Should I Start an LLC for My Bike Shop?

Starting a limited liability company (LLC) for your bike shop 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 bike shop, lawsuits can arise from things like accidentally selling faulty bikes, as well as from customers suffering accidents while using a bicycle that’s been purchased from your store.

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

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

Do I Need an LLC for a Bike Shop?

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 Bike Shop

By starting an LLC for your bike shop, 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.

Bike shops will benefit from liability protection because retail businesses, including bike shops, face the risk of product liability, workplace accidents, trademark infringement, and financial data breaches.

Example 1: After test-driving one of your bikes, a customer collides with a car and suffers a fracture of their knee. Claiming that this was a result of a loose wheel, they threaten to sue you and your business for compensation. Since your bike shop is registered as an LLC, you will not be personally liable for compensating the claimant.

Example 2: You promise to purchase ten bicycles from a struggling store owner in order to resell them. In exchange, the store owner offers to put up a few flyers to advertise your products as a thank you. When you pull out of the deal, the owner claims that your promise constituted a binding verbal contract, and threatens to sue you for compensation. Regardless of the outcome of the lawsuit, your personal assets will remain protected if your business is registered as an LLC.

Example 3: You decide to lease a second storefront and expand your bike shop business. In order to do this, you apply for a large loan with your business’s bank, which you will use to purchase additional equipment and finance all moving costs. Since the loan is in your LLC’s name, your personal belongings will not be put at risk if you fail to repay it in the future.

Example 4: During a test ride, a customer seriously injures themself in a crash and decides to sue for medical-related compensation. While a court may rule in your favor, you still may have to pay legal fees.

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 Bike Shop

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 bike shop 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

Bike shops 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?

You need to purchase business insurance if you want to protect your business’s assets against foreseeable financial harm. An LLC, in turn, protects your personal assets.

When it comes to bike shops, such assets may include repair equipment, bikes, and company vehicles.

Common Situations Business Insurance May Cover for a Bike Shop

Example 1: During a test ride, a customer seriously injuries themself in a crash and decides to sue. While a court may rule in your favor because the customer took on certain risks by riding the bike, general liability insurance would cover your legal fees and any damages awarded in a settlement.

Example 2: As an employee demonstrates a bike’s fast rate of acceleration, he loses control and hits a customer’s car. General liability insurance would pay for the customer’s vehicle repair costs.

Example 3: A competitor claims your marketing campaign defames their shop and decides to sue. Your general liability insurance would cover your legal fees and any damages awarded in a settlement.

Other Types of Coverage Bike Shops 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 bike shops should obtain:

Commercial Property Insurance

You’ve made major investments in your inventory of bicycles and cycling accessories. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire or other natural disaster. Commercial property insurance would cover the cost of replacing your lost inventory after an accident so you can recover quickly.

Product Liability Insurance

While your customers assume a certain level of risk when riding your bikes, there’s always a chance someone may file a lawsuit if they believe one of your products harmed them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in the event of a lawsuit.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. 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 benefits stemming from a work-related accident.

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 if you have employees.

Read our Bike Shop Business Insurance article for more info.

Generally speaking, opening a bike shop can cost anywhere between $10,000 and $350,000.

You will need to obtain the required business license and permits, lease a storefront, and purchase all of your initial inventory.

Your largest maintenance cost will likely be your employees’ salaries (if applicable), as well as the repair and maintenance of your bikes.

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

Some of the operating expenses for a bike shop include rent, inventory, payroll, and marketing costs.

Learn more about running a bike shop.

Bike shops make money by selling bikes and bike accessories. Some also offer bike repair services.

Learn more about starting a bike shop.

Bike shops typically carry a wide variety of bikes as well as things like helmets and bike parts.

Startup costs for a bike shop can vary depending on its location and the size of the shop. While this can be a considerable expense, the markup on bikes can be substantial, which keeps profit margins high. The average profit margin for a successful bike shop is around 40%.

Learn more about starting a bike shop.