Should I Start an LLC for My Gem Sales Business?

Starting a limited liability company (LLC) for your gem sales 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 gem sales business, lawsuits can arise from things like an employee misrepresenting customers (e.g., selling unauthentic gems, etc.) or from insurance disputes as a result of stolen or damaged property claims.

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

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

Do I Need an LLC for a Gem Sales Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start 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 Gem Sales Business

By starting an LLC for your gem sales 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.

Gem sales businesses will benefit from liability protection because of the risk of being sued for issues related to the gems they sell, as well as the risk of things like workplace injuries and libel claims.

Example 1: A wholesaler gives you gemstones on credit to sell and return capital as a starter. Three months later, burglars loot your shop and steal some gems. You are unable to pay the wholesaler. If the wholesaler sues you, your LLC status will limit the compensation responsibility to your business assets alone.

Example 2: While showing a customer your gem collection, you mistakenly hit a glass display case, which falls and smashes. Particles from the shattered glass injure your customer, and he sues you for damages. In this case, your LLC status will ensure that only your business assets are held responsible for compensation.

Example 3: You rented a shop for your business, indicating that the store was rented by the business rather than you, and you did not sign as a guarantor. Two years later, you are unable to pay the store rent due to a sales decline. If the store owner sues, only your business will be affected and not you.

Example 4: A customer sues you, claiming the gems that you sold them are fakes and that you overcharged them.

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 Gem Sales 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 gem sales 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

Gem sales 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 dependable 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?

All businesses need insurance. As important as it is to protect the owner’s personal assets through limited liability, it is also essential to protect the business’s assets with insurance.

Insurance protects gem sales businesses against risks such as burglary, property damage, and legal issues.

Common Situations Business Insurance May Cover for a Gem Sales Business

Example 1: As you showcase a new order of expensive gemstones to a client, you reach up to a high shelf to grab a large gem and accidentally knock the shelf off the wall and on top of your client. He sustains a serious head injury and must take an ambulance to the emergency room. General liability insurance would cover your client’s medical expenses and the legal fees if he decides to sue.

Example 2: You write a blog to help attract new customers and boost your company’s ranking on popular search engines. When one of your blog posts criticizes how other gem sales businesses handle aftercare for their clients, a competitor sues you for libel. General liability insurance would pay for your legal defense costs and any associated settlement.

Example 3: As you accept a large order of new inventory, your loading dock door malfunctions and causes extensive damage to the delivery van. General liability insurance would pay to repair the damaged vehicle and cover your legal defense in the event of a lawsuit.

Other Types of Coverage Gem Sales 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 gem sales 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 workplace accident.

Commercial Auto Insurance

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 business materials you carry in your vehicle.

Home-Based Business Insurance

If you run your business from your home, you may need home-based insurance to safeguard your business property and the space in your home devoted to your company. A typical homeowner’s insurance policy may not cover business-related items or medical expenses and legal fees associated with any client injuries that occur in your home.

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 article for more info.

First, you will need to secure a few wholesale options for your gemstone and make some initial purchases to display items for customers. You will also need to purchase a business license and insurance and invest in online advertising to make customers aware of your new business.

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

Most ongoing expenses for gem sales businesses concern how they buy and sell gemstones, including travel costs and website maintenance. Other recurring costs may include employee salaries, rent and utilities, and marketing.

Learn more about running a gem sales business.

A gem sales business primarily makes money by selling gemstones at a profit. Some gem sales businesses also take custom orders for gemstone items.

Learn more about starting a gem sales business.

A gem sales business buys gemstones and sells them for a profit, either as-is or as part of a custom jewelry order. These businesses can make a good profit if they can establish a niche and find a loyal customer base.

Learn more about starting a gem sales business.