Should I Start an LLC for My Catering Business?

Starting a limited liability company (LLC) for your catering 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 catering business, lawsuits can arise from things like one of your employees showing up late to an event, offering lower-quality food than expected, or an employee getting injured while on the job.

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

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

A person in a suit in front of an upscale dining table

Do I Need an LLC for a Catering 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 Catering Business

By starting an LLC for your catering 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.

Catering businesses will benefit from liability protection. In order to run a catering business successfully, good food sanitation practices are essential. A catering business that gets its clients ill by serving contaminated food could face significant problems.

Example 1: You showed up late to a catering event, which “ruined” it. Because of this, the event planners are now suing your LLC for damages. In this situation, liability protection will keep you from losing your personal assets in the lawsuit.

Example 2: One of your workers had an accident while on the job, which made them unfit to work again. If they sue you for compensation for the injury, LLC protection will keep your personal assets safe.

Example 3: You borrow money to start a catering business with hopes of repaying it when your business booms. Unfortunately, you were unable to repay the debt because of unforeseen circumstances. Having an LLC will protect your private assets since you did not personally guarantee the loan.

Example 4: Many customers at a banquet your business catered complained that your food gave them food poisoning. The event’s organizational team decides to pursue legal action, and regardless of the cause of illness, you will need to pay expensive legal fees to defend your business.

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 Catering 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 catering 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

Catering 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 trusted 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, LLCs require insurance to protect the assets of the business. Most catering equipment, for example, is costly and must be insured against the possibility of damage or loss. While LLCs can safeguard individual possessions, business insurance protects commercial properties. g firm, such assets can include financial capital, land, company vehicles, and furniture.

Common Situations Business Insurance May Cover for a Catering Business

Example 1: While making a delivery to your kitchen, a food vendor cuts his hand on a protruding countertop edge. Because his injury requires surgery and several weeks off work, the vendor sues your company. General liability insurance would cover the vendor’s medical bills and lost wages, as well as your legal fees.

Example 2: While working an event in a local party space, one of your employees loses control of a handcart, and it crashes into a wall. The building owner sues for damages, which include a large hole in the wall and some broken artwork. General liability insurance would cover the cost of repairing and/or replacing the damaged items.

Example 3: During an event, an employee leaves a drink spill unattended while retrieving equipment to clean the floor. A guest slips on the spilled wine, breaks her arm, and then sues your company and the building owner. General liability insurance would cover your legal fees and any damages awarded in a settlement.

Example 4: As part of an event contract agreement, your business must provide evidence of liability insurance for a minimum of $1 million.

Other Types of Coverage Catering 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 catering businesses should obtain:

Commercial Property Insurance

If you own the kitchen from which you operate, you’re responsible for all business-related property housed there in the event of a fire, burglary, or natural disaster. Commercial property insurance would cover the cost of repairing or replacing your building, expensive kitchen equipment, and party planning accessories after an accident so you can recover quickly.

You can typically purchase commercial property insurance as part of a business owner's policy (BOP).

Commercial Auto Insurance

More time on the road traveling to and from event sites means a greater risk of auto accidents. 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 special equipment you carry in your vehicles. Also, consider purchasing coverage higher than the state-mandated minimum coverage to safeguard your business from the unknown.

You can purchase commercial auto insurance as part of a business owner's policy (BOP) or as a standalone 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 or death benefits stemming from a work-related accident.

While many states allow business owners to exempt themselves from coverage, skip this option if you plan to participate in the daily operations of your catering business.

Liquor Liability Insurance

Unfortunately, incidents often occur in the presence of alcohol. Liquor liability insurance can protect your business in the event of alcohol-related incidents, including fights, accidents, and falls. It also covers your legal fees for any related lawsuits.

Product Liability Insurance

Your clients expect you to serve fresh, high-quality food at every catered event. Unfortunately, you may sometimes face an issue or situation out of your control. Product liability insurance covers your business should a product you serve lead to injury or illness.

Because insurers tailor product liability policies to individual businesses and the products they serve or sell, be sure to consult with an insurance professional for guidance on the right policy for your company.

Commercial Umbrella Insurance

The catering profession exposes business owners to a variety of liability risks. 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.

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 potentially professional liability insurance.

To get a catering business off the ground, you will need a significant amount of capital to either rent or buy a space for a commercial kitchen. You should also set aside funds for a truck, employee wages, and expensive catering equipment.

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

Ongoing or operating expenses will include supplies, employee wages, and payments for various types of insurance.

Learn more about running a catering business.

Catering businesses make money by catering to special events, such as weddings and birthday parties. However, many have contracts to supply corporate establishments, schools, and other organizations.

Learn more about starting a catering business.

Catering businesses serve food and drink, typically at large public events and smaller private ones. Before starting a catering business, you should have acquired good organizational skills and knowledge of food preparation.

Profit margins vary in the catering service sector. Some establishments are able to make about 25%, while others barely clear expenses. But, the average profit margin is 7% to 8%. According to Schmoop, caterers can earn between $30,000 and $80,000 a year.

Learn more about starting a catering business.