Last Updated: May 14, 2024, 11:31 am by TRUiC Team

Should I Start an LLC for My Lemonade Stand?

Starting a limited liability company (LLC) for your lemonade stand 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 lemonade stand, lawsuits can arise from things like customers demanding medical damages after claiming that they got ill as a result of drinking your lemonade.

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

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

A glass of lemonade next to a pitcher and lemons

Do I Need an LLC for a Lemonade Stand?

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 Lemonade Stand

By starting an LLC for your lemonade stand, 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.

Lemonade stands will benefit from liability protection because food and beverage businesses, including lemonade stands, face a variety of risks associated with guests buying and consuming beverages from your stand. 

Example 1: After drinking lemonade from your stand, a customer gets severe stomach pain and demands that you compensate him as a result. Since there is no proof linking your lemonade to the customer’s pain, you refuse and ban him from ever buying lemonade from your stand again. If a lawsuit was to be filed against your LLC, your personal assets would remain safe as a result of your personal liability in law. 

Example 2: You hire three part-time workers to help run your lemonade stand on your most busy days. After two or three weeks, you begin to see a drop in revenue and are no longer able to pay your workers while sustaining a profit. If they were to sue your business as a result of not getting paid, you would not need to personally compensate them regardless of how the lawsuit progressed in court.  

Example 3: When a young student trips next to your lemonade stand and injures their wrist, their parents file a lawsuit against your business, seeking compensation. Regardless of the validity of the lawsuit, your personal assets will remain protected from the claiming parties as long as your business is registered as an LLC. 

Example 4: After finding a piece of plastic in their lemonade, a customer brings legal claims against your business.

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 Lemonade Stand

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 lemonade stand 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

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

As a lemonade stand owner, business insurance can protect your business’s assets (e.g., cart, etc.) from negligence or tort claims that employees or customers make against you.

Common Situations Business Insurance May Cover for a Lemonade Stand

Example 1: While purchasing a lemonade at your mobile stand, a customer trips over your stand and sustains injuries. General liability insurance could cover his/her medical bills.

Example 2: You want to sell your lemonade at a mall kiosk. The mall owner requires evidence of liability insurance as part of the lease agreement. A general liability policy should help fulfill this requirement.

Example 3: While moving your stand, the wheel falls off and causes a large gash in the paved parking lot. General liability insurance should cover the repair costs.

Example 4: A customer returns their purchased lemonade, claiming they found a piece of plastic in their drink. They name you in a lawsuit. Your general liability insurance should cover your legal costs and damages awarded by the court.

Other Types of Coverage Lemonade Stands 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 lemonade stands should obtain:

Home-Based Business Insurance

To save on overhead expenses, many small businesses operate out of their home. However, most homeowner's policies exclude business property and losses. This can leave businesses uninsured or underinsured when a property damage loss occurs. Business owners can check with their homeowner's insurance carrier to determine if an extension of coverage for an additional premium is available.

If not, you can purchase home-based business insurance as part of a business owner's policy (BOP).

Product Liability Insurance

Product liability insurance covers claims that arise from the manufacturing, distribution, and sale of your products. Customers who claim negligence on your part, regardless of merit, can sue you in a court of law. This coverage provides legal representation and pays damages awarded by the court.

Coverage is generally sold as part of a business owner's policy (BOP), which you can tailor to the unique needs of your business.

Business Interruption Insurance

Unfortunately, businesses often sustain commercial property losses that take months to recover from. To safeguard against financial devastation, many entrepreneurs choose to purchase business interruption insurance. This policy can help cover the costs of setting up at a temporary location, help with extra expenses, and supplement lost income during recovery time.

This insurance is generally offered as part of a business owner’s policy (BOP) package.

Commercial Auto Insurance

While personal auto policies exclude vehicles used for business purposes, the state mandates that a policy must be in place. To meet the state-mandated requirements, your business should purchase commercial auto insurance. This policy pays to repair or replace damaged owned autos, liability claims, lost equipment, and medical expenses.

Commercial auto insurance is generally purchased as a standalone policy. Some carriers can also write it as part of a business owner’s policy (BOP).

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 for Lemonade Stands article for more info.

You should be able to start a lemonade stand on a very low budget, but this will ultimately depend on your stand’s size and location. 

Your main costs include purchasing:

  • A stand or cart
  • Commercial-grade equipment for making and dispensing lemonade
  • Preparation materials (e.g., lemons, sugar, ice, etc.). 
  • Cups, straws, and napkins

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

Ongoing expenses include the cost of ingredients, licensing, and insurance costs.

Learn more about running a lemonade stand.

Profit is generated through the sale of lemonade to paying customers.

Learn more about starting a lemonade stand.

Sometimes in a fixed location, sometimes mobile, lemonade stands provide lemonade (and occasionally other cold beverages) to passersby.

In prime locations, lemonade stands have the potential to profit a large amount.

Learn more about starting a lemonade stand.

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