and-Breakfast 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 bed-and-breakfast should obtain.

Commercial Property Insurance

You made a major investment when you purchased and furnished your bed and breakfast establishment. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building as well as your furnishings, business equipment, and supplies.

Product Liability Insurance

While you strive to ensure the products you offer — such as the meals you serve — make your guests happy, there’s always a chance someone might claim something you sold them caused them harm. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Workers’ Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for both part-time and full-time workers. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a work-related accident.

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured but also sufficient protection for any business equipment or supplies you carry in your vehicle.

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 Bed and Breakfast Business Insurance article for more info.

Bed and breakfasts have a sizeable startup cost. The largest expense will certainly be the property itself, with established bed and breakfasts often selling in the range of $200,000-$5 million.

Other costs associated with starting a bed and breakfast include insurance, hospitality supplies, and licensing.

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

Some of the biggest operating expenses for a bed-and-breakfast include its mortgage and property insurance. Other ongoing expenses include utilities, marketing, cleaning fees, and, possibly, payroll.

Learn more about running a bed-and-breakfast.

A bed-and-breakfast makes money by charging customers for lodging, which typically includes a full breakfast and possibly other meals.

Learn more about starting a bed-and-breakfast.

Bed-and-breakfasts offer a more intimate and distinctive lodging experience than most typical hotels. They usually attract customers willing to spend a little bit more for an experience.

Opening a bed-and-breakfast can prove quite expensive. Yet, bed-and-breakfasts can generate strong profits if you can attract customers with good reviews. The income potential for a bed-and-breakfast depends on how many rooms it has, its location, and its occupancy rate, among other factors. 

Learn more about starting a bed-and-breakfast.

Related Articles

Article Sources

IRS: Limited Liability Company

IRS: S Corporations


SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business