Should I Start an LLC for My Locksmith Business?

Starting a limited liability company (LLC) for your locksmith 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 locksmith business, lawsuits can arise from things like an employee injuring himself or damaging a customer’s property in the process of installing a lock.

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

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

Do I Need an LLC for a Locksmith 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 Locksmith Business

By starting an LLC for your locksmith 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.

Locksmith businesses will benefit from liability protection because of the risks associated with customers visiting physical business locations, the potential for property damage, as well as other general business risks.

Example 1: An employee is using a hammer to break open a lock when the hammer slips and hits the locksmith in the leg, causing a serious injury. If the employee sues the business for damages, limited liability protection will ensure that the owner’s assets are not affected.

Example 2: An employee is working in a confined space, such as a crawlspace or attic, and suffers from heat stroke due to the high temperatures and lack of ventilation. Following this, the employee sues the business. If found liable, only the business’s assets will be used to pay for any compensation.

Example 3: An employee is using a power drill to open a lock when the drill slips and damages the door. The client proceeds to sue the business for the resulting damages. If found liable, limited liability protection will safeguard the owner’s assets from any fees associated with the lawsuit.

Example 4: While installing a lock, an employee accidentally causes damage to the customer’s door. The customer asks that you cover the repair costs.

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 Locksmith 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 locksmith 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

Locksmith 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.

Insurance can help protect a locksmith business from financial losses and liabilities that may arise due to various risks and hazards. Locksmith businesses rely on a variety of equipment, such as power tools and chemical products, to operate, and insurance can help cover the costs of repairing or replacing damaged or lost equipment.

Common Situations Business Insurance May Cover for a Locksmith Business

Example 1: A customer is in your showroom looking at new locks for their home when he trips over a cord and falls into a display unit. He breaks his wrist in the fall and hits his head as well. Your general liability insurance policy will likely cover his medical costs and your legal fees if there is a lawsuit.

Example 2: You rent out basic tools to help customers who want to install their own locks. As an employee demonstrates how to use a drill, she accidentally slips and sends the drill bit into your customer’s hand, seriously injuring them. General liability coverage will likely pay for their medical bills if you file a claim.

Example 3: While transferring a heavy inventory item from your storage unit onto the sales floor, an employee loses control of his dolly. It hits a customer’s brand-new luxury vehicle and causes extensive damage to the passenger door. Your general liability insurance policy will likely pay for any necessary repairs.

Other Types of Coverage Locksmith 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 locksmiths should obtain:

Commercial Auto Insurance

Making house calls is a huge part of your business and requires that you spend a good deal of time on the road. While you may use a personal vehicle for some job duties, your personal car insurance policy will not provide protection if you’re involved in a work-related accident. Commercial auto insurance is the best way to make sure that your company's cars and employees are covered in the event of an accident.

Workers’ Compensation Insurance

Workers’ compensation insurance is a required coverage in most states for businesses that have employees. If one of your employees is injured while on the job, this coverage will help to cover their medical bills. Additionally, if they can’t return to work right away, they may be able to receive disability benefits.

Commercial Property Insurance

Maintaining a full inventory is important to your business. Additionally, your specialized equipment, tools, computer system, and office furniture make it possible to keep up with the demand of your customers. If any of these items are damaged in a fire or other accident, you will likely need to replace them as soon as possible. Commercial property insurance will cover the cost of repairing or replacing these essential business items.

Commercial Umbrella Insurance

If your primary insurance limits are exhausted by an accident claim or a lawsuit, and you don’t have a backup plan, you could then be responsible for covering any remaining fees on your own. Commercial umbrella insurance is designed to step up in these situations to go beyond your primary policy limits and protect your business.

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 auto insurance, and commercial property insurance.

Read our Business Insurance for Locksmiths article for more info.

Starting a locksmith business can be relatively affordable, with initial startup costs ranging from a few hundred dollars for basic equipment to between $5,000 and $10,000 for a full-time operation with a wide range of services. This may include expenses for equipment, specialized tools, and a vehicle for emergency on-site services.

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

Ongoing expenses will include the cost of company vehicle maintenance, tool maintenance, and employee wages.

Learn more about running a locksmith business.

Money is made by charging clients for the design and installation of locks in addition to performing a variety of other lock-related tasks including the creation of keys, helping individuals who are locked out, and servicing security systems.

Learn more about starting a locksmith business.

Locksmiths are involved with all things locks, including the picking, designing, installing, and maintenance of locks. A locksmith’s clientele can be diverse and range from residential, commercial, and public institutions including schools, hospitals, and apartment buildings.

A single-person locksmith team has the potential to make as much as $60,000 a year.

Learn more about starting a locksmith business.