Should I Start an LLC for My Toy Store?

Starting a limited liability company (LLC) for your toy 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 toy store business, lawsuits can arise from things like customer injuries within your store’s premises, employment law disputes, and IP infringement allegations.

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

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

Do I Need an LLC for a Toy Store?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form 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 Toy Store

By starting an LLC for your toy 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.

Toy stores will benefit from liability protection because retail businesses face a variety of risks associated with product liability and guests visiting their business location. A number of copyright and trademark infringement risks are also assumed through the marketing and branding of products.

Example 1: After purchasing several faulty toys from your store, a customer threatens to file a lawsuit against your LLC. Assuming that you haven’t personally acted fraudulently, your personal assets will remain protected from the claimant regardless of how the lawsuit progresses in court.

Example 2: You acquire a large business loan and hire your own digital marketing team. After a few months, you experience a fall in your total sales and begin having trouble sustaining your marketing teams’ salaries. If an employment law or breach of contract lawsuit was to be filed against your toy store, your limited liability would shield your personal assets from the claimant(s).

Example 3: Whilst shopping in your toy store, a customer’s kid attempts to push a large toy off a nearby shelf, which results in the toy falling onto the child. As a result, the child’s parents file a medical damages lawsuit against your LLC, claiming that you had a duty of care to prevent such accidents from occurring. Here, your limited liability protection will mean that you do not have to personally compensate the claiming party if your business is unable to.

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 Toy 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 toy 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

Toy 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.

As a toy store owner, your business’s assets (e.g., products, storefront, etc.) can be protected from potential copyright infringement lawsuits, as well as any lawsuit that arises as a result of an employee or customer being injured within your store.

Common Situations Business Insurance May Cover for a Toy Store

Example 1: A customer comes into your store close to closing when employees are mopping. The customer slips on the wet floor and hits their head. General liability insurance would likely cover the cost of treating the injuries sustained.

Example 2: A child left unattended begins to climb your store’s shelves. They make it several shelves up before turning and falling when their parents call them. General liability insurance would likely cover any injuries suffered in the fall.

Example 3: On Black Friday, a doorbuster draws a crowd to your store before the posted opening time. The customers stampede when doors open, and one customer is injured by others in the mayhem. The customer’s injuries would probably be covered by general liability insurance.

Other Types of Coverage Toy 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 toy stores should obtain:

Commercial Property Insurance

Stores that own the space they’re in will need property insurance. And in addition to covering buildings and other commercial spaces, property insurance can also protect equipment and inventory.

Make sure the commercial property insurance policy you select fully covers your store’s toy inventory. In addition to having limits that are at least equal to the value of your store’s inventory, the policy should also cover both electronic and non-electronic toys.

Product Liability Insurance

Businesses that sell products might be held responsible for damage or injuries that these products cause. Product liability insurance coverage helps protect against product-related risks.

Product liability insurance is especially important for toy stores. Even if all necessary warnings and precautions are in place, parents may sue a retailer if their child is injured by a toy. Regardless of the outcome of a lawsuit, the legal fees alone can cost a lot.

Workers’ Compensation Insurance

If your store has employees, most states will legally require you to have workers’ compensation insurance. This protects employers in the event of an on-the-job injury.

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, workers’ compensation insurance, product liability insurance, and commercial property insurance.

Read our Business Insurance article for more info.

The exact cost of starting a toy store business will depend on your location. You will need to rent out (or purchase) a suitable space, purchase the products that you will be selling, acquire business insurance, and set up a business website.

When it comes to maintenance, your largest costs will likely be labor, utilities and rent, and restocking on supplies.

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

The ongoing expenses of running a toy store are relatively standard and will include costs such as inventory, rent, utilities, marketing, insurance, and employee wages.

Learn more about running a toy store.

Toy stores make money through the sale of toys and entertainment items to customers.

Learn more about starting a toy store.

Toy stores are involved in the processes of providing a wide variety of toy options, whether through brick and mortar or ecommerce sales.

The average profit margin for a toy store is typically around 25% on a yearly basis.

Learn more about starting a toy store.