Should I Start an LLC for My Microbrewery?

Starting a limited liability company (LLC) for your microbrewery 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 microbrewery, lawsuits can arise from things like serving customers contaminated brew that causes them to fall ill or accidents caused by your employee during the delivery of your products to a wholesaler.

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

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

Metal pipes and a gauge of brewing tanks

Do I Need an LLC for a Microbrewery?

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 Microbrewery

By starting an LLC for your microbrewery, 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.

Microbreweries will benefit from liability protection because of the risk of being sued for personal injuries, product liability, libel, trademark infringement, and personal injuries.

Example 1: Many customers have called to complain of contamination in your last batch of brew. You apologize to them and do a product recall. Still, one customer insists that the contaminated drink triggered his allergy and affected his health. If he insists on suing, your business will be affected, but your personal assets will be protected.

Example 2: Your employee goes to deliver brews to a wholesaler. As he offloads the drinks in a hurry, the poorly stacked packs crumble. They hit the customer's pastry display glass, and it shatters. Should the customer file a case, the liability will be limited to your business assets alone, but you will remain safe.

Example 3: An officer from the regulatory board comes around to inspect your local factory. While inspecting, brew spillage on the floor causes him to slip and fall. As a result, his kneecap gets dislocated. If he decides to sue you for it, only your microbrewery may be liable for compensation and not you.

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 Microbrewery

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 microbrewery 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

Microbreweries stores 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.

As a business that works with liquor, a microbrewery will need insurance to cover threats such as fire outbreaks, damage to distribution vehicles, theft of machinery, and lawsuits from employees and clients.

Common Situations Business Insurance May Cover for a Microbrewery

Example 1: You are taking a group on a tour of your brewery when one person wanders off. She slips and falls, breaking her hip. She demands that your business pays for her medical treatment. The general liability insurance policy that you carry will likely cover this expense.

Example 2: A competing brewery is upset with your new marketing campaign, claiming that your business has libeled them. They file a lawsuit against your company. Your general liability insurance will cover the cost of your legal fees and any potential settlement costs.

Example 3: One of your employees is bringing a stack of bottles up to the front when he accidentally knocks over a customer. The man falls backward, hitting his head on the floor and sustaining a concussion. He files a lawsuit against your business. The general liability insurance policy you have will pay for your legal defense, including the cost of a settlement if one is necessary.

Other Types of Coverage Microbreweries 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 microbreweries should obtain:

Workers’ Compensation Insurance

Most states require businesses that have employees to carry workers’ compensation insurance. If an employee is injured performing work-related activities, your policy will pay for their medical treatment. It will also cover some of the lost wages for the employee if they are unable to work while recovering.

Product Liability Insurance

You strive to ensure that your customers enjoy your products responsibly, but you cannot be certain that they will do so. Product liability insurance is designed to protect your business from liability caused by your products. For example, if a customer claims that your beer caused him or her injury or illness and files a lawsuit, your policy will pay for your legal defense fees. It will also pay for a settlement if one is required.

Commercial Property Insurance

The equipment and supplies you have accumulated to operate your microbrewery were expensive, and they would be costly to replace if you were to lose them in an unexpected event like a fire. But if you have commercial property insurance, you can file a claim with your insurer and get financial help with replacement costs as long as your loss was caused by a covered event.

Commercial Umbrella Insurance

A commercial umbrella policy is designed to protect your business when your general liability insurance limits are exceeded—like if you lose a major lawsuit. If the limits of your general liability insurance are exceeded, the umbrella policy will kick in and pay until its limits are reached. That way, you can avoid having to pay the remaining damages out of pocket.

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, workers’ compensation insurance, product liability insurance, and commercial property insurance.

Read our Microbrewery Business Insurance article for more info.

Starting a microbrewery can cost $500,000 and above. You will spend part of this money on renting space, purchasing equipment, and startup inventories. You will also need to purchase proper licenses and permits, pay for insurance, and hire a consultant. All these will cost approximately $7,500 to acquire.

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

Brewing materials, equipment maintenance, rent, and payroll are the primary ongoing expenses.

Learn more about running a microbrewery.

A microbrewery sells alcohol to local bars, grocery stores, and liquor stores through a distributor. These places then sell to consumers. Some breweries also serve food and sell alcohol on-site.

Learn more about starting a microbrewery.

While large commercial breweries produce millions of gallons of beer a year, microbreweries produce and sell smaller amounts of beer and are known for having a local “specialty” appeal.

A well-run microbrewery can achieve about a 9% profit margin.

Learn more about starting a microbrewery.