Do I Need an LLC for My Musical Instrument Store?

Starting a limited liability company (LLC) for your musical instrument store 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 musical instrument store, lawsuits can arise from things like accumulating debt with an investor that your business is not able to repay or contractual disputes with suppliers of instrument accessories.

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

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

a variety of musical instruments; a guitar, drum sticks. piano, and tambourines

Should I Start an LLC for a Musical Instrument Store?

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.

Do I Need an LLC for a Musical Instrument Store?

By starting an LLC for your musical instrument store, 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.

Musical instrument stores will benefit from liability protection because of the risk of product liability, workplace injuries, property damage, and other general business risks.

Example 1: Your musical instrument store received a supply of accessories that did not meet the criteria you specified, and you attempted unsuccessfully to return them. However, a junior employee had accepted delivery and the vendor sues for payment. If you lose in court, only your business assets can be used to satisfy the debt. Your personal assets are protected.

Example 2: Your musical instrument store is unable to keep up with payments to a debt investor, who initiates legal action. If his action succeeds, only your business assets can be used to pay off the loan. Your personal assets are shielded from legal actions against your LLC.

Example 3: The only access road to your musical instrument store is closed by the authorities in order to effect repairs. As a result, you are forced to close. Regrettably, business liabilities exceed business assets, and some creditors must go unpaid. Even so, they cannot go after your personal assets, which are protected by the limited liability shield of the company.

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 Musical Instrument Store

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 musical instrument store 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

Musical instrument 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 limited liability protection from being an LLC protects your personal assets, not your business assets.

A musical instrument store should carry general liability insurance to protect against claims for personal injury and damage to the instruments, as well as the payment of legal fees and some other business costs.

Common Situations Business Insurance May Cover for a Musical Instrument Store

Example 1: When a customer in your store reaches for a guitar to take a closer look, he pulls a shelf down on top of himself, sustains several injuries, and asks you to pay for his medical treatment. General liability insurance would cover his medical expenses.

Example 2: When a customer slips and falls on a wet floor in your restroom, he decides to sue your business for damages because you didn’t display a warning sign. General liability insurance would cover your legal defense and any required settlement.

Example 3: A local competitor sues you, claiming your last marketing campaign libeled her business. While you disagree with the claim, you know you need an attorney to protect your company. General liability insurance would pay for your legal defense and any required settlement.

Other Types of Coverage Musical Instrument Stores 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 musical instrument stores should obtain.

Commercial Auto Insurance

Since you will be driving your store vehicle on public roadways, you are mandated by the state to carry a commercial auto policy. Auto insurance protects not only your vehicle but any liability you may have in an accident. Your personal car insurance will not cover you if you are driving the store vehicle, even if you are off duty.

Commercial Property Insurance

If you own your location instead of renting, you need commercial property insurance to protect the building. If your business is based out of your home, your homeowners' insurance will not cover the home when it is being used for commercial purposes. Property insurance also covers items owned by your business.

Musical instrument stores invest heavily in the equipment that is used to complete their work. Be sure that you have enough coverage to replace all of your tools in case of loss. This coverage is generally offered in a Business Owner Policy (BOP).

In addition to the policies outlined above, there are a few other types of coverage your musical instrument store may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.

Workers' Compensation Insurance

If your musical instrument store has any employees (full-time or part-time), you are legally required to carry workers’ compensation insurance. This type of coverage will help compensate your employees in the case that they get injured on the job.

Read more about workers’ compensation insurance.

Business Interruption Insurance

In the event of a fire, flood, or other catastrophes, there is a good chance your business operations will be halted for some time. Business interruption coverage is designed to help you recoup a portion of the revenue your business would lose due to the inability to operate.

This type of insurance is typically included in a business owner’s policy.

Commercial Umbrella Insurance

Umbrella coverage allows you to extend above and beyond the standard limits of your other business insurance policies. If you are faced with a large lawsuit or other claim situation, there’s a possibility that the coverage limits of your standard policies will be insufficient. In this case, your umbrella policy will allow you to surpass these limits.

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, and commercial property insurance.

Read our Musical Instrument Store Insurance article for more info.

Starting a musical instrument store will require a fair amount of capital. To attract customers, you should have an extensive range of inventory, to offer choice, which may cost $50,000 or more. Ongoing costs are rent, utilities, salaries, and commercial insurance.

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

The ongoing expenses of running a musical instrument store include maintaining inventory, rent/mortgage, store maintenance, staff, utilities, and insurance.

Learn more about running a musical instrument store.

Musical instrument stores make money by selling musical instruments and accessories for a profit. Some stores offer lessons, store events, and musical instrument repairs as additional sources of revenue.

Learn more about starting a musical instrument store.

A musical instrument store sells instruments, sheet music, and accessories to customers. Some stores offer lessons, rentals, and musical instrument repairs as additional sources of revenue.

The average profit margin for a musical instrument store needs to be at least 30% to be sustainable.

Learn more about starting a musical instrument store.