Should I Start an LLC for My Clothing Line?

Starting a limited liability company (LLC) for your clothing line 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 line, lawsuits can arise from things like greenwashing or false advertising allegations (e.g., claiming that a line of products is a lot more environmentally sustainable than it actually is, etc.).

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

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

Do I Need an LLC for a Clothing Line?

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 Line

By starting an LLC for your clothing line, 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 lines will benefit from liability protection because of the risks involved of owning any business. This can include things like trademark infringement (particularly for any logos on your clothing), financial data breaches, and even workplace accidents.

Example 1: Your clothing line business suffers a devastating hack, and the personal and financial details of your customers are released publicly. One of the customers affected by this hack brings a data breach lawsuit alleging that your business has been negligent in properly storing this information. In this instance, your personal assets would be protected from any liability to pay damages that might be imposed on your business.

Example 2: In order to offset the high startup cost of setting up your clothing line business, you decide to take out a large loan. However, after several months of poor business performance, you realize your clothing line is not making enough money to be able to repay the loan. This prompts the creditor to sue your business for defaulting on the debt. Limited liability would protect your personal assets from any liability that is imposed on your business to settle this debt.

Example 3: While an employee is showing a potential investor around the store of your clothing line, the investor slips and falls on some water that hadn’t been cleaned up. After suffering a fractured tibia, the investor sues your business for the bodily harm he suffered on your premises, alleging the fault lies with you. If your business is found liable to pay the plaintiff damages, these can only be imposed insofar as the business’s assets will allow.

Example 4: You create a new shirt with a geometric pattern on the front. A different company claims this pattern closely resembles their logo and is now suing you.

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 Line

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 line 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 lines 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?

LLCs, like all businesses, need to own insurance. Clothing lines need insurance because they own a number of valuable assets, and these need to be protected from the liabilities of business.

Put simply, insurance provides businesses with a form of protection for their assets, while limited liability provides owners of LLCs with a form of protection for their personal assets.

Common Situations Business Insurance May Cover for a Clothing Line

Example 1: While touring your facility, a visitor trips over a cable, breaks an arm, and decides to sue your company. General liability insurance would cover your legal defense costs and any required settlement.

Example 2: When your employee accidentally knocks a visitor to the ground, the visitor breaks his tailbone and asks you to pay for his medical treatment. General liability insurance would cover the injured visitor’s medical bills.

Example 3: A competitor sues your business for libel. While you’re uncertain why she believes you libeled her business, you know you need a lawyer. General liability insurance would pay for your legal defense.

Other Types of Coverage Clothing Lines 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 lines should obtain.

Commercial Property Insurance

You made a major investment in your equipment, supplies, inventory, and real estate. 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.

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.

In addition to the policies outlined above, there are a few other types of coverage your clothing line business may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.

Product Liability Insurance

While you strive to ensure your clothing products satisfy 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 fees and any required settlement.

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.

Read our Clothing Line Business Insurance article for more info.

The startup costs of a clothing line all depend on the scale you envision for your business. A small business selling hand-designed shirts may only require $1,000. However, if you want to compete with some of the more well-known brands across the nation, don’t be surprised if you need a minimum of $500,000.

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

Operating expenses for a clothing line include marketing, design, and manufacturing costs.

Learn more about running a clothing line.

Clothing lines make money by designing and manufacturing clothing and selling it to customers.

Learn more about starting a clothing line.

A clothing line can start with just a couple of different T-shirts, or it could have many different pieces. The amount of money a clothing line can make varies greatly depending on the price of its clothes and how many it can sell.

Learn more about starting a clothing line.