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How To Start An LLC For Beauty Businesses
Driven by the increasing awareness and emphasis on self-care, the cosmetic and beauty market has experienced remarkable growth in recent years. This has caused the industry to open up a lot of space for new entrants.
If you want to create a beauty business, you can use the benefits offered by LLCs to your advantage. Here, we will talk about what an LLC is, its pros and cons, and why your beauty business needs to be one.
Definition
What Is An LLC?
A Limited Liability Corporation (LLC) is a business structure designed to protect its owner’s personal assets from corporate liabilities, legal disputes, and financial obligations. It offers a simpler and more flexible management structure compared to other business types. You can co-own it with a friend or hire employees when you decide to scale.
Advantages
What Are The Advantages Of A Beauty LLC?
As stated, an LLC offers many advantages that are a big draw for beauty business owners. These include the following:
Asset protection
An LLC safeguards your personal assets and offers limited liability in case of a legal issue. In the beauty business, this can occur when customers receive a defective product or are found to be the cause of a health concern.
Tax and other benefits
LLCs are pass-through entities and do not have to pay state taxes. Many states also provide tax benefits and incentives to LLCs.
Credibility
You can create a Google Business Profile for business after formation and show customers that you are a legitimate seller.
Employer/Employee benefits
Since LLCs are registered businesses, you can also provide workplace benefits like health insurance and retirement plans to your future employees.
Most beauty startups default to a sole proprietorship when registering their business. However, LLCs have more advantages and are as easy to set up.
Disadvantages
What Are The Disadvantages Of A Beauty LLC?
Beauty LLC owners do have a couple of challenges to face. Below are some that you need to be aware of:
Paperwork
As a registered business, you must file the necessary paperwork with the IRS to follow tax regulations.
One type of business
Offering a new beauty product under the same brand is allowed in an LLC. However, if you want to make another, it has to be registered as a separate business.
Despite potential challenges, the advantages of establishing a retail LLC outweigh any drawbacks. Setting up an LLC is the smartest option for you, both as a beauty and a new business owner.
LLC Formation
How To Form A Beauty LLC
Although forming a beauty LLC might seem complicated, it is really not. With a clear understanding of the steps involved, you can navigate through each stage better.
- Decide on a name
- Appoint a Registered Agent
- File an Article Of Organization
- Obtain your EIN and permits
Decide on a name
The first step is to choose a unique name for your LLC. A good name can help your beauty business stand out. It must also be unique, as no two businesses of the same name can exist in a state. Check your local state’s website for already registered business names to avoid using duplicates that may get rejected later on.
Appoint a Registered Agent
Next, hire a registered agent to receive and send legal business documents on your behalf. This can be anyone from a CPA to a professional third-party service.
When choosing a registered agent for your company, remember that you have to abide by the laws of the state. For example, some states require the registered agent to be a resident of the same state. Research thoroughly to find an experienced group or individual that can handle more than just receiving documents on your behalf.
File an Article Of Organization
Now, you must file an Article of Organization. This step will establish your company’s status as an LLC. Depending on your state’s requirements, this could be the most expensive part of the process or the cheapest.
While it is not required, we also recommend that you draft and file an operating agreement, especially if your beauty LLC has multiple owners. An operating agreement specifies how the company will be managed and the distribution of its profits. It will help you avoid internal financial conflicts down the line.
Obtain your EIN and permits
After you have filed your Article Of Organization, apply for an Employer Identification Number (EIN). This is what you will be using to file taxes. An EIN will also make you eligible to hire employees and apply for loans.
Lastly, remember that the FDA maintains strict standards to ensure the safety and effectiveness of beauty products. To meet these requirements, it’s also essential to obtain the necessary licenses and permits from your local authorities. The permits you will need differ from state to state and product to product.
LLC Taxes
How Are Beauty LLCs Taxed?
Compared to other business structures, limited liability companies offer a number of tax benefits. There are two basic taxation methods for limited liability companies. Depending on the number of members, they are taxed as a partnership or a single proprietorship. If there are multiple members, a limited liability company is taxed as a partnership; otherwise, it is treated as a sole proprietorship.
Single owner
You report your earnings as personal income and file taxes like a sole proprietor. Your business earnings are considered your salary and will only have to file for taxes for one “entity.”
Multiple members
Your beauty business is taxed like a partnership. Your company still does have to pay company tax. Each member of the LLC then files their own taxes as personal income.
S/C-Corporation
You can also choose to tax your LLC like a corporation. If you are earning big profits, taxes are sometimes lower with S- or C-Corps.
Various taxes apply to beauty LLCs, including those on material goods and services (if applicable). Your tax rates can vary based on the state where you have established your business, so remember to check the guidelines of your local authorities.
Costs
What Are The Costs Of Starting A Beauty LLC?
To start a beauty business, you should include marketing charges, product development, and research and promotions costs in your budget. It can roughly cost you around $10,000 to $20,000 to get started. This may increase if you have an extensive list of products.
As for the formation of the LLC itself, the costs are more fixed. The filing costs for setting up a beauty LLC can vary depending on your state laws. With permits, licenses, and filing costs to consider, you are looking at anywhere from $100 to $1,000.
LLC Costs
State filing fee
$50+
Registered agent service
$100+
LLC formation service
$50+
Operating agreement
$200+
Business license and permits
$50+
Employer Identification Number (EIN)
Varies
Initial legal and accounting fees
$200+
Insurance (annual)
$500+
Equipment and supplies
$3000+
Marketing and advertising
$500+
In today’s highly competitive beauty industry, establishing a strong online presence is crucial. An LLC can lend you the edge you need.
The costs and finances of an LLC vary in each state, so be sure to check the details for the state you are interested in forming an LLC:
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.