Should I Start an LLC for My Bubble Tea Business?

Starting a limited liability company (LLC) for your bubble tea 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 bubble tea business, lawsuits can arise from things like an employee injuring themselves during work or a customer accidentally choking while drinking a bubble tea in your store.

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

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

Five cups of different flavored bubble tea

Do I Need an LLC for a Bubble Tea Business?

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 Bubble Tea Business

By starting an LLC for your bubble tea 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.

Bubble tea businesses will benefit from liability protection because of the risk of product liability, workplace accidents, trademark infringement, and financial data breaches.

Example 1: One of your employees accidentally makes a customer the wrong bubble tea order, and they experience an allergic reaction to one of the ingredients. The customer’s insurance company sues to cover the resulting medical expenses. Limited liability from your LLC status protects your personal assets from being used to pay for the expenses.

Example 2: While waiting for their order, a customer trips over furniture and breaks their foot. The customer is threatening to sue you over their injury. Since your business is an LLC, your personal assets are protected so only your business’ assets could be used to pay the settlements.

Example 3: An electrical fire breaks out in your business and spreads to a neighboring storefront. Your business neighbor demands you pay for the damage done to their store. Your personal assets could not be seized to pay for the damage because of limited liability from your status as an LLC.

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 Bubble Tea 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 bubble tea 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

Bubble tea 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?

Yes, all businesses need insurance because of unexpected fees and costs that can be involved with liabilities and damage. Limited liability as an LLC can only protect the owner’s assets, so business’ need insurance to protect the business itself. Bubble tea businesses need insurance because serving customers can lead to issues, whether it be due to allergies, choking, or falling. Insurance can help mitigate the costs associated with these problems.

Common Situations Business Insurance May Cover for a Bubble Tea Business

Example 1: One of your customers slips on spilled liquid and sustains a head injury, which requires them to stay home from work for two months. General liability insurance would cover any medical expenses, legal fees, and/or settlements related to the accident.

Example 2: A customer takes one of your products home and leaves it out for someone to eat. That person is allergic to an ingredient in the product. General liability insurance will usually cover illnesses that are brought on by one of your products.

Example 3: You take your equipment off-site for a special event, and while you are carrying it inside, you drop it and injure an employee of the venue. The venue does not cover all of the costs of that person's injuries. General liability insurance may cover medical expenses related to the incident as well as protect you from any lawsuits brought by the venue or the employee.

Other Types of Coverage Bubble Tea 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 bubble tea businesses should obtain.

Workers’ Compensation Insurance

Workers' compensation insurance is typically legally required of a business that has part-time or full-time employees. It covers expenses related to on-the-job incidents such as burn injuries or illnesses that are contracted from handling raw food materials.

Commercial Auto Insurance

If you have company vehicles that are used for business, then you need the protection of a commercial auto insurance plan. This will protect against damage to the company vehicle or other property that occurs while an employee is driving. This is an especially important insurance package to have if you do off-site catering events.

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 Bubble Tea Business Insurance article for more info.

Depending on your location, and the product mix involved, you could spend as little as $15,000 or as much as six figures on startup costs. The low cost can involve adding used equipment to a section of an existing store that might sell pastries, cookies, smoothies, coffee, books, gifts and souvenirs, etc. The majority of ongoing expenses will be for ingredients and appliance upkeep.

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

Some of the main operating expenses for a bubble tea business are rent, payroll, and inventory.

Learn more about running a bubble tea business.

Bubble tea businesses primarily make money by selling bubble tea, but some establishments sell other food and drink items.

Learn more about starting a bubble tea business.

The best markets for a bubble tea business usually have a lot of younger customers, such as college students. You can choose to start your own bubble tea brand or buy an existing franchise. Each of these options has pros and cons as well as different startup expenses.

A successful bubble tea business could have gross profit margins of around 80%.

Learn more about starting a bubble tea business.