Should I Start an LLC for My Pharmacy?

Starting a limited liability company (LLC) for your pharmacy 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 pharmacy, lawsuits can arise from things like prescribing a customer the incorrect medication (and this mistake causes harm) or making false claims about a medication’s efficacy.

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

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

A pill bottle on its side with colorful pills spilling out

Do I Need an LLC for a Pharmacy?

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 Pharmacy

By starting an LLC for your pharmacy, 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.

Pharmacies will benefit from liability protection because of the risk of product liability, medical malpractice, liability for opioid addiction, patent liability, and counterfeit drugs.

Example 1: A customer is given the wrong medication and experiences serious side effects as a result. Following this, the customer sues the business for medical expenses and damages. Limited liability protection will protect the owner's personal assets from any compensation if the business is found liable.

Example 2: A data breach occurs at the pharmacy, resulting in the personal information of multiple customers being leaked online. As a result, the affected customers sue the pharmacy for damages. Limited liability protection would help to safeguard the owner's personal assets from any fees associated with the lawsuit.

Example 3: A customer’s item is stolen while they’re visiting your pharmacy. Following this, the customer sues you. Regardless of the court’s ruling, limited liability protection would ensure that the owner’s assets are not affected by the lawsuit.

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 Pharmacy

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 pharmacy 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

Pharmacies 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.

A pharmacy should have insurance to protect against risks such as loss or damage to inventory, liability for errors or mistakes made in the dispensing of medications, and injuries to employees or customers.

Common Situations Business Insurance May Cover for a Pharmacy

Example 1: One of your pharmacy employees is stocking shelves when she rounds an aisle and runs into a customer. The customer falls and breaks her wrist. She asks that your business pays for her medical care. Your general liability insurance policy would likely cover the cost of her treatment.

Example 2: A pharmacy customer is going through the drive-through. He reaches his hand into the drawer to pick up his prescription, and it gets stuck. In his panicked efforts to pull his hand out, he breaks several of his fingers. He decides to sue your business. Your general liability insurance would pay for your legal costs, including the cost of a settlement if necessary.

Example 3: One of the competing pharmacies in town has sent you a letter telling you that they are suing you for libel. While you are not certain why they have determined that you libeled their business, you still need to protect yourself by getting an attorney. Your general liability insurance would pay for your legal defense, including the cost of an attorney and the cost of a settlement if you settle out of court.

Other Types of Coverage Pharmacies 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 pharmacies should obtain:

Workers’ Compensation Insurance

The employees you hire to help you run your pharmacy business need the protection offered by workers’ compensation insurance, as does your company. Workers’ compensation ensures that you meet the legal requirements for employers in your state and covers the cost of medical care if an employee is injured performing work-related duties. The policy will also pay for lost wages if an injured employee needs to take time off of work to recover.

Product Liability Insurance

You do your best to help your customers by providing them with safe, effective products. But there is always the possibility that one of them could be hurt by a product you sell and then sue your business. Product liability insurance will protect your company by covering your legal fees as well as the cost of paying a settlement if you need to do so.

Commercial Property Insurance

The cost of replacing your commercial property, such as your entire pharmacy inventory, would be considerable if you were to lose it in a fire or other unexpected event. With commercial property insurance, your insurer would help to pay for replacement costs if your property was lost in a covered event. That way, you could get new inventory and equipment and get back to serving your customers as soon as possible.

Professional Liability Insurance

As a professional giving advice, it is important that you protect yourself and your business with professional liability insurance. This insurance protects you in the event of errors or other mistakes. For example, if you give advice about medication and they get hurt or ill and then sue your company, your policy would pay for your legal fees to defend yourself.

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, professional liability insurance, and commercial property insurance.

Read our Pharmacy Business Insurance article for more info.

To open a pharmacy, you will need to lease or buy a storefront, hire staff, purchase computers for point-of-sale and prescription management, and invest in your initial pharmaceuticals order. The initial cost for the first year of operation is estimated to be between $1 million and $2 million.

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

Keeping up your prescription medication supply is your biggest expense. You need to stock enough medications to meet demand while ensuring that the medications don’t expire before they are sold. Salaries and payroll are additional expenses but of lesser concern.

Learn more about running a pharmacy.

Pharmacies earn profits by buying medications for the lowest possible price because they have fixed costs such as copays and insurance reimbursements. It is useful to be familiar with both generic and name-brand medications. Selling name-brand medications brings in more profit, but often, generics must be issued due to government regulations.

Learn more about starting a pharmacy.

Pharmacies not only sell drugs but a wide variety of other goods such as books, school supplies, cleaning products, dairy products, and prepackaged foods.

The location of your pharmacy can greatly impact its profit. Pharmacies can be found in many different locations. These include convenience stores, hospitals, urgent-care facilities, and big-box stores. There are also standalone pharmacies in shopping malls and other places.

The average profit margin for a pharmacy is about 25%.