Do I Need an LLC for My Online T-Shirt Business?

Starting a limited liability company (LLC) for your online T-shirt 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 an online T-shirt business, lawsuits can arise from things like selling a T-shirt that uses a popular trademarked design or using materials that cause customers to experience skin irritation.

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

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

Should I Start an LLC for an Online T-Shirt 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 an Online T-Shirt Business

By starting an LLC for your online T-shirt 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.

Online T-shirt businesses will benefit from liability protection to protect against potential workplace accidents or copyright infringement claims.

Example 1: One of the clothing lines released by your online T-shirt business was designed with a fabric that irritated the skin of numerous different customers. This prompted one of the affected customers to sue your business on the basis that it had caused him bodily harm. In the following lawsuit, limited liability would protect you from being held personally liable.

Example 2: After your website was the victim of a devastating hack, all of the financial and personal information of your customers is released to the public. After suffering tremendous loss, one affected individual decides to bring a data breach lawsuit against your business. Limited liability protects your assets from being used to satisfy any business liability to pay compensation.

Example 3: One of the designs released by your online T-shirt business contains a popular internet meme mocking a large brand. This brand believes that its reputation has been negatively affected as a result of your product, and thus sues for libel. In this situation, any requirement to pay the plaintiff compensation cannot extend to your personal assets.

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 an Online T-Shirt 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 an online T-shirt 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.

For questions about tax solutions for your online t-shirt business, we recommend scheduling a free tax consultation.

Credibility and Consumer Trust

Online T-shirt 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?

You will need to purchase insurance for your LLC in order to make sure its assets are adequately protected. This is particularly relevant for online t-shirt businesses due to the uniqueness of the liabilities they face each day.

It is important to note that in the same way insurance protects the assets belonging to a business, the LLC structure protects the personal assets of its owner.

Common Situations Business Insurance May Cover for an Online T-Shirt Business

Example 1: While a potential investor tours your place of business, she trips over a box, breaks an arm, and decides to sue you for damages. General liability insurance would cover your legal defense and any required settlement.

Example 2: As your employee delivers a special batch of T-shirts to a neighboring business, he knocks one of their employees to the ground while carrying the boxes into the building. The other company’s employee breaks an arm in the fall and demands your business pay for her medical care. General liability insurance would cover her medical treatment.

Example 3: A competitor sues your business for libel. While you disagree with the accusation, you know you need to hire an attorney to protect your business. General liability insurance would cover your legal fees and any required settlement.

Other Types of Coverage Online T-Shirt 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 online T-shirt businesses should obtain.

Commercial Property Insurance

You made a major investment in the equipment, supplies, and inventory you maintain for your online T-shirt business. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building as well as the products and equipment stored there.

Product Liability Insurance

While you strive to sell a quality product that satisfies your customers, there’s always a chance someone might decide your product caused them harm. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Workers’ Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for your part-time and full-time workers. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a workplace accident.

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 Online T-Shirt Businesses article for more info.

Due to the online nature of your T-shirt business, you can easily get started with minimal initial capital in as little as a few hours. This figure should cover the costs of designing your business’s website, plus linking it with apps from an ecommerce platform and a T-shirt printing company.

Visit our How to Start an Online T-Shirt Business guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses will primarily relate to printing costs, employee wages, packaging and shipping costs, and advertising.

Learn more about running an online T-shirt business.

Profit is made through the advertisement and sale of T-shirts to customers. T-shirts may be original T-shirt designs or custom solutions for customer needs.

Learn more about starting an online T-shirt business.

Online T-shirt businesses are involved in the design, customization, print, and distribution of customers’ T-shirts. There may be pre-created designs for individuals to select from, or the business may provide a platform for individuals and organizations to design their own shirts to be created.

Online T-shirt businesses have the opportunity to become profitable enough to offer franchise opportunities.

Learn more about starting an online T-shirt business.