Last Updated: February 16, 2024, 1:42 pm by TRUiC Team

Should I Start an LLC for My Hookah Lounge?

Starting a limited liability company (LLC) for your hookah lounge 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 hookah lounge, lawsuits can arise from things like a guest getting injured due to a slippery floor, insurance disputes as a result of damaged property, or contact law violations.  

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

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

Do I Need an LLC for a Hookah Lounge?

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 Hookah Lounge

By starting an LLC for your hookah lounge, 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.

Hookah lounges will benefit from liability protection because of the risk of product liability, burns and scalds, workplace accidents, financial data breaches, and more. 

Example 1: An unsteady table in your lounge breaks, causing hot coals to fall onto a customer. They sue you for the resulting medical expenses. Your personal assets can’t be taken in the settlement since limited liability from being an LLC protects them.

Example 2: A hookah is improperly taken care of, and a fire starts, spreading to nearby businesses. The affected businesses demand you pay for the fire damage. Since your business is an LLC, your personal assets cannot be used to pay for the damage.

Example 3: A customer trips over some furniture and ends up with a fractured collarbone. They ask that your business pays for the medical bills. As an LLC, limited liability ensures that your personal assets cannot be used to pay for the bill.

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 Hookah Lounge

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 hookah lounge 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

Hookah lounges 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 loansgrants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

  • You can hire a professional 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 limited liability protection from being an LLC protects your personal assets, not your business assets. 

Insurance will protect your business’s assets should anything go wrong, such as a customer getting injured in your lounge or a fire breaking out on your property.

Common Situations Business Insurance May Cover for a Hookah Lounge

Example 1: A customer with norovirus uses your hookah, after which the mouthpiece is not properly cleaned. If there’s an epidemic of norovirus that breaks out due to your hookah lounge, you can use general liability insurance to cover claims that arise.

Example 2: A small business in the area sues your hookah lounge because your name closely resembles theirs. Your general liability coverage protects you from having to pay the full legal costs in the event of a serious lawsuit.

Example 3: Your landlord requires you to have general liability as a condition of renting out the space. General liability can help you get the location you want to ensure your business’s success.

Other Types of Coverage Hookah Lounges 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 hookah lounges should obtain.

Commercial Property Insurance

For hookah lounges that own their own space, commercial property insurance is available to protect the grounds and building from natural disasters and criminals alike. This insurance will provide the funds to rebuild or repair the land so that business owners won’t have to pay a handyman or construction company out of their own profits.

Business Interruption Insurance

Business interruption insurance covers businesses that need to close for an extended period of time. So if an electrical fire causes the business to be closed for three months while being repaired, a business owner has a way to recoup some of the income that they will lose due to the closure. Hookah bars are dependent on the foot traffic they receive, so this type of insurance can help owners stay afloat while they wait for the repairs to conclude.

Workers' Compensation Insurance

If your hookah lounge 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 case they get injured on the job.

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.

A hookah lounge costs about $40,0000 to start. This includes having a retail space, licensing, and insurance. Other costs include sourcing hookahs and shisha (flavored tobacco). Typically, a lounge will carry between 10 and 30 hookahs, each costing as much as $150.

Normally, a hookah lounge will cost about $2,000 to $3,000 per month. A 50-gram container of shisha can cost $10 and can be split across multiple hookahs, resulting in a profit of about $100.

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

Operating costs for a hookah lounge include rent, payroll, shisha and hookahs, and insurance.

Learn more about running a hookah lounge.

Hookah lounges make money by charging customers to smoke shisha. They can also sell food and beverages.

Learn more about starting a hookah lounge.

Hookah lounges, also called shisha bars, are a popular alternative to typical bars or restaurants. A hookah lounge can have a quiet, laid-back atmosphere, or you could opt to open a more lively business with a party-like atmosphere (or a mix of both). 

If you can attract clients and keep them coming back, a hookah lounge can be quite profitable. A successful hookah lounge can make more than $150,000 per year. 

Learn more about starting a hookah lounge.

Related Articles

Article Sources

IRS: Limited Liability Company

IRS: S Corporations


SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business