Should I Start an LLC for My Coffee Shop?

Starting a limited liability company (LLC) for your coffee shop 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 coffee shop, lawsuits can arise from things like a customer getting injured as a result of consuming hot coffee or from a server accidentally injuring themselves or a customer while working.

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

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

A coffee shop bar with multiple mugs of coffee

Do I Need an LLC for a Coffee Shop?

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 Coffee Shop

By starting an LLC for your coffee shop, 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.

Coffee shops will benefit from liability protection because of the relatively high risk involved with food and drink-related businesses, including the risk of product liability, burns and scalds, trademark infringement, and financial data breaches.

Example 1: While a customer is ordering at your coffee shop, he leaves his phone on the counter to go to the toilet. During this time, an employee of your shop trips and spills a large amount of hot coffee on the customer’s phone, irreparably breaking it. As a result, the customer sues your business for the property damage you are alleged to have caused. Limited liability would protect your personal assets if your business were found liable to pay damages to the plaintiff.

Example 2: An employee at your coffee shop mistakenly used cow milk in a customer’s order when they specifically asked for almond milk. Since the customer was severely lactose intolerant, he suffered a serious allergic reaction, which prompted him to sue your business for negligence. In this scenario, your personal assets would be kept safe from any liability levied against your business to compensate the plaintiff.

Example 3: Your coffee shop is the victim of a serious data breach after an employee leaves their work phone on the train. This results in the private and confidential information of several important clients being leaked to the public. Upon realizing this, one of the affected clients brings a data breach lawsuit against your business, alleging that its negligence led to this breach. You would be protected from being held personally responsible for damages by limited liability.

Example 4: A customer goes to take a sip of a coffee they just purchased, but one of your employees did not properly secure the lid. The coffee spills and burns the customer who requires medical attention.

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 Coffee Shop

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 coffee shop 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

Coffee shops 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?

As with all businesses, LLCs are required to own insurance. This is particularly important for coffee shops because they tend to own very expensive assets that need protection from the liabilities these businesses face.

Business insurance is used to provide a business’s assets with a safeguard from the liabilities it is exposed to, while limited liability provides an LLC’s owners with a safeguard from these liabilities.

Common Situations Business Insurance May Cover for a Coffee Shop

Example 1: A friend is visiting your new coffee shop when she stumbles on some uneven tile and bumps into your display shelves, bringing them down on top of her head. She is seriously injured and requires immediate medical attention. Your general liability policy will likely cover her medical bills.

Example 2: You’re bringing a few new chairs into the coffee shop, and a customer stops to let you pass by. As you back into the doorway with the dolly, you stumble and lose control of it. The dolly hits the customer, knocking her into the glass door and cutting her badly. She is angry and wants you to pay for her medical care. General liability insurance will likely cover her medical expenses and any possible legal fees.

Example 3: After interviewing a potential new barista, you give her a tour of the breakroom, where she slips and falls on the wet floor. There was no caution sign displayed, and she threatens to take you to court for her injuries, plus pain and suffering. Your general liability coverage will help pay for her medical bills as well as legal fees and any settlement costs.

Other Types of Coverage Coffee Shops 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 coffee shops should obtain.

Workers’ Compensation Insurance

Workers’ compensation coverage is required in most states for any business that employs part-time or full-time workers. With this coverage, your employees’ medical bills will be covered if they are injured on the job. If they can’t return to work, they may be eligible to receive disability benefits as well.

Commercial Property Insurance

If your business property is damaged in an accident, it can be nearly impossible financially to replace everything on your own. Commercial property insurance will work to repair or replace your equipment, supplies, and owned real estate so that you can get back to business as soon as possible and not have to pay out of pocket.

Product Liability Insurance

While your team works hard to offer the highest quality products to your customers, there is always the chance that a customer may claim that one of your products caused them to become ill or injured. With product liability coverage, you can rest easy knowing that your legal defense and any resulting settlement from a claim filed against you will be covered.

Data Breach Insurance

Offering a customer loyalty program is a great way to thank your long-time customers for coming back again and again. When they sign up for the program, they typically provide you with sensitive personal information that could be targeted by hackers. Data breach insurance can protect your business and offer an additional layer of financial protection in the event of a cyberattack and a resulting lawsuit.

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.

Read our Coffee Shop Business Insurance article for more info.

Plan for startup costs to reach between $80,000 and $250,000. This cost varies greatly depending on the location and size of the shop you decide upon. This figure should also cover the cost of specialist equipment such as espresso machines, espresso grinders, ice machines, and roasted coffee.

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

Some of the main operating expenses of a coffee shop are rent, labor, insurance, and supplies and equipment.

Learn more about running a coffee shop.

Coffee shops make money by selling coffee and sometimes food such as pastries and other prepared or made-to-order items.

Learn more about starting a coffee shop.

Coffee shops have never been more popular. Each day, millions of people start their day off with a cup of coffee, and many people enjoy a second (or third) cup in the afternoon. A coffee shop can be a successful business idea as long as there are people nearby.

Whether your business caters to busy professionals or offers a relaxing artisanal coffee experience, there is a lot of potential for quality coffee shops.

Learn more about starting a coffee shop.