Should I Start an LLC for My Record Store?

Starting a limited liability company (LLC) for your record 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 record store, lawsuits can arise from things like an employee’s wrongful dismissal, false advertising (e.g., for a record pre-sale), or a fire destroying a client’s property.

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

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

Do I Need an LLC for a Record 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.

LLC Benefits for a Record Store

By starting an LLC for your record 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.

Record stores will benefit from liability protection because of the risk of product liability, trademark infringement, financial data breaches, and even property damage and workplace accidents.

Example 1: You've been sued for damages by an ex-employee who claims he was wrongfully fired. In the event of a guilty verdict, a limited liability company will protect your personal assets when paying for damages.

Example 2: A fire outbreak consumed the music records you got on credit, and the client ended up suing you. Liability protection will keep your private assets safe and secure, limiting the effect of the damages to only your business assets.

Example 3: A customer tripped and fell while exploring your store's music albums. She has suffered a serious injury and holds you responsible for having a slippery floor. If the court finds you guilty and imposes a hefty fine, liability protection will confine the damages to only your business's 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 a Record 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 record 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

Record 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.

Record stores require insurance to protect their assets (e.g., recording equipment, commercial recording space, etc.) in the event of crises such as fire outbreaks or theft.

Common Situations Business Insurance May Cover for a Record Store

Example 1: As an employee moves a box of records across the store, she accidentally knocks a customer over. In the resulting fall, the customer hits his head on a shelf and asks you to cover his medical treatment. General liability insurance would pay for his medical bills.

Example 2: A customer drops off a box of old records so you can assess their value. A fire breaks out in your store a few days later and destroys the records, many of which are collector’s items. General liability insurance would cover the cost to replace your customer’s damaged property.

Example 3: A competitor claims your new marketing campaign criticizes their business and sues you for libel. General liability insurance would pay for your legal fees and any damages awarded in a settlement.

Other Types of Coverage Record 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 record stores should obtain:

Commercial Property Insurance

You’ve made major investments in your stock of records. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire, burglary, or natural disaster. Commercial property insurance would cover the cost of replacing your record inventory and other business equipment after an accident so you can recover quickly.

Product Liability Insurance

When you sell products to the public, there’s always a chance a customer may file a lawsuit if they believe one of your products harmed them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in the event of a lawsuit.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. 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 benefits stemming from a work-related accident.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

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 and commercial property insurance.

Read our Record Store Insurance article for more info.

Establishing a record shop will require an initial investment of about $100,000. This sum will pay for renting a space, decorating and lighting it, the cost of supplies, bins to contain the goods, and outdoor signage.

Visit our How to Open a Record Store guide to learn more about the costs of starting and maintaining this business.

The main operating expenses for a record store include rent, utilities, inventory, insurance, and potentially payroll.

Learn more about running a record store.

A record store makes money primarily by selling records, although they can also sell other music-related items.

Learn more about starting a record store.

Record stores sell records to customers and may sell other music memorabilia. While record stores may primarily sell new records, they may also accept and resell old records.

Record stores are unlikely to get very profitable but, with the right business plan and location, it can make decent money.

Learn more about starting a record store.