Do I Need an LLC for My Children’s Book Business?

Starting a limited liability company (LLC) for your children’s book 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 children’s book business, lawsuits can arise from things like copyright infringement claims (e.g., distributing a book without receiving consent from the right owner, etc.).

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

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

teacher reading a childrens book to her classroom

Should I Start an LLC for a Children's Book 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 Children's Book Business

By starting an LLC for your children's book 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.

Children's book businesses will benefit from liability protection because of the risk of product damage, workplace accidents, trademark infringement, and libel.

Example 1: Your children’s book business LLC pays out large advances to writers, and descends into cash flow insolvency. Creditors threaten to sue when their bills go unpaid. Rest assured they cannot go after your personal assets. You are not compelled to pay the debts; they are LLC obligations.

Example 2: Your children’s book business LLC takes on debt capital from a large investor. A slump in the book trade causes you to miss payments. To recover, the investor must call in the loan from the LLC. Any attempt to obtain a judgment against your personal assets is likely to fail.

Example 3: You decide to close your children’s book business LLC and try another line of business. However, the LLC has a number of unpaid debts. If the LLC is unable to pay, creditors cannot pursue your personal assets. The LLC, not you, is the legal entity indebted.

Example 4: An illustrator sues your business, claiming that you don’t have the proper permission to use their illustrations in some of your marketing campaigns.

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 Children's Book 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 children's book 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

Children's book 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, all businesses need insurance because of the risks they are exposed to. Children's book companies will need general liability insurance to guard against damage to property and injury to anyone on their premises. Liability insurance may also cover medical bills, as well as legal costs.

LLCs protect personal assets. Business insurance protects business assets.

Common Situations Business Insurance May Cover for a Children's Book Business

Example 1: While touring your business, an author trips and falls, breaks an arm, and decides to sue your company. General liability insurance would pay for your legal defense costs and any required settlement.

Example 2: During an office visit, a distributor slips and falls in your restroom. He sustains a concussion and asks you to pay for his medical treatment. General liability insurance would cover his medical bills.

Example 3: A competitor sues your business for libel. While you disagree with the claim, you want to hire an attorney to protect your interests. General liability insurance would pay for your legal defense costs.

Other Types of Coverage Children's Book 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 children’s book businesses should obtain.

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.

Product Liability Insurance

While you strive to ensure the books you sell bring joy and educational opportunities to your customers, there’s always a chance someone might claim one of your products caused them harm. In the event of a lawsuit, product liability insurance would cover your legal defense costs and any required settlement.

Commercial Property Insurance

You made a major investment in the real estate, equipment, and supplies needed to establish your business. 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 the business materials you store there.

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.

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 Business Insurance for Children's Book Businesses article for more info.

Starting out in business as a publisher of children’s books could set you back between $5,000 and $10,000. The major part of that cost will be the actual production of the books. But you will need to spend a sizable sum on promotion, as well.

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

Ongoing expenses for a children’s book business will consist mainly of rent, inventory, and employee wages. But other expenses, such as an inventory management system, may also be necessary.

Learn more about running a children's book business.

Children’s book businesses make money by purchasing books from publishers at a discounted price and selling those books at list price.

Learn more about starting a children's book business.

A children’s book business buys books from publishers and wholesalers and sells them to the public. Usually, a publisher will print a sales price on the book cover. The price to the bookseller will be a discount of 30% to 45% to that printed price.

Gross profit margins on books run in the range of 30% to 45%. Consequently, in order to turn a profit, expenses must be kept down.

Learn more about starting a children's book business.