Should I Start an LLC for My Yarn Store?

Starting a limited liability company (LLC) for your yarn 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 yarn store, lawsuits can arise from things like customers injuring themselves in your shop, unpaid business debt that has accrued over time, and selling patterns or designs that are copyrighted.

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

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

Do I Need an LLC for a Yarn 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 Yarn Store

By starting an LLC for your yarn 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.

Yarn stores will benefit from liability protection because of the risk of product liability, personal injury, and property liabilities.

Example 1: While stacking boxes of supplies on a high shelf in your yarn store, an employee accidentally knocks a box over that falls onto a customer below. As a result of the severity of the injuries the customer suffered, he filed a personal injury lawsuit against your business. In this instance, your personal assets are protected by limited liability from being used to satisfy any business debts arising from this lawsuit.

Example 2: In order to afford a more comprehensive inventory for your yarn shop, you decide to take out a business loan. However, after you discover that your shop isn’t very popular, and thus generates very little profit, your business is unable to repay this loan by the deadline. This prompts the creditor to file a lawsuit against your business for defaulting on this debt. Limited liability ensures you are not held personally responsible to satisfy the plaintiff’s compensation.

Example 3: One of the products sold at your yarn shop is a book containing numerous copyrighted patterns and designs. Upon discovering this, the license holder sued your business for copyright infringement. In this instance, any damages the court orders your business to pay can only be levied against your business’s assets, and not you personally.

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 Yarn 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 yarn 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

Yarn 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.

Insurance acts as a necessary safety net for yarn shops by helping to shield their financial assets and ability to keep going when faced with unexpected challenges. In a similar manner to how yarn is made up of many individual, interwoven threads, insurance is able to offer a variety of coverage options that your yarn shop can tailor to its individual needs.

Common Situations Business Insurance May Cover for a Yarn Store

Example 1: A competitor sues your business, claiming your new logo is too similar to their existing logo. General liability insurance would cover your legal fees and any damages awarded in a settlement.

Example 2: As a customer tests a pair of shears in your store, she accidentally cuts her palm and demands you cover the cost of her stitches. General liability insurance would pay for the customer’s medical bills.

Example 3: When an employee accidentally drops a heavy box on a customer’s foot, the customer sues for damages based on her resulting injury. General liability insurance would cover your legal fees and any damages awarded in a settlement.

Other Types of Coverage Yarn 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 yarn stores should obtain.

Commercial Property Insurance

You’ve made major investments to maintain a broad inventory of yarn and related supplies. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire or other natural disaster. Commercial property insurance would cover the cost of replacing your lost inventory after an accident so you can recover quickly.

Product Liability Insurance

When you sell products to the public, there’s always a chance a customer may file a lawsuit if they believe one of your products harmed them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in the event of a lawsuit.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover, but also any disability benefits stemming from a work-related accident.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

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, and commercial property insurance.

Read our Business Insurance article for more info.

The average startup cost of a yarn store is estimated to be around $20,000. This should be enough to comfortably cover your store’s rent, utilities, insurance, shop equipment, website, and employee salaries.

While this may seem excessive, it goes a long way in developing a comprehensive marketing strategy that will attract the customers your business needs to generate growth.

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

The ongoing expenses for a yarn store are mostly related to the facility and the inventory you need to keep your store running.

Learn more about running a yarn store.

A yarn store will make money on the profit from the inventory the store sells. Additionally, the store can add to revenue by offering additional crafting products or even classes.

Learn more about starting a yarn store.

Yarn or knitting stores are supply stores for people in need of yarn, but also crochet hooks, knitting needles, patterns, and accessories. A shop could also offer finished products and other home decor items to increase their sales.

A small yarn store can expect to make about $25,000 a year.

Learn more about starting a yarn store.