Should I Start an LLC for My Quilt Business?

Starting a limited liability company (LLC) for your quilt 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 quilt business, lawsuits can arise from things like copying a quilt design that is trademarked without permission or if a customer is injured due to a defect in a quilt your business sold them.

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

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

Do I Need an LLC for a Quilt 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 Quilt Business

By starting an LLC for your quilt 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.

Quilt businesses will benefit from liability protection because of the risk of property damage, libel, and trademark infringement claims.

Example 1: The logo you have used for your business has great resemblance to a Korean company that has copyrighted it. They are taking you to court over this. Should your LLC be found in the wrong, limited liability would protect your personal assets so they could not be taken in the settlement.

Example 2: While browsing your quilts at a festival, a customer trips over your boxes of supplies and fractures their wrist. They ask you to pay for their medical expenses. Your personal assets could not be used to pay for this since they are protected with limited liability.

Example 3: There is a data breach on your website and the personal information of a customer is taken. They are attempting to sue you over their identity theft. As an LLC, your personal assets could not be taken in the settlement since they are protected with limited liability.

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 Quilt 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 quilt 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

Quilt 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.

Having insurance on your quilt business can protect your assets like your studio, equipment, and designs, and can even help with court fees should you end up in a lawsuit.

Common Situations Business Insurance May Cover for a Quilt Business

Example 1: A visitor to your quilt business slips on wet flooring in the restroom, breaks her tailbone in the fall, and asks you to pay for her medical treatment. General liability insurance would cover her medical expenses.

Example 2: A competing business sues you for libel. While you disagree with the accusation, you know you need to hire a lawyer right away. General liability insurance would pay for your legal defense and any required settlement.

Example 3: While taking some visitors on a tour of your quilt business, you accidentally knock one of them to the floor. The visitor breaks a wrist in the fall and decides to sue you for damages. General liability insurance would pay for your legal defense.

Other Types of Coverage Quilt 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 quilt businesses should obtain.

Commercial Property Insurance

You made a major investment in the quilting supplies, equipment, and real estate needed to run your 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 business materials stored there.

Product Liability Insurance

While you put a lot of love and care into the quilts you create for 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.

Home-Based Business Insurance

If you run your business from your home, you may need this insurance to safeguard the equipment and space in your home devoted to your business. A typical homeowners insurance policy may not cover business-related items or customer injuries on your property if you don’t disclose you use your home for business purposes.

Read more about home-based business insurance.

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 Quilt Business Insurance article for more info.

Most quilters have a workspace in their home, so renting is usually unnecessary. You may choose to rent display space at a local flea market, antique mall or other similar retail shop, in order to market your wares. You should also research to see what forms of business licensing or insurance you may need. These requirements will be different from state to state and sometimes regionally, as well.

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

The ongoing expenses will primarily consist of materials and marketing. If you have a physical location, rent and utilities will also need to be paid.

Learn more about running a quilt business.

Quilt businesses make money by charging a fee to make custom quilts or restore old quilts. Some quilters also make money from teaching quilting courses.

Learn more about starting a quilt business.

As the name suggests, a quilt business makes quilts for consumers. Some quilting businesses repair old quilts, while others also provide quilting classes.

Quilt businesses can be very profitable, especially given that the overhead costs are minimal.

Learn more about starting a quilt business.