Should I Start an LLC for My Clothing Boutique?

Starting a limited liability company (LLC) for your clothing boutique 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 clothing boutique, lawsuits can arise from things like contract disputes (e.g., ordering too much stock from a garment factory and needing to update your contract, etc.), or from trademark infringement allegations.

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

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

Do I Need an LLC for a Clothing Boutique?

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 Clothing Boutique

By starting an LLC for your clothing boutique, 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.

Clothing boutiques will benefit from liability protection because of the risks involved with operating a retail store, which include product liability, workplace accidents, and financial data breaches.

Example 1: One of the clothing lines created by your clothing boutique uses a trademark-protected combination of colors that is used by a very popular brand. As such, this brand decides to sue your company for copyright infringement, alleging that its property is being used with permission. As long as you didn’t have knowledge of this infringing activity, you cannot be held personally liable for it.

Example 2: Your clothing boutique signs a contract with a garment factory to receive a quota of shipments every month in order to make its new clothing line. However, you quickly realize that your business cannot meet its targets and have ordered too much stock from the factory. Upon communicating that you cannot meet you contractual obligations to the factory, you receive a lawsuit for breach of contract. Limited liability would prevent your personal assets from being at risk.

Example 3: You decide to let go of one of the designers for your clothing boutique since their designs have been very unpopular with customers. However, the designer believes that they have been dismissed in a way that breaches their contract, and thus sue your business for wrongful dismissal. In this instance, liability to pay damages to the plaintiff can only be imposed on the business’s assets.

Example 4: A customer in your clothing boutique slips on a recently mopped floor and breaks their wrist. They ask you to cover their medical bills.

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 Clothing Boutique

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 clothing boutique 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

Clothing boutiques sometimes 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?

Naturally, LLCs need to own insurance, just like all other businesses. Clothing boutiques require insurance because they are exposed to a unique set of liabilities which they need to protect their assets from.

As such, insurance is used as a tool to protect a business’s assets in a similar vein to the way in which limited liability protects the personal assets of an LLC’s owner.

Common Situations Business Insurance May Cover for a Clothing Boutique

Example 1: One of your customers leaves a pair of slacks with you to be altered. During the alteration process, the clothing is damaged beyond repair. Should the customer opt to sue you, your general liability policy would kick in and pay for costs associated with this claim.

Example 2: A customer is interested in trying on a sweater that is displayed on the top shelf. A boutique employee asks the guest to wait for assistance and walks away to grab a small ladder. Instead of waiting, the customer reaches for the sweater, causing a nearby display to fall on their head. Your policy will recover costs related to the ensuing lawsuit.

Example 3: Heavy rain occurs during a busy Saturday shift, causing customers to track in water and mud. To reduce potential exposure, you place a welcome mat by the front door for guests to wipe their feet. As a customer is rushing to get out of the rain, she slips and falls, breaking her wrist while trying to catch her fall. Even though you took all necessary precautions to avoid such an incident, the disgruntled customer sues your business. Your policy will cover charges associated with the lawsuit.

Other Types of Coverage Clothing Boutiques 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 clothing boutiques should obtain.

Crime Insurance

This coverage offers another layer of protection for your inventory and cash register contents. If an employee steals out of the cash drawer or a customer shoplifts several pieces of jewelry, Crime Insurance will help reduce the effects of these losses.

Commercial Property Insurance

If you own your location instead of renting, you need commercial property insurance to protect the building. If your business is based out of your home, your homeowners' insurance will not cover the home when it is being used for commercial purposes. Property insurance also covers items owned by your business.

This coverage is generally offered in a business owner’s policy (BOP).

Workers' Compensation Insurance

If your clothing boutique has any employees (full-time or part-time), you are legally required to carry workers’ compensation insurance. This type of coverage will help compensate your employees in the case they get injured on the job.

Business Interruption Insurance

In the event of a fire, flood, or other catastrophes, there is a good chance your business operations will be halted for some time. Business interruption coverage is designed to help you recoup a portion of the revenue your business would lose due to the inability to operate.

This type of insurance is typically included in a business owner’s policy.

Commercial Umbrella Insurance

Umbrella coverage allows you to extend above and beyond the standard limits of your other business insurance policies. If you are faced with a large lawsuit or other claim situation, there’s a possibility that the coverage limits of your standard policies will be insufficient. In this case, your umbrella policy will allow you to surpass these limits.

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 Business Insurance for clothing boutiques article for more info.

The startup cost of your clothing boutique will vary based on the location and size of your store. That being said, you can expect to need between $150,000–$200,000 to get up and running. This sum should cover the costs of obtaining a storefront, utilities, and adequate insurance.

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

Some of the main operating expenses for a clothing boutique are rent, inventory, and utilities.

Learn more about running a clothing boutique.

Clothing boutiques make money by buying unique or specialty clothing at low prices and then marking them up to sell.

Learn more about starting a clothing boutique.

With high-profit margins, business owners could potentially find a lot of success in this industry. The average markup from wholesale prices is usually between 50% and 65% for clothing boutiques.

Learn more about starting a clothing boutique.