Do I Need an LLC for My Vending Machine Business?

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 Vending Machine Business

By starting an LLC for your vending machine 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.

Vending machine businesses will benefit from liability protection, as any food-related business faces increased legal risk.

Example 1: While attempting to pick up a snack, a customer gets their hand stuck in one of your vending machines. As a result, they send an email to your LLC, letting you know that they will file a lawsuit against you unless you compensate them immediately. If a lawsuit was to arise, your personal assets would remain protected from the claimant as long as it wasn’t your own personal negligence that caused the claiming party harm (e.g., while setting up the vending machine, etc.).   

Example 2: After continuously pushing one of your vending machines in an attempt to get free candy, the machine falls over, breaking another customer’s foot. As an LLC owner, you will not need to personally compensate the injured party in the event that a lawsuit arises, even if your vending machine business is unable to. 

Example 3: Following three successful business months, you apply for a large business loan in order to purchase a second company vehicle, as well as 10 new vending machines. Since you made sure that you didn’t personally guarantee the loan during its application, the creditor will not be able to sue you personally in order to recoup their investment if your business is unable to pay them back. 

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 Vending Machine 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 vending machine 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

Vending machine 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.

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.

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.

Your vending machine business’s assets (e.g., vending machines, supplies, vehicles, etc.) can be protected from lawsuits that arise as a result of accidental injuries — as well as from food poisoning allegations — by purchasing the appropriate business insurance coverage policies.

Common Situations Business Insurance May Cover for a Vending Machine Business

Example 1: A prospective customer comes to visit your facilities and see your products. During that time, they trip over a vending machine cord that should have been secured to the wall. General liability insurance would cover the costs of their injuries.

Example 2: When one of your customers performs a routine reset of the vending machine, one of the fuses in the machine malfunctions and causes the power in the building to go out. The customer claims lost revenue and productivity time. General liability insurance would cover the perceived losses of the customer.

Example 3: One of your customers claims their employee had food poisoning after eating one of your vending machine products. General liability insurance would cover the costs to either fight the food poisoning lawsuit or settle it out of court.

Other Types of Coverage Vending Machine 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 vending machine businesses should obtain:

Commercial Property Insurance

If you own the space used to manufacture, house, or stock your vending machines, you’ll need commercial property insurance to protect your inventory. This insurance will help you repair or replace broken inventory due to vandalism, bad weather, or fires. It will also cover the land and the physical structure used to house your products and workers.

Workers’ Compensation Insurance

If you have any employees working for you, workers’ compensation coverage is available to cover them in the case of an accident or injury. Vending machines are heavy and difficult to maneuver, so this insurance is necessary to safeguard against any physical harm sustained on the job.

Commercial Auto Insurance

If you use trucks to transport machines and workers, you’ll need commercial auto insurance to cover the machinery and stock. A personal auto insurance policy will typically deny claims for business-related expenses or accidents caused by business-related transport.

Business Interruption Insurance

Business interruption insurance will supply a company with income even if the business is temporarily closed. Events such as fire, bad weather, and criminal activity are all covered under this insurance. If you can no longer provide vending machines or stock to your facilities because your warehouse is being rebuilt, you can use this insurance to sustain your livelihood.

Product Liability Insurance

This insurance covers a company in case a defective product causes physical injury to an unsuspecting party. Like general liability, it can cover medical and legal costs in the case of a serious claim from a customer about the safety of your vending machines and stock.

Commercial Umbrella Liability Insurance

This insurance is available in case a general liability policy reaches its financial limits in a serious lawsuit. For example, if a lawsuit costs $200,000 to fight and a general liability policy only covers $100,000, vending machine owners can purchase additional coverage in the form of a commercial umbrella insurance policy.

IRS: Limited Liability Company

IRS: S Corporations

IRS: EIN

SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business