Should I Start an LLC for My Watch Business?

Starting a limited liability company (LLC) for your watch 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 watch business, lawsuits can arise from things like breach of contract (e.g. by failing to satisfy a customer’s pre-paid order) and product liability (e.g. by selling a faulty watch to a customer).

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

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

Do I Need an LLC for a Watch 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 Watch Business

By starting an LLC for your watch 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.

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

Example 1: A customer comes into your store to purchase a watch. He pays for it and requests a customized engraving. On the way to deliver it, your employee carelessly loses it. Following this, the customer sues your business in order to get reimbursed. Depending on how the lawsuit progresses, your business’s assets may be affected, but not your own.

Example 2: A client places an order for fifty Swatch watches at your store. The night before his scheduled pickup, your store is robbed, meaning that you are no longer able to accommodate the client’s order. Since your client has already paid half of the total cost upfront, he files a compensation claim against your business. Should the court find in favor of the claimant, your personal assets will remain protected as a result of your limited liability protection.

Example 3: A client purchases a watch from your store for an upcoming event. The night before the event, he tries on the watch only to discover it’s faulty. As a result, he is unable to use the watch for the event. If the client goes on to sue your business, limited liability will protect your personal assets from the financial fallout of the lawsuit.

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 Watch 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 watch 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

Watch 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 limited liability protection from being an LLC protects your personal assets, not your business assets.

Watch businesses need business insurance to handle lawsuits stemming from issues such as theft, damage, and employee negligence (to mention a few).

Common Situations Business Insurance May Cover for a Watch Business

Example 1: A customer comes into your store and accidentally trips over some cables running across the floor. As a result, the customer breaks an arm and hits their head on the floor. General liability insurance would cover the customer’s medical costs and any other damages in the event of a lawsuit.

Example 2: As a supplier unloads merchandise onto your back dock, the overhead door malfunctions and hits the supplier’s vehicle. The impact not only damages your incoming merchandise but also crushes the rear door of the delivery vehicle. General liability insurance would cover the vehicle repair costs as well as your damaged merchandise.

Example 3: An employee moves some heavy tools from your off-site storage to your store. To get the tools inside, the employee must drive a pallet jack through the parking lot. As the employee maneuvers the pallet jack into the side door, they lose control, and the pallet slams into a customer’s car. The accident smashes the customer’s car window and leaves the door inoperable. Your general liability insurance would pay for damages to the customer’s vehicle.

Other Types of Coverage Watch 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 watch businesses should obtain:

Product Liability Insurance

If one of your watches or other products somehow causes a customer to become injured and they sue, you could be held liable for damages. Product liability insurance would cover your legal defense costs and any settlements awarded to your customer as a result of the lawsuit.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. If one of your employees becomes injured at work or falls ill after a work-related accident, workers’ compensation insurance will cover their medical costs and, if appropriate, any disability benefits.

Commercial Umbrella Insurance

While you've planned to protect your business from the most common workplace incidents, certain situations could lead to a lawsuit that may exhaust your primary insurance limits. Commercial umbrella insurance provides coverage beyond your current policy limits in the event of an expensive accident or lawsuit.

Business Interruption Insurance

Disaster can strike anytime, forcing you to close down while you make repairs. If you must temporarily close after a fire, robbery, or weather-related accident, business interruption insurance can cover some of your financial losses. In many cases, you may purchase this type of coverage as part of a comprehensive business owner’s policy or BOP.

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 Watch Business Insurance article for more info.

You can start a watch business with a relatively average budget. The major expenses include purchasing inventory to sell, setting up a website for the business, and running advertising campaigns. A large workspace is not an absolute necessity if operating from a home office.

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

Operating expenses for a watch business include inventory, paying for repairs for watches under warranty, and possibly payroll.

Learn more about running a watch business.

Watch businesses make money by selling watches to customers. Some also offer repair services.

Learn more about starting a watch business.

A watch business either creates its own watches to sell or sells different brands of watches to customers. Some offer a variety of price options, while others focus on either luxury or cost-effective options.

Watches can sell from a few dollars to thousands, meaning profits can vary greatly.

Learn more about starting a watch business.