Should I Start an LLC for My Grocery Store?

Starting a limited liability company (LLC) for your grocery store 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 grocery store, lawsuits can arise from things like accruing a large amount of debt as a result of not paying a vendor on time, food poisoning allegations, or employment law disputes.

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

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

Do I Need an LLC for a Grocery Store?

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 Grocery Store

By starting an LLC for your grocery store, 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.

Grocery stores will benefit from liability protection because of the relatively high risk involved with operating a retail store — especially one that sells food.

Example 1: A customer slips and falls in the store due to a wet floor that was not properly marked with a warning sign. Following this, the customer sues the grocery store for damages. Without liability protection, the owner's personal assets could be at risk if the business is found liable.

Example 2: A supplier delivers contaminated food to the store, and several customers become sick after consuming it. Following this, the affected customers proceed to sue for damages. Regardless of the court’s ruling, the owner’s personal assets will remain protected from any fees associated with the lawsuit.

Example 3: A shipment of spoiled milk is delivered to the store and causes several customers to get sick. The affected customers sue the business for damages. In this scenario, the LLC structure will protect the owner's personal assets, ensuring they are not at risk if the business is found liable.

Example 4: Someone gets sick from food that was improperly packaged or stored in your store. They sue your business for medical damages.

Another common risk for grocery stores is car damage caused by shopping carts in the grocery store parking lot.

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 Grocery Store

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 grocery store 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

Grocery stores 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 to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Having insurance can help to safeguard a grocery store’s assets and provide financial protection in the event of a lawsuit or other unexpected event, such as damage to the store’s property.

Common Situations Business Insurance May Cover for a Grocery Store

Example 1: The walkway into the grocery store is covered with ice, leading to a customer falling and injuring their head. General liability insurance may cover the medical bills for the injured customer as well as any other claims related to the incident from a lawsuit. It may also cover any settlements from the case.

Example 2: A customer purchases fresh chicken, eats it, and suffers an illness from food poisoning. The grocery store’s in-house butcher prepared the product but failed to follow proper sanitation rules, leading to the illness. The general liability insurance policy will likely cover the losses associated with the customer’s medical bills, lawsuits filed against the company related to the incident, and settlements related to it.

Example 3: A customer uses a curbside-pickup service offered by the grocery stores, but an employee mistakenly pushes a grocery cart against the vehicle, creating a significant dent in the vehicle, requiring the replacement of the vehicle’s side panel. The general liability insurance policy may help cover the costs associated with the repairs.

Example 4: A manager accuses a shopper of stealing, searches their bags, calls the police, makes claims to other customers that the theft occurred, and documents the incident. The police find no evidence of the crime, and surveillance video shows the manager was wrong. Still believing the manager is right, employees take to social media. The individual’s employer questions him. Even though he did nothing wrong, his reputation suffers harm. This could be considered slander if there is financial damage as a result. General liability insurance may help cover these losses.

Other Types of Coverage Grocery Stores 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 grocery stores should obtain:

Commercial Property Insurance

Nearly all grocery stores require commercial property insurance to aid in covering the building itself. This type of policy may also help cover equipment, inventory, and computer systems. It may also help cover expenses in the event of a fire or weather event. A simple storm could cause a wide range of damage to the building, putting inventory and equipment at risk. Most often, commercial property insurance is a component of a business owner’s policy (BOP). Any building owned by the company may benefit from this coverage.

Workers' Compensation Insurance

Grocery stores employing individuals may need workers’ compensation insurance. Some states require it if the location has a specific number of employees. However, it can help minimize financial loss to a company of any size. It provides coverage for on-the-job injuries. Employees may suffer injuries from using equipment or falling on wet surfaces. This policy can help to cover medical bills, lost time at work, and other associated financial losses.

Business Interruption Insurance

Grocery stores provide an important service to the community, making their operation valuable. A fire or other covered incident, though, can leave the location unable to operate for a significant length of time as repairs take place. Yet, they have financial obligations to vendors and employees during that downtime. Business interruption insurance may help cover those costs as well as cover a move to a secondary location if deemed beneficial. It can help the organization minimize loss during this time and maintain both employee and vendor contracts.

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 Grocery Store Insurance article for more info.

Starting a grocery store may require equipment costs of $70,000–$100,000, a point-of-sale system of $40,000, initial inventory of $160,000, pre-opening expenses of $10,000, grand opening advertising, security deposits, and working capital, potentially totaling over $500,000.

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

Payroll, inventory, utilities, rent, and insurance are some of the main operating expenses for a grocery store.

Learn more about running a grocery store.

Grocery stores make most of their money by selling a large volume of low-margin items. However, you can boost profits by selling smaller quantities of high-margin items as well.

Learn more about starting a grocery store.

Grocery stores never go out of style. People will always need to eat, and an increased interest in food and cooking is leading some people to prepare more meals at home.

There are various options for grocery stores, depending on your target market. You may want to open a large store with a wide variety of products, or maybe you plan to have a smaller neighborhood or specialty store.

Learn more about starting a grocery store.