Should I Start an LLC for My Wig Store?

Starting a limited liability company (LLC) for your wig 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 wig store, lawsuits can arise from things like wigs appearing vastly different in real life as opposed to online, poor quality wigs that quickly fall apart, and breach of contract.

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

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

Do I Need an LLC for a Wig 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 Wig Store

By starting an LLC for your wig 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.

Wig stores will benefit from liability protection because of the risk of injuries to customers in their store, product liability, trademark infringement, and more.

Example 1: A customer returns a wig she ordered from your online store, claiming that it looked completely different from what she had ordered online. When you refuse to refund her, she files a false advertising claim against your LLC, seeking compensation. As a result of your business’s LLC classification, your personal assets will remain safe from the claimant, regardless of how the case progresses in court.

Example 2: As a result of a robbery, you are unable to fulfill all of your agreed orders. When one of the affected customers wants a refund, you refuse, but let him know that you will send him an extra wig to make up for the delay. If a lawsuit was to arise as a result, limited liability would protect you from having to personally compensate the claimant.

Example 3: After purchasing a wig from your store, a customer returns to complain that the hair strands are falling out. She alleges that the hair is substandard and demands a refund. If she decides to sue for it, your business may be affected, but your personal assets will remain safe.

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 Wig 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 wig 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

Wig 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.

Wig stores need insurance to protect their business’s assets from any financial harm that could arise as a result of property damage, theft, employee injuries, and data breaches.

Business insurance can also be pivotal when it comes to getting indemnified for your legal defense fees.

Common Situations Business Insurance May Cover for a Wig Store

Example 1: A bed bug manages to hide in one of your wigs. After a customer buys it, their home is infested with the insects and they sue your company for property damage and extermination costs. General liability insurance would likely cover the associated costs of their claim.

Example 2: A customer walks into your wig store and trips on a loose piece of carpet at the front of the door. General liability insurance would likely pay for the medical bills associated with their injuries.

Example 3: Your wig store name is similar to that of a cosmetics store in an adjacent town. The cosmetics store sues your company for copyright infringement and lost business. General liability insurance would likely help cover legal costs, whether you decide to fight the claim or not.

Other Types of Coverage Wig 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 wig stores should obtain:

Commercial Property Insurance

If you own a retail location for your wig store, you’ll need property insurance to cover the physical structure, grounds, and inventory. Many of your wigs may be expensive investments, and this insurance can help you replace products lost to theft, vandalism, or inclement weather.

Business Interruption Insurance

Business interruption insurance will continue to provide you with an income should your retail location have to close for a covered reason. For example, if your structure needs to undergo major repairs due to an unexpected storm, you’ll maintain a cash flow even while the store is closed to the public.

Workers’ Compensation Insurance

If you have any full-time or part-time employees working for you, you’ll need workers’ compensation to cover them if they sustain injuries while on your premises or running work-related errands. This insurance will cover employees from sudden accidents as well as chronic injuries (e.g., shoulder pain, back pain) that may have developed as a result of their duties.

Product Liability Insurance

This insurance is available to cover any defective products you sell, including wigs, accessories, hair-care solutions, and more. It serves as an extended form of general liability insurance, covering medical costs that may arise from an inferior product. For example, if the dye from a hair wig gives the wearer a rash on their scalp, you can use product liability insurance to help pay for legal or medical expenses.

Commercial Umbrella Liability Insurance

This insurance is available to wig store owners if their general liability policy reaches its maximum limits. A single lawsuit may last for months in court, and general liability insurance may only pay for a portion (e.g., $100, 000) of the legal expenses. Commercial umbrella insurance can be invoked after a general liability policy has paid out its maximum amount, allowing a business owner to continue protecting their livelihood.

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 Business Insurance article for more info.

To start a wig store business, you will need to lease a suitable storefront location, as well as purchase all of the inventory that you will be selling.

Furthermore, you will need to purchase a business website in order to advertise your products online.

When it comes to maintenance, your largest costs will likely be labor (if applicable), and utilities.

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

A wig store’s regular expenses include rent and utilities (for physical stores) and the cost of building and maintaining a website (for online stores). There are also inventory and employee costs.

Learn more about running a wig store.

A wig store business primarily makes money by selling wigs and hairpieces.

Learn more about starting a wig store.

Wig stores sell wigs to people who want or need them. Some wig store may make their own wigs to sell, while others sell a variety of brands.

There are fewer than 1,500 wig stores, so if there is demand in an area, this business can be fairly lucrative. Collectively, wig stores bring in about $224 million annually.

Learn more about starting a wig store.