Should I Start an LLC for My Supplement Business?

Starting a limited liability company (LLC) for your supplement 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 supplement business, lawsuits can arise from things like not satisfying a contractual agreement to supply a certain quantity of supplements per month or selling subpar supplements that lead to customers becoming ill.

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

Interested in getting started? More than 84% of our readers form their LLC through a specialized LLC formation service in order to save time and avoid potential penalties.

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Do I Need an LLC for a Supplement 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 supplement Business

By starting an LLC for your supplement 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.

Supplement businesses will benefit from liability protection because of the risk of product liability, trademark infringement, financial data breaches, and even workplace accidents.

Example 1: Your supplement business signed a contract to supply a customer with five crates of a specific supplement per month. However, due to supply chain issues, your business does not have sufficient stock to do so. This prompts the customer to file a lawsuit against your business for breach of contract. In this scenario, your personal assets cannot be pursued by the court in order to meet any business requirement to pay the plaintiff a settlement.

Example 2: After an employee was caught stealing supplements from your business, he was swiftly let go. However, believing he was fired in a way that breached his contract, the customer sued your business for wrongful dismissal. In the ensuing litigation, the court is precluded from going after your personal assets (such as your house and savings) in order to satisfy any damages your business is required to pay.

Example 3: Your business has been unknowingly supplying defective products that caused a customer to suffer a serious illness. Upon discovering this fact, the customer decided to sue your business for this negligence on the basis that it had caused his illness. If the court were to award the plaintiff damages, these could only be levied against the assets of your business.

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 Supplement 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 supplement 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

Supplement 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.

Launch Your LLC With Tailor Brands

More than 84% of our readers form their LLC through a specialized LLC formation service like Tailor Brands in order to save time and avoid potential penalties.

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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.

Supplement businesses are threatened by a number of unexpected events (e.g., that can cause financial loss. However, by purchasing insurance, such businesses are able to shift this risk over to an insurance company and shield themselves from losses.

Common Situations Business Insurance May Cover for a Supplement Business

Example 1: After a meeting at your place of business, a client slips on the icy pavement in your parking lot. She sustains a concussion and a fractured wrist in the fall. General liability insurance would cover the injured client’s medical bills.

Example 2: A customer falls ill after consuming a product from a bad batch of one of your vitamins and sues your business. General liability insurance would pay for your legal defense, the customer’s medical bills, and any other court-awarded damages.

Example 3: During a meeting at a potential new client’s shop, you move some paperwork to make room to sit down, and then that paperwork gets hot and starts a fire. General liability insurance would cover the cost of repairing or replacing the potential client’s damaged building and its contents.

Other Types of Coverage Supplement 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 supplement businesses should obtain.

Product Liability Insurance

While you strive to manufacture and sell supplements that satisfy your clients and their customers, there’s always a chance someone might decide your product resulted in an illness or 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, supplies, and real estate needed to establish your supplement business. In the event of a fire, theft, or severe storm, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building and the business materials stored there.

Inland Marine Insurance

While commercial property insurance covers your business property when it resides on your premises, it does not protect that property once it leaves your facility. Inland marine insurance fills this coverage gap by protecting your business assets while out in the field or en route to a client’s shop.

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.

Business Interruption Insurance

If you need to close your business temporarily after a fire, severe storm, or another covered event, it could take weeks, months, or even years to complete the necessary repairs. Business interruption insurance helps cover your expenses and lost revenue until you can reopen. Many policies also offer extra expense coverage, which can help you set up a temporary location while you repair your facility.

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 Supplement Business Insurance article for more info.

While it’s possible to start your supplement business for as little as $5,000, it’s recommended to take advantage of up to $10,000. As a minimum, your supplement business will need to acquire around 150 bottles of a supplement product, insurance, a website, and professionally designed labels before it can start.

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

Operating expenses for a supplement business include purchasing new products to sell, packaging, marketing, insurance, and payroll.

Learn more about running a supplement business.

A supplement business makes money by selling supplements to distributors or directly to customers.

Learn more about starting a supplement business.

With an increasing interest in healthy living, the supplement industry has been growing steadily. The price markup on supplements is often substantial, which can lead to impressive profit margins.

There’s a lot of competition for supplement businesses, but providing quality products can make your company stand out. Focusing on a particular niche, such as supplements for people with specific medical conditions, could be another way to boost your bottom line.

Supplement businesses that sell directly to customers can see profit margins of up to 40%.

Learn more about starting a supplement business.