Should I Start an LLC for My Leather Business?

Starting a limited liability company (LLC) for your leather 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 leather business, lawsuits can arise from things like false advertising allegations (i.e., from selling fake leather, etc.) as well as from accruing business debt.

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

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

A leatherworker doing stitch work on leather

Do I Need an LLC for a Leather 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 Leather Business

By starting an LLC for your leather 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.

Leather businesses will benefit from liability protection because of the risk of product liability, trademark infringement, and even workplace accidents.

Example 1: While entering your leather store, a customer slips and hits the side of their head on one of your counters, which leads to a severe cut wound. When they ask you whether you could pay for their medical bills, you refuse — claiming that the damage was not a result of your personal negligence — and proceed to ban them from your store. If a lawsuit were to arise, your personal assets would remain protected regardless of how the claim progressed as a result of your limited liability in law.

Example 2: After continuous, increased demand, you decide to hire a full-time employee to help you run your leather business. If you are unable to pay them in the future, they will be unable to file a breach of contract lawsuit against you personally if your business is registered as an LLC.

Example 3: You apply for a large business loan in order to start a second leather store. Since you didn’t personally guarantee the loan during its application, the lending party will not be able to sue you personally in order to recoup their investment if your business is unable to repay them.

Example 4: A company sues you, claiming that your new tagline infringes on one of their trademarked phrases.

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 Leather 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 leather 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

Leather 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 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 the limited liability protection from an LLC protects your personal assets, not your business assets.

If your business faces a slander or negligence lawsuit, for example, your business’s assets will only remain protected if you have purchased the right insurance coverage policies.

Business insurance may also be legally required if you plan to hire employees, depending on your state.

Common Situations Business Insurance May Cover for a Leather Business

Example 1: While visiting your operation, a store owner that wants to carry your leather line falls and injures her back. She is suing your company for the cost of her medical expenses and additional damages. General liability insurance would pay for legal representation and awarded damages.

Example 2: Another local leather artist is suing you, claiming you stole one of her designs. General liability insurance should cover the cost of representing you in court.

Example 3: While unloading merchandise for a local art fair, you accidentally knock over a neighboring artist’s display. They have brought a lawsuit against you for damages and lost revenue. Your general liability policy should cover their expenses and represent you in court.

Example 4: You must show evidence of liability insurance as part of the application to take part in a weekly art market. General liability insurance should fulfill that obligation.

Other Types of Coverage Leather 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 leather businesses should obtain:

Commercial Property Insurance

Businesses purchase a commercial property insurance policy to protect their investments. Should a loss occur, the policy would pay to repair or replace owned physical property, as well as any business-owned assets kept onsite. A loss could include incidents such as windstorms, thefts, or fires.

Inland Marine Insurance

When purchasing your business policy, be sure to discuss coverages and exclusions. If you travel off-site with your business tools, an inland marine policy may be necessary. Inland marine insurance insures business property, equipment, and tools when taken off the premises. It fills a coverage gap where commercial property insurance may leave off.

Product Liability Insurance

Entrepreneurs in the business of manufacturing, supplying, or selling products should consider including product liability insurance in their business owner's policy. If someone claims illness or injury from your product, they could name you in a lawsuit. The policy would ensure your coverage for legal fees as well as damages awarded by the court.

Workers’ Compensation Insurance

This state-mandated policy provides coverage for employees who fall ill or get injured while on the job. Workers’ compensation insurance covers the employees’ medical bills and lost wages. It also covers the business owners’ legal fees should an employee bring a lawsuit against them for the incident.

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 Business Insurance article for more info.

The costs required to start a leather business will depend on your specialty. If you are selling pre-crafted items online from your home, most of your budget will need to be allocated toward stocking up on materials.

You will also need to purchase handbags, gloves, and other small leather items that you will be selling.

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

Operating expenses for a leather business can include preparing the leather for production, making the products, insurance, and potentially payroll.

Learn more about running a leather business.

Leather businesses make money by selling leather products to customers.

Learn more about starting a leather business.

A leather business sells leather goods to customers, typically clothing, bags, boots, and other accessories. Some leather businesses make their own products, while others buy already-made products from wholesalers.

The average profit margin for a leather business varies considerably depending on the type and quantity of products it sells. Some items can sell for under $10, while other custom items can cost several thousand.

Learn more about starting a leather business.