Do I Need an LLC for My Subscription Box Business?

Starting a limited liability company (LLC) for your subscription box 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 subscription box business, lawsuits can arise from things like personal injury (e.g., if your business shipped a faulty product that caused injury to customers) or fraud (e.g., if misleading statements were made about the contents of the box to attract clients).

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

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

Should I Start an LLC for My Subscription Box 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 Subscription Box Business

By starting an LLC for your subscription box 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.

Subscription box businesses will benefit from liability protection because ecommerce businesses, including subscription box services, face risks associated with product liability, computer security, trademark infringement, and internet-related losses.

Example 1: Your subscription box business is sued by a customer who was injured by a defective product they were sent in one of your boxes. In this example, any obligation to pay damages would be precluded from extending to the personal assets of the business owner.

Example 2: Under the agreement of your subscription box business, customers are promised to receive 10 items in each box. However, one customer alleged that your business did not deliver on this promise and had only included five items. As a result, the customer sued your business for breach of contract. Limited liability protects you from being held personally liable for any damages the court awards.

Example 3: An employee at your subscription box business made public claims that each box was guaranteed to include an expensive item, even though this was inaccurate. This prompted a customer to sue your business for fraud on the basis that it had made false statements in order to attract customers. In the ensuing lawsuit, your personal assets are protected from being seized by the court in order to pay the plaintiff their settlement.

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 Subscription Box 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 subscription box 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

Subscription box 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.

The main draw of insurance for subscription box businesses is the protection it provides against loss caused by unforeseeable circumstances. For example, if its operation is interrupted by a natural disaster, any lost income could be recovered.

Common Situations Business Insurance May Cover for a Subscription Box Business

Example 1: As an employee shows a visitor around your place of business, the visitor slips, breaks her tailbone, and asks your business to pay for her medical treatment. General liability insurance would cover her medical bills.

Example 2: A competitor files a lawsuit against your company, claiming you libeled his business in your last marketing campaign. While you disagree with the claim, you know you need a lawyer to defend your interests. General liability insurance would pay for your legal defense and any required settlement.

Example 3: While visiting your business to discuss upcoming opportunities, a potential investor slips on wet flooring in the restroom, breaks an arm, and decides to sue your business for damages. General liability insurance would pay for your legal defense and any required settlement.

Other Types of Coverage Subscription Box 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 subscription box businesses should obtain.

Product Liability Insurance

While you strive to ensure your subscription boxes meet or exceed customer expectations, there’s always a chance someone might decide your product caused them injury. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the equipment and supplies needed to create and distribute your subscription boxes. 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.

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.

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.

Read our Small Business Insurance article for more info.

A modestly-sized subscription box business can be started for as little as $10,000. However, if you are hoping to run a more major operation, more startup capital will naturally be required. The primary costs that form part of this figure will focus on releasing an advertising campaign for your brand.

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

Once you are up and running, the cost of products, packing, and shipping will drive your bottom line. However, marketing and networking will remain crucial to keep your box current after the initial shipments are done.

Learn more about running a subscription box business.

Subscription boxes make money from customers’ recurring subscription fees.

Learn more about starting a subscription box business.

A subscription box business focuses on unique products available for a specific market. Subscription boxes are delivered to your customers' doorsteps weekly, monthly, or quarterly.

A good target for profit margin is about 30% per box. It takes creativity and hard work to find the right balance between inexpensive products and quality offerings.

In order to turn a profit, subscription boxes must source a collection of items that costs less than the price of the subscription. Some vendors may offer free sampler packs, but customers will place a higher value on hard-to-find items or new products they can't find on the shelves at the store. Some boxes will turn a higher profit than others.

Learn more about starting a subscription box business.