Should I Start an LLC for My Resale Business?

Starting a limited liability company (LLC) for your resale 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 resale business, lawsuits can arise from things like property damage while handling clients’ items or allegations that your marketing campaign is harmful to a competitor.

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

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

Do I Need an LLC for a Resale 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 Resale Business

By starting an LLC for your resale 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.

Resale businesses will benefit from liability protection because of the risk of workplace injuries, property damage, and damage to other businesses through advertising.

Example 1: A woman claims that some of the items marked for sale in your store were originally stolen from her and demands them back. If she goes on to sue, the lawsuit will only affect your LLC’s assets.

Example 2: While browsing through your resale store, a man is injured after tripping over some items an employee forgot to move out of the aisleway. If he decides to file a lawsuit, your LLC may be liable to compensate, but your own assets will be safe from the case.

Example 3: In the bid to aid the recycling program in a district, you agree to receive some furniture and other household items from a local resident. During the delivery process, the resident's lawn is damaged by a negligent employee, and they sue your business. Limited liability would protect you from being held personally liable for this incident.

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 Resale 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 resale 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

Resale business sometimes 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.

Resale businesses would benefit from having insurance in the event of stolen properties or any other recycling concerns that may arise in the course of conducting their day-to-day operations.

Common Situations Business Insurance May Cover for a Resale Business

Example 1: A potential client comes to your place of business. During the visit, one of your employees accidentally knocks the woman over with a dolly stacked with boxes. She falls and breaks her elbow. Your general liability insurance policy would likely cover the costs of her medical treatment.

Example 2: You hire a marketing firm to help with a new advertising campaign. Although the response is positive, you also get an email from a competitor. He is suing you for damaging his business with your advertising. Your general liability insurance policy will pay for your legal fees, including a settlement if necessary.

Example 3: You are delivering a table to a buyer when your employee stumbles and crashes into the china cabinet of the homeowner. Your general liability insurance policy would likely cover the cost of replacing the property of your customer.

Other Types of Coverage Resale 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 resale businesses should obtain:

Product Liability Insurance

As a seller of products, it is important to protect yourself from liability related to those products. Product liability insurance will provide protection. Should a customer try to hold you responsible for damage or injury caused by a product you sold, your insurance will pay for your legal fees and any settlements if they are required.

Commercial Property Insurance

All of the products you purchase for resale took an investment on your part to acquire. If they were lost due to an unexpected event, like a fire, it would be expensive to replace them. Commercial property insurance helps you pay to replace your commercial property after a covered event like a fire or a storm.

Commercial Auto Insurance

If you have one or more vehicles that you use primarily for business, commercial auto insurance will provide the coverage required by law in your state. If you or an employee are involved in an accident, the insurance policy will help pay for the cost of repairing or replacing the vehicle. It will also help pay for medical treatment for those injured in the accident.

Workers’ Compensation Insurance

If you are an employer, your state most likely requires you to carry workers’ compensation insurance. Your policy will pay for medical treatment for employees who are injured while doing work-related tasks. It will also help to pay lost wages for injured employees while they are unable to work.

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 Resale Business Insurance article for more info.

You can start a resale business with between $5,000 to $30,000. This is dependent on whether you want to run a physical store, have a stand at a flea market, or go online. Licenses, liability insurance, space rent, and merchandise comprise the rest of the startup costs. Going forward, you'll also need to factor in employee salaries, website maintenance, and a company vehicle.

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

The ongoing expenses of a resale business may include rent, website maintenance, business phone services, salaries, and owning and operating a vehicle for picking up donations. Online resale businesses must maintain a warehouse and prepare to ship orders.

Learn more about running a resale business.

A resale business makes money by selling used merchandise at a profit. Competitive pricing that factors in the cost of the merchandise and operating expenses is crucial to the success of any retail business.

Learn more about starting a resale business.

A resale business specializes in reselling used items, such as clothing, furniture, and other household items. Some are entirely online, while others have physical stores. Resale businesses typically accept donations on-site, through the mail, or by providing home pick-up services.

A resale business’s resources, including employees, merchandise, equipment, knowledge, expertise, and community relationships, will determine its profits.

Learn more about starting a resale business.