Do I Need an LLC for My Medicinal Herbs Business?

Starting a limited liability company (LLC) for your medicinal herbs 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 medicinal herbs business, lawsuits can arise from things like an inability to supply retailers with their contractually agreed-upon shipments as a consequence of a poor harvest.

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

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

Should I Start an LLC for a Medicinal Herbs 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 Medicinal Herbs Business

By starting an LLC for your medicinal herbs, 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.

Medicinal herbs businesses will benefit from liability protection because of the risk of product liability, trademark infringement, workplace accidents, and financial data breaches.

Example 1: You raise capital from wholesalers to invest in your farm with an agreement to supply them with herbs. Unfortunately, pests ravage your greenhouse, and you cannot refund or provide them with herbs as agreed. If they decide to sue, LLC will limit their lawsuit to your business only and protect your personal assets from liability.

Example 2: Your business sells herbs to a new customer with an assurance that his condition will improve within one month. Two months later, the customer returns infuriated, claiming that he has not seen any results. He demands a refund; you refuse, then he sues you. The lawsuit may affect your business, but your assets as the business owner will remain safe.

Example 3: A customer purchases herbs from you, but his body reacts badly to them, causing him to fall ill. He complains that you did not inform him of any side effects and demands that you pay his hospital bills. If he decides to sue for it, your business may be held responsible, but not you as the owner.

Example 4: A customer sues you, saying that you falsely advertised the health benefits of some of your herbs.

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 Medicinal Herbs 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 medicinal herbs 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

Medicinal herbs 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.

Medicinal herb businesses need insurance to cover risks such as the destruction of their medicinal plants and lawsuits from customers over claims of medical injury or false advertising.

Common Situations Business Insurance May Cover for a Medicinal Herbs Business

Example 1: A customer visits your shop looking for a gift and opens a sample bottle to get an idea of the scent. Upon inhaling the scent, they tip the bottle too close to their face and begin choking on the fumes, falling backward into your glass display shelves. General liability insurance will likely cover medical expenses, repair costs, and other damages in a lawsuit.

Example 2: New investors are touring your shop to get an idea of how your daily operations work. The tour takes place after hours during clean-up, and one of the investors trips over a vacuum cord, breaking their arm in the fall. General liability coverage will likely pay for any damages associated with the accident.

Example 3: As you unload a delivery in the shop, you accidentally drop the pallet onto a guest vendor’s display stand, breaking the stand and damaging thousands of dollars worth of product. General liability insurance will likely cover the damage to their property.

Other Types of Coverage Medicinal Herbs 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 medicinal herb shops should obtain:

Workers’ Compensation Insurance

If you have one or more employees, you will likely be required to carry workers’ compensation insurance by state law. This important insurance coverage is designed to pay for medical expenses if any employees become injured or ill in a work-related incident.

Product Liability Insurance

This type of insurance is important for businesses that create their own line of medicinal herbs to sell to the general public or sell other suppliers’ products. If a customer becomes ill or sustains an injury related to the products you sell, product liability insurance will cover damages.

Business Interruption Insurance

This type of insurance coverage works to protect your business if you have to close your doors for an extended period of time due to an accident involving fire, tornado, vandalism, or certain other events. Your policy can help to cover some of the losses in reduced revenue and ensure that you can reopen your doors once again.

Commercial Property Insurance

If you own the building that your shop operates out of, you should invest in commercial property insurance. This type of coverage helps to protect not only your actual building in the event of a fire or natural disaster but all of the business items and inventory inside as well.

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 Medicinal Herbs Business Insurance article for more info.

To start this business least expensively, you will need to purchase medicinal herbs from a wholesale distributor and resell them. You will also need the proper licenses, a website, and packaging materials, which will likely cost less than $300 to acquire.

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

Some of the ongoing expenses for running a medicinal herbs business could include payroll, rent, and utilities.

Learn more about running a medicinal herbs business.

Depending on their business model, medicinal herbs businesses make money by either growing and selling herbs or by buying herbs from other growers and selling them.

Learn more about starting a medicinal herbs business.

Starting a medicinal herbs business can mean actually growing the herbs, or the business could buy the herbs and then resell them. The startup costs and profit potential will depend greatly on the type of medicinal herbs business you choose to start.

The average profit margin for a medicinal herbs business is greatly affected by whether you grow your own herbs or if you buy them from someone else to resell.

Learn more about starting a medicinal herbs business . ess.