Should I Start an LLC for My Tea Shop?

Starting a limited liability company (LLC) for your tea shop 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 tea shop, lawsuits can arise from things like negligence allegations (e.g., customers becoming ill after consuming a drink prepared by an ill employee) or a failure to repay startup loans to creditors in a timely manner.

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

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

Do I Need an LLC for a Tea Shop?

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 Tea Shop

By starting an LLC for your ea shop, 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.

Tea shops will benefit from liability protection because of the risk of someone getting injured in their place of business, product liability, trademark infringement, and libel.

Example 1: A customer’s brand-new laptop broke after the unsteady table on which it was placed gave way at your tea shop. This drove the customer to sue your business for its negligence in not fixing the table. In the ensuing lawsuit, your personal assets are completely protected from any business obligation to pay the plaintiff damages.

Example 2: After an employee at your tea shop failed to properly wash his hands before handling a drink, a customer became seriously ill after consuming it. As a result, this customer filed a lawsuit against your business for the bodily harm he suffered. Limited liability prevents the court from being able to seize your personal assets in order to satisfy any business obligation to pay damages.

Example 3: You apply for a large bank loan in order to assist in financing the startup of your tea shop. However, a far more popular restaurant chain opens up a branch nearby and takes the majority of your customers. As a result, your business makes very little profit, and you are unable to repay this loan. Upon discovering this, the creditor sues your business for defaulting on the debt. In this instance, any liability the court imposes on your business to pay the plaintiff damages can only be levied against the assets owned by your business and not your personal 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 Tea Shop

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 tea shop 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

Tea shops 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.

Insurance is beneficial for tea shops for a number of reasons. The primary one is to protect against the inherent liability associated with running a business. However, you will likely be legally required to carry certain types of insurance in your state (such as workers’ compensation insurance if you have employees).

Common Situations Business Insurance May Cover for a Tea Shop

Example 1: A customer walking into the shop trips on a cord that’s been misplaced by an employee. The customer suffers a head injury. General liability insurance may help cover the costs associated with the customer’s medical bills and other losses, including expenses related to a settlement filed against the company. It would also provide an attorney to defend against any lawsuit.

Example 2: The company’s marketing campaign uses a phrase that a competitor has copyrighted. This creates a claim from the competitor of copyright infringement. General liability insurance may help cover the settlement or lawsuit associated with the competitor’s claim.

Example 3: The tea shop leases space within a retail center that requires tenants to maintain a general liability insurance policy. Having a policy ensures that the company meets the requirements of the property owner.

Other Types of Coverage Tea Shops 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 tea shops should obtain.

Commercial Property Insurance

Some tea shops own their own buildings. Protecting the value of the property as well as any contents and equipment within it is vital to the operation of your company. In a tea shop, a fire, storm, or vandalism event could cause damage. Commercial property insurance helps cover all of the equipment, inventory, and the building itself in such an event. This type of business insurance is typically a part of a business owner’s policy (BOP).

Workers' Compensation Insurance

Tea shops tend to employ several people. Depending on the number of employees and state law, it may be a requirement to maintain workers’ compensation insurance. Even if not required, it can help cover any type of worker injury or illness that occurs on the job. In tea shops, burns could be a key concern for employees. Even if the tea shop just sells products without any preparation, there is still the risk of a fall or injury, making this business insurance essential.

Product Liability Insurance

Some tea shops blend their own varieties of tea. Others sell products from their own manufacturing or third parties. If a business sells products to the general public, especially items they’ve created themselves, there is the risk of a product failure claim. A consumer could become ill or suffer burns using the equipment and file a claim against your business. Product liability insurance helps to cover these types of losses.

Data Breach Insurance

Tea shops gather the personal data of their customers to process payments. If there is an instance in which a thief hacks their computer files, it could expose the customers’ information, creating a data breach concern. Typically, a standard general liability insurance policy will not cover this type of loss, but a data breach insurance policy may help cover claims, notifications to the customers, as well as ongoing credit monitoring services.

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, commercial property insurance, and workers’ compensation insurance if you have employees.

Read our Tea Shop Business Insurance article for more info.

The costs involved in the startup of a tea shop can vary from a few thousand dollars to $100,000, depending on whether you intend to run a small kiosk or your own store. Within this figure, there are certain unavoidable costs, such as tea supplies, dishes, disposable cups, employee salaries, and business rent.

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

A tea shop’s ongoing expenses include rent, labor costs, utilities, and the cost of goods sold (COGs). Tea is the biggest part of COGs, although this category also includes things like to-go cups.

Learn more about running a tea shop.

Tea shops make money by selling brewed tea, food, and packaged tea to customers.

Learn more about starting a tea shop.

A tea shop sells tea and tea-related products. Some tea shops offer taste testing, while others provide a sit-down area for customers to enjoy tea.

A well-run tea shop should earn about an 18% profit margin.

Learn more about starting a tea shop.